Regulating Blockchain?

Blockchain technology has significant impacts on financial services. U.S. regulation regards blockchain technology as a type of financial technology when it provides financial-related products or services, which belong to one of the most heavily regulated sectors of the economy. However, blockchain technology and its applications constantly present novel problems that require regulatory responses.

For years, regulators, academics, and the business world have been arguing whether new regulations are needed to target blockchain technology and its applications, either by providing a facilitative structure (recognition) or restrictive regulatory provisions (licensing, reporting, and anti-money laundering). To properly understand whether new regulations are needed, a prerequisite (as well as the missing step) is to evaluate how the existing regulatory regime works. This article fills the gap by relaying a regulatory impact assessment of the existing blockchain regulatory regime.

This essay first summarizes the overall blockchain regulatory landscape at the federal level and then contains an ex-post regulatory impact assessment. The regulatory landscape consists of actions such as interpreting existing regulations; issuing official guidance, statements, or alerts; piloting blockchain-related initiatives; and enforcement. The assessment consists of three major steps. The first is to explain the problems before taking regulatory action. The second is to identify the objectives of the existing regulatory regime for blockchain and its applications, and the third is to determine whether these objectives have been fulfilled. From the analysis, this article identifies three major problems: (1) fraud and scams in the cryptocurrency market, (2) law enforcement difficulties, and (3) immature blockchain products and services. In responding to these problems, existing regulatory actions have four objectives: (1) maintaining a fair and efficient market, (2) consumer and investor protection, (3) criminal enforcement, and (4) technology innovation. These four objectives are major indicators used to assess regulatory impacts and whether objectives have been satisfied.