Legal Perspectives on Blockchain Issues and Pathways
Legal Analysis of Blockchain Issues and SolutionsAuthor’s Profile: Deng Jianpeng, Professor at the Law School of Central University of Finance and Economics, Doctoral Supervisor, Beijing 100081
Fund Information: Central University of Finance and Economics Emerging Interdisciplinary Construction Project “Financial System Security and Blockchain Regulatory Technology” (2021-03)
This article was published in the 3rd issue of “Academic Forum” in 2023.
[Abstract] The achievements published in mainstream journals indicate that some law scholars with humanities backgrounds have cognitive limitations in blockchain knowledge. Some scholars overlook the important differences between consortium chains and public chains and fail to understand the core of blockchain legal research. Their relevant insights and legislative suggestions lack feasibility or necessity. Public chains pose the greatest challenges to the legal system (theory) and regulation, with their economic incentive mechanisms centered around encrypted assets and their code-based decentralized governance mechanisms lacking clear legal liability subjects, breaking through the legal system (theory) and regulatory frameworks, and should be the focus of research. The research approach to blockchain from a legal perspective requires scholars to have a solid technical knowledge reserve and to focus on encrypted assets and decentralized finance, and to make efforts in academic increments.
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[Keywords] Blockchain; Encrypted Assets; Incentive Mechanism; Financial Regulation; Decentralized Finance
Since the birth of Bitcoin in early 2009, its underlying technology – blockchain, has been regarded as the most important technological innovation after the emergence of the Internet. Blockchain marks the breakthrough from the centralized information internet to the decentralized value internet, making it a hot topic of research in the fields of law and financial regulation in recent years. As some scholars pointed out in their research reviews, in terms of applications, the financial sector and sovereign currency sector have received the most attention. This form of decentralized value internet poses great challenges to the legal system (legal theory) and financial regulation, requiring valuable academic wisdom from the legal community to respond. However, there are many problems with some achievements published in mainstream academic journals, which need to be reflected upon urgently. Therefore, this article will first analyze the cognitive limitations of mainstream legal research in recent years. Secondly, it will analyze the lack of feasibility or necessity of some research strategies and legislative suggestions due to the neglect of the differences between consortium chains and public chains. Thirdly, based on the comparison of the differences between consortium chains and public chains, it will analyze the shortcomings of legal research on public chains and point out that encrypted assets and decentralized finance based on public chains should be the main objects of legal research. Finally, in response to the current research deficiencies, this article will explore the regulatory path of decentralized finance.
1. Cognitive Limitations of Legal Researchers
In recent years, the number of research papers on blockchain in the mainstream legal community at home and abroad has increased rapidly. However, some achievements indicate that law scholars with humanities backgrounds have significant cognitive deficiencies in understanding blockchain, as analyzed below.
(I) Limitations in the Understanding of Blockchain Technology
Some legal scholars believe that after the advent of quantum computing, the encryption algorithms of blockchain will become ineffective and pose significant risks. Foreign scholars believe that the basic weaknesses of these mechanisms, which are based on modern cryptographic technology, become more difficult to eliminate as computing power advances. For example, quantum computers can crack encryption algorithms that are difficult for even the most powerful conventional computers to break. Domestic scholars also argue that the cryptographic technology used in blockchain can enhance the security of the system, but it is not invincible. Once the encryption is cracked, there is a possibility of tampering with transaction information and even digital signatures. The blockchain code itself is susceptible to being cracked, and with the improvement of computing power, quantum computers can crack blockchain encryption algorithms. In the future, quantum computing can easily crack network systems built on encryption algorithms, which can result in irreparable financial losses and privacy breaches for blockchain participants by stealing node account information such as private keys. In more severe cases, with supercomputing power, most of the node account data can be tampered with, thus controlling the entire blockchain system.
These perspectives implicitly assume that quantum computing technology will develop rapidly while cryptographic algorithm technology remains constant. Technical experts point out that there is still a long way to go to obtain a sufficient number of quantum bits to fully leverage the computational advantages of quantum algorithms. To ensure post-quantum security in the financial industry, the academic community has already proposed post-quantum cryptographic algorithms. If there is an ability to construct practical large-scale quantum computers in the future, the methods to address quantum threats will mainly focus on the development of quantum cryptography and post-quantum cryptography. Significant progress has already been made in existing research. The mainstream view in the industry is that it will take more than 10 years for quantum computers capable of breaking asymmetric encryption to be put into use. To counter the security threats of quantum computing attacks on asymmetric algorithms, there are currently two main approaches in the industry: one is to use quantum key distribution (QKD) networks for symmetric key negotiation to protect key security, and the other is to research post-quantum cryptographic algorithms (PQC) to directly replace existing asymmetric algorithms. Technical experts also point out that while quantum physics supports quantum computing, it also provides quantum cryptography in combating computational cracking. As quantum computing technology develops, various countries are synchronously researching and developing anti-quantum encryption technologies. The perspectives of the aforementioned legal researchers may have been overly concerned.
Some scholars argue that participating nodes can refuse to pay any fees to “miners,” but their transaction data cannot be written into the blockchain. This viewpoint is relatively absolute. Firstly, some traders pay zero fees (0 fee), and their transaction data can still be written into the blockchain. Secondly, there are some public chains where transactions are free, such as the public chain “Ronin” created based on the blockchain game “Axie Infinity,” which provides multiple free transaction opportunities for each wallet every day. Finally, traders may reach some form of cooperation with “mining pools” offline, and the “mining pools” can write the traders’ transaction information into the blockchain for free.
