Digital Currency Industry Self-Regulation: Not All Consensus is Automatic

Abstract

The appropriate boundary between public and private regulation has long been of interest to law and economics scholars. Especially relevant for understanding the private regulatory dynamics of the digital currency industry are the ways in which self-regulation has existed in financial markets. These studies suggest that too much market concentration and too much competition both diminish the possibility for self-regulation in the interest of consumers. Similarly, certain exchange roles give rise to opportunities for market manipulation by sub-classes of actors in a way that make exchange self-regulation less likely, incentives for manipulation that are exacerbated due to jurisdictional competition. Nonetheless, the unique technical features of blockchain networks, and the way in which consumers and industry participants value transparency and immutability make the possibility for productive self-regulation to benefit retail consumers greater than skeptics make it out to be. Furthermore, industry self-regulation can preempt or substitute for more distortionary or ill-fitting regulation emanating from public authorities. Finally, given the inevitability of public regulation, this suggests that developing digital currency industry complementarities like those studied in banking and commodities and securities exchanges sheds light on the emergent dynamics of industry self-regulation likely to benefit consumers.

Keywords: Blockchain, Cryptocurrencies, Digital Currencies, Financial Regulation, Self-regulation, Law and economics, Financial Economics

JEL Classification: B52, D82, F38, G14, G18, G28, K00, K22, K24, L86, O38