Blockchain Compliance: A Framework for Evaluating Regulatory Approaches

Abstract

This article provides a systematic framework for evaluating blockchain regulatory approaches, bridging technical, economic, and legal analysis. Traditional financial oversight operates through intermediaries like banks and exchanges that implement compliance programs under regulatory supervision. Blockchain systems eliminate these gatekeepers, creating fundamental mismatches between regulatory design and technological reality. Traditional regulatory frameworks encounter three fundamental limitations in decentralized contexts: jurisdictional constraints, absence of intermediaries, and technical surveillance limits. We develop a novel taxonomy categorizing five compliance approaches across multiple dimensions and provide a technical evaluation of cryptographic mechanisms, including zero-knowledge proofs. Our analysis demonstrates that hybrid regulatory frameworks, combining automated ex ante compliance with appropriate human oversight, achieve more balanced outcomes than singular approaches. This framework provides practical guidance for regulators and technologists while identifying key legal questions requiring further scholarship. Our contribution lies in creating structured tools for evaluating regulatory trade-offs across technical feasibility, regulatory effectiveness, and economic efficiency.

Keywords: Blockchain Regulation, Regulatory Compliance, Decentralized Finance, Cryptographic Privacy, Financial Technology, Hybrid Regulatory Frameworks, Automated Compliance, Smart Contracts, Zero-Knowledge Proofs

JEL Classification: K23, K24, G28, O33, O38