There is a misunderstanding among some scholars regarding the concept of “decentralization”, believing that blockchain can help achieve decentralization. For example, Ripple is a decentralized global payment system that does not rely on any institution for ownership or operation, enabling people to quickly and inexpensively transfer and make payments worldwide. This technology, based on blockchain, can reduce significant risks and costs in international payment systems. In theory, the constituent nodes of Ripple can access without permission and appear to be a public chain, but in reality, it is a private chain operated solely by Ripple Labs. The Ripple payment system is controlled by Ripple Labs. In recent years, the U.S. Securities and Exchange Commission has considered Ripple’s XRP to be too centralized and classified it as a security, resulting in a lawsuit against Ripple Labs. However, in practice, Ripple Labs does not operate XRP with a decentralized mindset, and XRP is far from being decentralized. XRP holders do not obtain XRP rewards through “mining”; instead, XRP is issued and sold by Ripple Labs. Therefore, considering it as a “decentralized global payment system” goes against the facts. Scholars’ misjudgment of blockchain knowledge inevitably distorts corresponding legal theories or policy recommendations.
(II) Lack of Operational Strategies Based on Limited Knowledge
Some scholars believe that blockchain achieves “absolute anonymity”, and the parties involved in transactions on the blockchain do not know each other’s identities. To solve the problem of jurisdiction in blockchain disputes, scholars suggest building a database application in the blockchain community to help courts address the drawbacks caused by uncertain jurisdiction. This reserved interface allows courts to embed data into the blockchain, thereby expanding their jurisdiction. In fact, mainstream blockchains such as Bitcoin and Ethereum have not achieved “absolute anonymity”. Due to the transparency of transactions, law enforcement agencies can analyze and trace the real identities of most cryptocurrency holders using advanced data analysis and tracking techniques. The mainstream cryptocurrency communities and their corresponding blockchain projects have matured and operated for many years, making it unlikely to “embed a database application in the community” to meet the jurisdictional requirements of the court. Therefore, these insights are likely to deviate from reality, and the proposed solutions lack operational feasibility. Some scholars propose applying real-name systems to specific areas of the blockchain, which would help alleviate the inconsistency between the hidden status of network entities and the verification of their real identities. However, this is not practically feasible on well-known public blockchains and is even more irrelevant on blockchain networks with features such as transaction path confidentiality and absolute privacy, like Dash and Zcash. Therefore, these legal regulatory ideas are only “sounding good”.
The cognitive biases of some scholars make it difficult to realize certain risk regulatory paths they envision. Some scholars propose that code vulnerabilities should be carefully checked one by one before the deployment of smart contracts, and blockchain information service providers should take timely measures to fix blockchain vulnerabilities upon receiving instructions from relevant departments. In practice, no matter how carefully smart contracts are audited by humans, there may still be various code vulnerabilities and risks. For example, in August 2020, Yam Finance, a decentralized blockchain financial project, was found to have fatal technical vulnerabilities, causing the corresponding cryptocurrency YAM to become worthless within 37 hours, leaving most YAM holders with nothing. Such risk incidents have occurred frequently in recent years. The blockchain security technology companies surveyed by the author have launched smart contract code auditing services, and these companies specify in their terms of service that they do not assume corresponding responsibilities if technical risks arise from audited contract code – technical audit companies can only fulfill their duty of care and cannot guarantee absolute code security.
Some scholars believe that blockchain technology can theoretically free judges from factual judgments, and blockchain technology completely replaces judges in factual issues. This conclusion overestimates the functionality of blockchain. Industry experts point out that the advantages of traceability and tamper resistance of blockchain mainly create value after information is put on the chain. However, to ensure that the information believed by users is indeed true and accurate, it is necessary to start from the source of information and ensure that the information has not been tampered with before being put on the chain. This is something that a single blockchain technology cannot achieve.
(III) Lack of comprehensive perspective under cognitive limitations
In recent years, mainstream research has mostly focused on exploring details of blockchain, such as the legal attributes of cryptocurrencies or anti-money laundering. There is still a need for in-depth research on key issues of blockchain. In the past few years, relevant studies in top English law journals have also mostly focused on specific details, such as studying risk response policies briefly for Bitcoin and ICOs, regulating exchanges from the perspective of securities law, or evaluating the legal attributes of cryptocurrencies as commodities or securities based on the inherent concepts of securities law, and so on. These legal studies involving cutting-edge technologies often go into lengthy discussions on details but only reach a simple conclusion from the perspective of traditional law, without fully grasping the key issues of blockchain or forming a global view of blockchain. Frontier technologies including blockchain have impacted existing legal systems and theories. Some scholars lack a comprehensive perspective and tend to use old legal theories to deal with new risks, habitually conducting shallow-level analysis of specific details. Some scholars have criticized that “most of the research related to legal issues of blockchain currently focuses on practical issues such as legal risks, legal regulations, and legal technology applications of blockchain. There is a relative scarcity of in-depth research on the profound impact that blockchain may bring to traditional law, reflecting the utilitarian tendency of current academic research on legal issues of blockchain.” In my opinion, to improve the academic level of blockchain legal research, we should grasp the core legal issues of blockchain and organically combine practical issues with theoretical issues in order to contribute valuable academic increment to legal research.
II. Ignoring the differentiation of blockchain
In addition to the cognitive bias of scholars mentioned above, some domestic scholars have not paid attention to the significant differences in the internal structure of blockchain and have not differentiated the regulatory methods for consortium chains and public chains, which seriously affects the value of academic research.
