Inhabiting Different Realities: Incrementalism, Paradigms and the New Prospect

Abstract

The emergence of cryptographic consensus technology has enabled new prospects for the formation of commercial relationships, institutional arrangements and interactions (the New Prospect). This paper queries whether the current vector of regulatory thinking about crypto-assets is capable of achieving the public policy objectives of regulation while not obstructing the exploration of the New Prospect and the possible benefits it might bring to society.

Key precursors to ecosystem development are discussed, and their dependence on the nature and quality of regulatory oversight structures considered. It is argued that an incrementalist approach to regulatory development has supported a “fit-to-existing-regulation” (FER) taxonomy of crypto-assets ill-suited to fostering the ecosystem, despite changed fact patterns that challenge the underlying assumptions of incrementalism. The analysis suggests applying financial regulation to crypto-assets may be inhibiting rather than facilitating innovation along possible new pathways. How society’s past experiences of responding to change in the formation of commercial relationships is considered.

Shortcomings in current policy approaches suggest a need for fundamental regulatory reform to be placed more firmly on the global discussion agenda. As a more complex ecosystem begins to emerge, its ability to evolve and flourish will depend on whether the design of a more fit-for-purpose regulation is ready. A “Determined-By-Architecture” (DBA) taxonomy is presented that has the potential to bring new perspectives on the internal and external operations of the technology and hence regulatory design considerations such as technology neutrality. Five proposals for policy development are made.

Keywords: crypto-assets, digital assets, virtual assets, ecosystem, incrementalism, taxonomy, new technology, blockchain, DLT, securities regulation