A Clear View of the Crypto Regulation Complexity
Nothing in law makes sense except in the light of common law.
Happy Brief Wednesday!
This week I was searching for a free audio-to-text conversion service, but only found options that offered limited transcription services of up to 5 minutes. I was disappointed as I thought this technology was readily available online. However, I was relieved to find that Microsoft Office 365 Word has a built-in transcription feature. I hope this information helps.
In this week’s Brief, I recommend the book “A Clear View of Law: Making Sense of Legal Complexity” by Professor Low, Kee Yang at the Yong Pung How School of Law (SMU) and would like to use its framework to demonstrate the complexity of crypto regulation. In law school, I had considered writing a book that connects common law concepts, such as reasonableness, intent, foreseeability, causation, etc., across different legal domains. Although I never started this project, I recently read his book “A Clear View of Law”, which effectively captures and simplifies the complexities of the legal world from a common law perspective, and its framework can serve as a vehicle to navigate intricated crypto regulation development.
Featured: A Clear View of the Crypto Regulation Complexity
The visual representation above depicts the complexities and dynamics of crafting and understanding the law.
Here is my thesis statement:
Nothing in law makes sense except in the light of common law.
If you want to understand crypto law, it is crucial to have a good understanding of common law.
By “common law,” I do not mean just the Anglo-Saxon legal system as opposed to the civil law system. Neither do I refer to caselaw we studied in law school. I am referring to the underlying mechanism that governs human activities in rule-making and adjudication in the course of history.
To begin with, let me quote Justice Oliver W. Holmes’s book “Common Law”:
The life of the law has not been logic: it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed.
Justice Holmes would likely agree that nothing in law makes sense except in the light of experience, as experience is what gives life to the law. Without human experience, the law would be meaningless. Holmes’s idea of “experience” encompasses human biases and prejudices, caselaw, political power struggles, and probably greed and fear. This is similar to the concept of “context” in Professor Low’s book. Because understanding the law-making and adjudication process is the most valuable aspect of the law, grasping the context and experience that shape the law is vital in navigating its complexities and making sense of it.
So what is the crypto regulation context? The big picture of the crypto regulation context is cross-border and conflict of laws. Given the permissionless nature of blockchain technology, an international framework implemented by sovereign states is necessary for harmonizing crypto regulation and mitigating jurisdiction arbitrage.
Before the establishment of a global framework for crypto regulation, it is important to take into account the competing interests of various groups and countries. Firstly, traditional financial institutions and fintech companies have conflicting interests in the crypto space. Traditional financial institutions (and their regulators alike) are interested in participating in the crypto market but also resist disruptive fintech companies as blockchain technology has the potential to eliminate intermediaries like banks and weaken central banks’ authorities.
That being said, the development of crypto regulation doesn’t occur in a vacuum, but rather builds upon the existing financial regulatory framework and the mistakes we have learned from past experiences. This is why we should take into account the current state of financial regulation as we continue to shape and develop our understanding of crypto regulation. The whole experience gained thus far is invaluable in guiding us toward a new paradigm that is more efficient and inclusive.
Secondly, there is competition between supranational entities such as the EU, sovereign states, and local governments (e.g., Hong Kong), all of which are seeking to attract crypto talent and investment through regulation clarity and economic incentives.
Thirdly, there is a currency war between developing and developed countries in the form of a central bank digital currency issued by a central bank or a stablecoin issued by an authorized entity. While these options reduce transaction costs and foreign exchange risk, they also put the local currency of developing countries at a disadvantage.
Fourthly, there is a jurisdiction and legislation battle between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) in the US legal arena. (“The SEC and the CFTC Vie for Digital Asset Supremacy” and FTX’s Rapid Demise Stokes US Fight Over Who Will Regulate Crypto Exchanges ). Some suggest CFTC take the lead, whereas some suggest a new independent agent be established for crypto oversight (e.g., Coinbase’s proposal). Although regulatory development in the US attracts more attention, I believe conflicts among different government agencies occur in many other regions as well.
Finally, there is competition between centralized service providers and decentralized protocol builders within the crypto community. This is exemplified by the situation before FTX’s collapse, where the second-largest crypto exchange was advocating for regulation on the front-end interface of decentralized finance. Although FTX is no longer around, the tension between centralized exchanges (CEX) and decentralized exchanges (DEX) continues to persist.
These competing interests highlight the complexities and dynamics among different parties, regions, and interests. Each stakeholder can make their case based on economic, social, or even moral policies in shaping crypto regulation. This deliberation is most productive when we incorporate notions of justice in common law, such as reasonableness, fairness, and honesty. However, there will never be a perfect law in any field, including crypto, but it will continue to grow and improve, much like how the common law system has evolved over time.
One Question This Week:
“Nothing in law makes sense except in the light of common law” comes from the template sentence in the book “Houston, we have a narrative: why science needs story” by Randy Olson.
In the same vein, is there a crucial concept in your field that you feel cannot be ignored?
Feel free to create your own in the comment using the template “nothing in [ ] makes sense except in the light of [ ].”
Stay safe and sharp,
Disclaimer: Not legal advice. You can see the full disclaimer & disclosure here.
Credit: Originating from my book review and take on crypto law, this Brief was reviewed and edited by ChatGPT.