(I) Reflection on the necessity of regulating consortium chains
In mainstream English legal publications, most related studies consider public chains as the natural subject of research. For example, some scholars define it as: blockchain is a digital ledger that operates on a decentralized, peer-to-peer computer network, facilitating various types of online transactions [27]. The differences between different types of blockchains should correspondingly result in different legal risks and regulatory approaches. Some domestic legal scholars pay less attention to the main differences between public chains and consortium chains, and some of the regulatory measures they propose may be indiscriminate, which may have a negative impact on relevant legislation. Although some scholars are aware of this distinction, when proposing a path of accountability, they actually apply countermeasures aimed at consortium chains to all types of blockchains. For example, they believe that blockchain platform providers should be qualified legal entities [28]. Some scholars studying the regulation of blockchain finance consider blockchain platforms/companies as the subject of regulation [29], which is basically applicable to the form of consortium chains. Public chains are mostly governed by extremely loose governance models, lacking specific control entities such as legal persons, and the aforementioned paths of accountability or similar “slaying the dragon” methods. Some scholars argue that the Cyberspace Administration of China is the regulatory enforcement agency for blockchain information services and should enhance its operability, including strengthening the responsibility of information service providers for security management, setting security obligations, and establishing punitive damages and applying the principle of presumed fault; for damages caused by system developers, because system development errors belong to systemic vulnerabilities and have a broad impact, regular audit obligations should be imposed, and accountability should be pursued based on the principle of presumed fault; for system service personnel and operators, the principle of fault liability can be applied [30]. These are actually typical regulatory approaches for consortium chains, but they are unlikely to be effective for public chains.
According to whether the information on the blockchain can be publicly queried and whether joining the network nodes requires permission, blockchains are usually divided into public chains (permissionless chains) and consortium chains (permissioned chains). In public chains, any node can freely join or exit the blockchain network without permission. Public chains allow any user to participate in transactions, and all ledger data is open and transparent and maintained by multiple parties. Consortium chain nodes require authorization and permission to join, and most nodes are commercial institutions. Nodes in public chains are usually anonymous (or pseudonymous), while consortium chains need to provide member management services to verify the identity of the nodes [31].
Consortium chains benefit from business cooperation between specific organizations. For example, several banks build consortium chains to achieve low-cost multi-party collaboration. In the process of multi-party collaboration, the nodes belonging to each organization have already benefited and do not need other economic incentive mechanisms to attract developers, users, or investors. Therefore, the application scenarios of consortium chains may not require the issuance of tokens. In February 2019, the Cyberspace Administration of China issued the “Regulations on the Management of Blockchain Information Services” (hereinafter referred to as the “Regulations”), which officially took effect [32]. However, the information on the blockchain is immutable and cannot be unilaterally eliminated. If someone adds illegal information as additional information to a transaction on the public chain, that information will permanently exist on the public chain. The write permission of the consortium chain’s information is fully controlled by a certain organization or institution. Consortium chains are limited to participation by consortium members, and the responsible parties are relatively clear. As described by technical experts, only specific and pre-verified individuals are allowed to access and transmit any type of value through a consortium chain. In this system, the consensus mechanism is controlled and managed by pre-selected node organizations. Even if the blockchain operates in a public network, it is still restricted and can only be composed of specific nodes or even controlled and maintained by a single node [33]. The information of the consortium chain is only shared among specific network nodes, and the public cannot access it without authorization. Its harm is limited, and the existing legal and regulatory frameworks are basically sufficient to address it. In recent years, the companies that have been required to register under the “Regulations” are all participants in the consortium chain, and their necessity is worthy of further consideration.
Compared with public blockchains, consortium blockchains are more easily regulated within the existing legal framework. Firstly, consortium blockchains are mostly used by traditional enterprises to enable blockchain technology, such as blockchain + supply chain, blockchain + securities, blockchain + insurance, blockchain + certification (property registration, copyright registration, and judicial certification), etc. The companies using consortium blockchains are usually legally established entities or licensed financial institutions, which have clear legal entities and usually do not have the problem of unclear legal responsibility, so there is no need to establish new laws for regulation. Secondly, the integration of finance and industry in consortium blockchains is an optimization of traditional industries, such as reducing the cost of collaboration between participants and improving credibility, but it does not change the nature of traditional industries, and usually the existing laws are sufficient for regulation. Thirdly, the network nodes participating in consortium blockchains are mostly specific and pre-determined, and the impact of consortium blockchains is generally limited, often limited to the behavior within the chain community. Industry norms and community norms may already have sufficient regulatory effects before legal intervention. Consortium blockchains do not necessarily need to define node rights through the issuance of cryptocurrencies, do not necessarily need to generate new forms of property, do not require decentralized governance mechanisms like DAO, and smart contracts are not mandatory options. The legal research on consortium blockchains does not need to propose new academic demands beyond the existing regulatory framework or legal theories. The potential challenges of consortium blockchains to traditional law and regulation are limited, and it is difficult to have substantial academic increment in the research of consortium blockchains from the perspective of law.
Overseas, R3’s Corda project was once one of the representatives of effectively regulated consortium blockchains. The project is a distributed ledger platform built by multiple regulated financial institutions, and only relevant parties can share specific transaction information. The platform allows regulatory authorities to confirm the existence of transactions suspected of fraud, money laundering, or other criminal activities. The state of Illinois in the United States was the first government regulatory body to join the R3 consortium. However, consortium blockchains do not represent the development trend of blockchain technology. R3 lacks development momentum and has become obsolete in recent years. IBM’s consortium blockchain Hyperledger Fabric, the technical department has now been disbanded. JPMorgan Chase’s Quorum, which was claimed to be launched, has quietly disappeared. Consortium blockchains are referred to as disguised centralized databases by industry experts, representing outdated technology and the continuation of traditional internet data islands and data gatekeepers. From a technical perspective, it is feasible to encourage the integration of regulatory technology into blockchain. Some scholars argue that the blockchain system Polymath has built a platform to help assets realize securitization tokens, allowing individual and institutional investors to complete accredited investor verification. The system brings together identity verification (KYC) service providers, legal advisors, technology developers, and investors, facilitating the issuance of fully compliant security tokens and embedding the needs of financial regulation into the design of tokens. However, the trading volume of such systems is very limited, including compliant security token offerings (STOs) encouraged by the U.S. Securities and Exchange Commission in the past years, which have not attracted mainstream investor attention and have gradually faded from the public view.
(II) Reexploration of the Legal Challenges of Public Chain
Generally, public chains are applications targeting the public, often requiring the issuance of corresponding cryptocurrencies (i.e. tokens, such as Bitcoin) as economic incentives. By stimulating the price of the currency through supply and demand relationships, they attract as many “miners”, developers, users, and investors as possible to maintain the system. Scholars have said that the core concept of blockchain technology is decentralization, where all nodes follow the same consensus and reach a consensus on any matter. In a decentralized system, the fundamental purpose of participating nodes consuming their own resources for data validation and bookkeeping is to maximize their own interests and ensure the security, effectiveness, and benign operation of the decentralized system [37]. The issuance of cryptocurrencies is an essential economic incentive model for public chains. Famous public chains such as Bitcoin, Ethereum, and Polkadot would not have been able to develop and grow without this mechanism. Over the past decade, this type of incentive mechanism has given rise to a complete industrial chain surrounding the blockchain, including the development and production of “mining machines”, “miners”, “mining pools”, core blockchain technology development, cryptocurrency exchanges, cryptocurrency financial derivatives, decentralized finance (Defi), cryptocurrency market analysis, blockchain news media, and cryptocurrency wallets, among others. However, the issuance of cryptocurrencies, initial token offerings (ICOs), secondary market trading, decentralized finance, and various types of derivative trading pose significant financial risks such as insider trading, market manipulation, pyramid schemes, or fundraising fraud. In recent years, money laundering activities in particular have attracted high attention and concern from financial regulatory agencies at home and abroad [38]. Since September 2017, the People’s Bank of China has issued a series of regulatory policies, prohibiting token financing and severely prohibiting the establishment of cryptocurrency exchanges, while encouraging the industrial roadmap of “non-token blockchains” [39]. The concept of “non-token blockchain” mainly exists in the practice of consortium chains, thus the development and industry of public chains in China are gradually becoming restricted.
However, blockchain financial applications relying on public chain systems such as Ethereum are becoming mainstream in the industry. Looking at the world as a whole, these platforms integrate various ecological applications and allow code developers to benefit from incentive models based on cryptocurrencies, without the need to develop new blockchains for each application. As a general-purpose platform, Ethereum allows developers to write any program for its specific purpose, and users can immediately use it without downloading special software [40]. In recent years, the technical development and business models of public blockchains have been changing rapidly. Industry experts believe that the future blockchain ecosystem will be supported by open, non-permissioned blockchain networks, while various permissioned blockchains will focus on specific applications in certain fields [41]. Due to the lack of scrutiny by regulatory agencies, developers and users can use public blockchains for legal purposes as well as illegal means. These illegal systems are increasing in number and becoming more diverse, making them difficult to prevent and control [43].
For public blockchains, some scholars argue: “When non-permissioned blockchain is applied to highly regulated financial industries such as banks and securities, the open, decentralized, and pseudonymous characteristics may raise concerns because these industries require financial institutions to monitor, review participants, and report suspicious transactions.” The immutable and decentralized nature of public blockchain technology conflicts with the control rights, right to be forgotten, right to modify, and right to consent of personal information. Traditional regulatory methods and remedies are difficult to cope with. Public blockchains generate a new form of cryptocurrency, which changes the way assets are transferred across borders, the way assets are secured, and reconstructs the distribution/incentive mechanism, governance and decision-making models, and participation methods. This puts inherent legal and regulatory rules in a difficult position in many aspects.
One of the core elements of traditional law is that there must be a specific accountable entity, such as a centralized organization or specific individuals. Without a clear subject of legal responsibility, regulations will be ineffective. The uncertainty of participating nodes in public blockchains and the use of pseudonymous (or quasi-anonymous) identities make it difficult for government regulators to take action. For example, in the Ethereum ecosystem, developers from around the world have built numerous applications on it. Since 2020, decentralized financial applications on Ethereum have become mainstream, including decentralized exchanges, lending, payments, investment management, cross-chain bridges, derivatives, and insurance, among which stablecoins, lending markets, and exchanges are the most important applications. These financial or quasi-financial applications should be subject to legal regulations in the real world (such as the regulation of private lending interest rates), but decentralized financial application developers come from all over the world with unknown identities. Decentralized financial applications do not require permission or user identification, deviating from the legal framework of financial regulations of sovereign countries.
Some scholars argue that the distributed nature of blockchain networks means that law enforcement agencies do not have direct accountability targets when taking enforcement measures. Therefore, the focus of the problem is not whether the state will exercise power over blockchain system interactions, but rather what the premise of exercising power is and what strategies and technologies should be adopted to achieve regulatory goals. This is a rare insight in similar studies, but it has not attracted much attention from most scholars. Blockchain technology and industry are still in a rapid development process and are gradually becoming the underlying technological architecture of Web3.0 and open metaverse, and its future influence will further explode. The legal research of blockchain has the characteristics of “future law”. “The focus of future law is on what challenges the social development situation poses to existing legal systems in the foreseeable future, and how the legal system should respond to these challenges in order to prevent them in advance.” This requires scholars to have a deep understanding of blockchain technology on the one hand and profound predictive ability of industry development trends on the other hand, in order to contribute forward-thinking legal wisdom to the blockchain.
III. Thoughts on the Research Focus of Public Chains
(1) Mainstream Applications and Research Focus
Some legal scholars do not fully understand that blockchain, on the surface, is the product of the development of network technology/information technology to a certain stage, but its architecture, integrated technological effects, and nature are significantly different from traditional Internet. Technical experts pointed out that blockchain is a ledger arranged in chronological order, with the ability to securely record any value or asset transactions. Using a peer-to-peer network, blockchain can transfer any type of asset between parties. Bitcoin is the first distributed platform for secure and reliable fund transfers, while Ethereum aims to provide a platform for anyone to develop their own decentralized applications, not limited to currency transfers, but rather the transfer of any value 47. This reveals the original essence of blockchain, but many legal scholars with humanities backgrounds seem to have failed to understand this key point, and their related research deviates from the focus. The primary impact of decentralized value internet on legal systems and regulations is the ambiguity of legal responsibility subjects, the outbreak of financial risks and various new types of economic crimes, bringing new challenges to financial regulation, tax law, criminal law, and civil law (related to property law). Faced with these challenges, scholars should focus on thinking about effective regulatory methods, appropriate legal protection for incentive mechanism carriers (cryptographic assets), etc.
The biggest challenge that public chains pose to legal systems (legal theory) and regulation is cryptographic assets and decentralized finance. Programmable blockchains (such as Ethereum), Lego-like composable smart contracts, and cryptographic assets together constitute powerful coordination tools, providing developers with necessary components to create decentralized economic systems, and even products and services comparable to centralized economic systems. It has evolved from a single decentralized blockchain network to the next generation of Internet built on decentralized infrastructure, namely Web3.0. Blockchain and smart contract protocols provide a permissionless and verifiable ecosystem without the need for trusted centralized intermediaries. Traditional Internet platforms are not only constrained by controllers (i.e., affiliated companies), but also focus on maximizing benefits for the controlling party while limiting user interests. Such centralized systems usually do not allow content contributors or users to transfer their contributions, purchasing preferences, and related data to other systems. In decentralized programmable blockchains like Ethereum, various smart contract protocols and applications are established and deployed. Developers establish these protocols, and users deploy cryptographic assets on Ethereum for transactions. There is no centralized institution changing the decentralized protocols on the blockchain, and no individual can deprive users of control over their cryptographic assets. Cross-chain infrastructure allows these cryptographic assets to be freely transferred to other blockchains.
Scholars say that an increasing number of political and legal scholars are beginning to realize that blockchain, as an institutional technology or legal technology, goes beyond the narrow view of economists regarding it as financial technology, and are starting to discuss the paradigm shift that this technology may bring to the legal field 48. Some scholars even argue that blockchain technology has entered a vast realm of corporate governance, social systems, democratic participation, and capital markets, opening up a new era of change 49. These views overlook the fact that public chains are essentially economic systems. For example, besides supporting the transfer of ETH (Ether), Ethereum also supports the transfer of various application project cryptocurrencies built on Ethereum (such as “MANA” issued by the application project Decentraland mentioned later in the text). Each transfer of these cryptocurrencies requires payment of ETH as a verification fee (transaction fee, also known as “gas” fee in the industry). The design concepts of other public chains are similar to this, enabling public chains to capture value. After Ethereum formed a diverse ecosystem (such as blockchain games, various decentralized financial applications, and NFTs), network effects gradually formed, attracting numerous developers, investment institutions, users, and massive amounts of capital to the chain. The more instructions people execute on this super virtual computer called Ethereum, the more ETH they need to pay as transaction fees, thereby driving up the market value of ETH.
In these economic systems, the core areas of application are encrypted assets (trading, circulation, and rights confirmation) and decentralized finance. These areas continue to attract the most venture capital, have the strongest technical research and development capabilities, and have the greatest impact on business models. They are also the most mature formats. For example, the total trading volume of decentralized exchanges reached $60 billion in the fourth quarter of 2020, and stablecoins and ether traded on the Ethereum network reached nearly $1.6 trillion for the entire year. However, these financial sectors are faced with numerous risks and challenges, constantly giving rise to difficulties in reconstructing the rights and obligations of individuals and institutions in the blockchain system. In November 2022, FTX, once hailed as the “second largest global trading platform,” declared bankruptcy due to misappropriation of customer funds and market manipulation, leaving over a million users unable to withdraw their assets, resulting in nearly $1.8 billion worth of assets becoming worthless. Many platform shareholders and blockchain gaming project companies also suffered losses, totaling hundreds of millions of dollars. This astonishing risk event once again prompted the United States, the European Union, and international financial regulatory organizations to consider strengthening regulation in the field of cryptocurrencies. Concepts such as corporate governance or democratic participation, as scholars refer to them, have at most been auxiliary applications to decentralized finance formats with limited social impact. Stimulated by the wealth effect of encrypted assets and speculative mentality, these mainstream applications will continue for the foreseeable future.
(II) Reconceptualizing Encrypted Assets and Decentralization
Encrypted assets include cryptocurrencies issued on the blockchain (such as Bitcoin), stablecoins (such as USDT), and NFTs (such as “Bored Ape Yacht Club”). The decentralized finance ecosystem mainly revolves around transactions, lending, investment, and wealth management generated by encrypted assets. Among various types of encrypted assets, the decentralized issuance, circulation, and trading of cryptocurrencies challenge the financial regulatory legal systems of various countries, causing deep concern for Chinese financial regulatory institutions, which have issued relevant strict regulatory policies. Since September 2017, Chinese regulatory agencies have gradually forced domestic encrypted asset exchanges to exit the market. However, the effectiveness of these policies has raised concerns among scholars. Some experts believe that banning digital currencies more easily leads to their evasion of capital controls, entering the gray area, bypassing financial regulations, and becoming a breeding ground for illegal activities. The legal regulation of digital currencies moving from prohibition rules to regulatory rules is more in line with the development trend of digital currencies. The macro goal of incentive-based legal regulation of digital currencies is to maintain financial stability and security, encourage financial institutions, digital trading platforms, and investors to engage in legitimate financial activities, and prevent systemic financial risks. Due to geographical limitations and the decentralized nature of encrypted assets, it is almost impossible for Chinese regulators to effectively prohibit overseas encrypted asset transactions, and the legitimate rights and interests of encrypted asset users cannot be protected. Instead of restricting encrypted assets through traditional regulatory means with weak effectiveness, it is better to recognize the legitimacy of encrypted assets within a certain scope and subject them to normalized regulation.
Cryptocurrency is the key to promoting the robust operation of the blockchain system, the formation of a decentralized economy, and its continuous operation. It balances the incentives between developers, contributors (such as Bitcoin “miners” or Ethereum validator nodes), investors, and consumers. To address the risks of large price fluctuations in the cryptocurrency market and promote transaction convenience, stablecoins have emerged. Stablecoins are pegged to fiat currencies (mainly the US dollar) on a one-to-one basis to maintain relative stability in value. However, these privately issued and unregulated stablecoins have the risk of opaque operations and are often beyond the scope of regulation in China [55]. In recent years, NFTs have applied blockchain technology to create scarcity for digital works, providing unique rights certificates and technical foundations for rights confirmation and transactions of digital works, which has stimulated the motivation of creators. However, there have also been illegal phenomena where a large number of works are minted as NFTs and sold without authorization, as well as money laundering and other criminal activities conducted through NFTs [57]. Cryptocurrencies in China are mostly in a state of “severe prohibition” (at the level of public law/regulatory law) and “legal vacuum” (at the level of private law), and comprehensive research on various types of cryptocurrencies is currently limited. There is ongoing academic debate about the legal attributes of these assets, with uncertainty in different qualitative aspects such as intellectual property rights, creditor’s rights, property rights, information rights, or data rights, which brings significant blind spots and confusion to judges’ understanding of cryptocurrency assets. In practice, there have been many cases involving cryptocurrency assets with inconsistent judgments, and judges even find it difficult to determine guilt or innocence, making it difficult to effectively protect the rights of legitimate holders of cryptocurrency assets and crack down on related illegal activities.
Decentralized finance involves recording cryptocurrency assets in the form of on-chain assets on the blockchain ledger, conducting transactions through smart contracts, maintaining data consistency and immutability through hash algorithms, and establishing secure accounts through asymmetric encryption algorithms. Each user on the Ethereum network corresponds to an account that directly records the balance. Transaction information includes the accounts participating in the transaction, including externally owned accounts (EOAs) and contract accounts. Users of externally owned accounts can create and sign transactions using the corresponding private key of the account. Contract accounts are often controlled by contract code and can be triggered by externally owned accounts to execute the corresponding contract code and perform various predefined operations [58]. Centralized financial systems often rely on judicial institutions, financial regulatory institutions, legislative institutions, internal compliance departments of enterprises, accounting firms, law firms, exchanges, and securities institutions, and meet various compliance requirements such as user identity recognition, anti-money laundering, and anti-terrorism financing. Centralized financial systems have complex structures and high operating costs. In decentralized finance, code is the “law” of the blockchain system, and smart contracts are automatically executed. Smart contracts deployed on the blockchain cannot be tampered with and there is no breach of contract afterwards. In decentralized financial systems, there are no formal legislative institutions, enforcement agencies, or corporate legal departments, and smart contracts independently determine whether financial transactions can be executed.
Specifically, decentralized exchanges such as Uniswap completely remove the threshold for listing coins, and anyone can complete listing transactions with just a few lines of code. Uniswap V2: Router 2 deployed at the address “0x7a250d5630B4cF539739dF2C5dAcb4c659F2488D” is essentially a series of tamper-proof code. After the Ethereum 2.0 upgrade, in the new mechanism, honest nodes staking Ether will receive rewards from the blockchain system. This dividend model allows Ether to not only have the characteristics of a utility token, but also have financial or investment attributes, and its legal attributes may transition from virtual commodities to securities. Another decentralized exchange similar to Uniswap is Sushiswap, whose token represents not only governance rights of the application protocol but also the right to capture protocol profits. Token holders capture income from protocol transaction fees and token issuance rewards by staking tokens. SUSHI token holders stake them in the smart contract (SushiBar) to obtain xSUSHI, which can be exchanged for the original SUSHI tokens, as well as additional SUSHI tokens from transaction fees. Such assets have dividend and voting rights. Industry experts point out that cryptocurrencies are abstract assets based on blockchain, which can be held and used to represent assets, cash, or access rights. They can provide multiple functions that can overlap with each other, such as a certain cryptocurrency can represent voting rights and access rights and ownership for specific resources. Faced with complex and ever-changing crypto assets, existing legal frameworks in the world are currently struggling to effectively cope. Therefore, promoting comprehensive research on crypto assets, exploring legal theories and qualifications that are compatible with crypto assets, and protecting the legitimate rights and interests of parties should become one of the focus of future research.
(III) The Dilemma of Crypto Assets and Decentralization
Some scholars argue that with the advancement of technology and innovation in payment methods, property has become virtual and conceptual, making it difficult to measure according to traditional physical standards. However, influenced by traditional legal concepts, Article 114 of the Civil Code of the People’s Republic of China still uses the expression of tangibility, dominance, and exclusivity to define the concept of property rights. This theoretical system lacks effective explanatory power for crypto assets. In the era of blockchain, traditional property in civil law has gradually transformed from tangible to intangible, which urgently requires changes in perspectives and methods of interpretation, as well as new legal theories and systems. Civil law scholars point out that we cannot simply apply property rights rules based on the physicality of things to digital property, which has undergone significant changes in physical form, generation process, and utilization methods. Crypto assets form unprecedented interest relationships and rights and obligations structures. Although civil law scholars believe that data contains complex types of rights and interests and it is necessary to adopt the “bundle of rights” theory as an analytical framework for data rights and interests, the analysis framework may not be fully applicable to crypto assets that are unrelated to personal information rights. A large number of cases involving different crypto assets such as Bitcoin and stablecoins face judicial cognition gaps and are trapped in the dilemma of “inability to be judged” and inconsistent judgments.
Some scholars proposed that decentralized organizations should be defined as limited partnerships, where the initiators bear unlimited liability and are general partners, while investors bear limited liability and are limited partners. However, some scholars question how to define general partners and limited partners in accordance with Article 2, Paragraph 3 of the Partnership Enterprise Law of the People’s Republic of China. Even if blockchain is recognized as a partnership enterprise, can all issues on the blockchain be properly explained? In permissionless blockchain systems, the roles of ordinary node participants vary with different networks, which makes their influence on governance decisions uncertain. Decentralized finance refers to financial services and products provided by decentralized organizations without trust and without the permission of financial regulatory authorities. This model does not have a clear owner under the law. According to Articles 9 and 10 of the Partnership Enterprise Law, how can decentralized organizations complete registration procedures? Who is the qualified representative of decentralized organizations? Clearly, traditional legal theories and existing legal systems are not able to provide effective answers to decentralized finance.
IV. Regulatory Path of Decentralized Finance
(A) Analysis of the Necessity of Regulation
Decentralized finance has the advantages of low cost and financial inclusion for users from around the world. However, as scholars have pointed out, this kind of “disruptive innovation” means that it has both the effect of improving financial efficiency and the impact of endangering financial security. Therefore, the technology-driven financial infrastructure also faces the opportunity to improve infrastructure service efficiency and the risk of impacting the existing infrastructure service system. Blockchain technology has two sides. In addition to its positive institutional value, it also has some technical limitations and negative effects. The application of decentralized finance can involve pledging cryptocurrencies and borrowing stablecoins. However, cryptocurrency collateralized lending does not comply with China’s financial regulatory policies. The annual interest rate of such collateralized lending is automatically adjusted through the lending market and sometimes even exceeds the judicial protection upper limit of 36% annual interest rate set by the Supreme People’s Court in August 2020. Scholars believe that from a financial perspective, unregulated private lending can cause significant damage to financial order and has significant legal risks. Unregulated decentralized finance can become an open solution for global financial services accessible to anyone through smartphones and the internet. Traditional financial product sellers who violate suitability obligations must bear civil liability. Unregulated decentralized finance may facilitate illegal activities by hackers but is difficult to hold accountable. For example, hackers convert stolen cryptocurrency assets into decentralized stablecoin DAI, using it as a new channel for money laundering to evade laws and regulations. Decentralized finance applications embody the typical “delegalization” meaning – constructing a rule system outside of the law through code, which is likely to form two parallel spaces with traditional finance in the future.
(II) “Decentralized” Responsible Entities
In order to explore the entities that can bear legal responsibilities in decentralized financial forms, prevent legal risks, and become the core topic of public chain legal research. Decentralized finance relies on blockchain “decentralization” while also exhibiting elements of “re-centralization”, which provides possibilities for regulation and legal governance, and further provides references for the regulation of decentralized blockchain technology in future applications in social governance and other aspects. Some scholars believe that decentralized financial platforms have a group of stakeholders who make decisions, implement operations, or have ownership interests. Their interactions are based on this group and governance protocols, which serve as a natural regulatory entry point for policy makers. However, the above-mentioned research has not systematically considered how to regulate these entities. The Financial Action Task Force on Money Laundering (FATF), an intergovernmental international organization focused on anti-money laundering efforts, has issued guidelines for 2021, which define the creators, owners, operators, and anyone who can control or have significant influence over decentralized finance as Virtual Asset Service Providers (VASPs), requiring these individuals to be subject to certain regulations.
Among the re-centralized entities, the first to be highlighted is the core technology development team, which shapes the underlying architecture, business nature, and incentive model of the blockchain. In the Bitcoin system, an anonymous individual (or team) known as Satoshi Nakamoto set the rules for “currency issuance” in the system – approximately one block is generated every 10 minutes, with an initial reward of 50 bitcoins per block, halving every 4 years, and a maximum limit of 21 million bitcoins; rules for computing power – the computing power of “mining machines” participating in mining adjusts dynamically over time, and miners with higher computing power have the chance to calculate the correct answer to a random hash function and submit it, thereby obtaining the right to record transactions and prioritized bitcoin rewards; rules for transactions – users pay a suitable fee to miners based on the network congestion when transferring bitcoins; rules for pseudonymous users – code-generated public key addresses are used to receive bitcoins without the need to obtain the user’s real name; rules for transparency and traceability of on-chain transaction information, and more. Satoshi Nakamoto established the intrinsic economic incentive mechanism of Bitcoin, where Bitcoin miners receive rewards while operating the Bitcoin network, and this incentive is halved every 4 years. In addition, the Bitcoin network provides miners with transaction fees for packaging each transaction. As the mining incentive halves every 4 years and the number of users utilizing the Bitcoin network increases, transaction fees become the main source of income for miners. If the Bitcoin network cannot achieve value growth, miners will have no motivation to continue operating the network. These rules and incentive mechanisms establish the behavioral patterns and transaction structures of the blockchain system, serving as the “constitution” of the blockchain system. Any violation of the rules in the Bitcoin system will render a person unable to proceed – unable to mine or transfer bitcoins, etc. Core technology developers continuously iterate the technology, ultimately constructing an “parallel universe” independent of the real world and the development team – a “blockchain legal world” governed by code specifications.
The core technology development team has the “legislative power” of the blockchain, establishing a rule system based on code, such as the influential core technology development team behind mainstream blockchains like Ethereum. Since the second half of 2020, Ethereum core technology developers have proposed the Ethereum Improvement Proposal “EIP-1559”, which severely affects the income of “miners”. Although the leading mining pool, SparkPool, including the top-ranking computing power, has raised objections to this, there have been no substantial opposition measures from SparkPool. The core technology development community has sufficient appeal to Ethereum, and going against it may be difficult and unrewarding. The development history of Ethereum shows that after the “DAO incident” led to the fork of the original Ethereum, the market value of the old chain (ETC) dominated by some miners was far less than the new chain (ETH) dominated by core technology developers. The core technology development team has a great say and influence in the development of blockchain, so the head of the technical team should be the focus of legal regulation.
In addition, in recent years, most decentralized applications have adopted a “decentralized” governance model at the surface level, relying on community voting for protocol upgrades, project iterations, parameter changes, and token calls for project “treasuries”. Scholars believe that token holders are not only decision-makers of the blockchain, but also parties to smart contracts, and they encompass all participants in the blockchain. Therefore, starting with token holders is more conducive to the regulation of the blockchain. Token holders are the most common group on the blockchain, and adjusting token holders is equivalent to adjusting all participants. However, treating all token holders as regulatory targets lacks differentiation and has a broad scope of impact, increasing regulatory costs. The number of governance tokens held by holders of decentralized project issuances determines the weight of their voting rights, and usually a large number of governance tokens are mainly concentrated in the hands of core code development teams, early investment institutions, or important participants in application projects. In June 2022, the Decentraland DAO voted to grant a $1 million grant to Decentral Games (paid in the cryptocurrency “MANA” issued by Decentraland), four times higher than the previous highest community grant amount of $240,000. In the supporting votes, Decentral Games accounted for one-third of the votes. According to the calculation based on the digital tokens (MANA) held by the voters, only 10 voters accounted for 81% of the total voting power. Validators (or “miners”) and large token holders largely overlap with investment institutions, making the decentralized operation and governance of the system “oligopolistic”. In token voting governance practices, a few wealthy entities hold a large amount of tokens, and the voter turnout among ordinary voters is often low. Highly active and incentivized entities have control over the governance of the protocol. Anonymous voting makes governance practices susceptible to manipulation by “whales”, and these factors make “decentralized” governance superficial. In the process of decentralized governance, attention should be paid to regulating these typical centralized entities (large token holders).
(III) Reflections on the Regulatory Path in Western Countries
The original blockchain technology and decentralized finance are mainly concentrated in public chains, and the developers with global influence are mainly distributed in European and American countries. These developers are more easily influenced by the laws and regulations of Europe and the United States, especially those of the United States. With the popularization of blockchain financial applications, the legal and regulatory policies of technologically advanced countries may promote and infiltrate their regulatory intentions globally. For example, in order to restrict the impact of encrypted assets on the market, in June 2019, the Financial Action Task Force (FATF) implemented the Travel Rule, which is an extension of the US Bank Secrecy Act. The Travel Rule requires both parties in a transaction to provide their identities. The FATF requires all exchanges to comply with the Travel Rule by June 30, 2020. Units that do not comply with the Travel Rule are blacklisted and considered money laundering units. By June 30, 2020, the majority of exchanges had registered and complied with the Travel Rule. After September 2022, Ethereum will transition from a Proof-of-Work (PoW) mechanism to a Proof-of-Stake (PoS) mechanism. Under the new mechanism, up to 45.8% of the validating nodes are distributed in the United States, while Germany, ranking second, accounts for only 15%. This means that US regulatory agencies have the potential to regulate Ethereum through regulating validators, and further regulate global users through Ethereum, and even transform blockchain into a technological force to promote the “globalization of US domestic law”, breaking the principle that the international community generally does not support the application of domestic law of one country outside its territory.
Stablecoins are the most important payment method and trading medium for encrypted assets and the entire decentralized finance. Among them, centralized stablecoins issued by companies (USDT, USDC, BUSD) account for about 90% of the total market value of stablecoins. These centralized issuing institutions are deeply influenced by US regulatory agencies and may choose to proactively freeze specific stablecoin addresses according to the requirements of US law enforcement agencies. In recent years, USDC has accounted for more than 50% of the collateral assets of the decentralized stablecoin DAI. Circle, the issuer of USDC, may freeze the collateral assets of DAI at the request of US law enforcement agencies, thus terminating the stablecoin project and affecting global traders.
In addition, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury sanctioned Tornado Cash, a decentralized smart contract that focuses on mixing and protecting transaction privacy, in August 2022. This directly affected the convenience of global compliant users of Tornado Cash to exercise the contract and caused a huge controversy. In conclusion, decentralized finance actually has many “centralized” attack points, and may face strict scrutiny and regulation from the United States. The powerful regulatory agencies in the United States have the ability to control these decentralized applications. With the enormous power of administrative law enforcement agencies, US national law has already exerted its influence over global encrypted assets and decentralized finance, thereby affecting global investors including China. The hidden series of issues deserve the attention of researchers: Does this globalization regulation implemented through blockchain resemble the “arbitrary expansion of extraterritorial jurisdiction principles, norms, and standards” as scholars have described the long-arm jurisdiction principle of the United States, constituting an abuse of legal power that goes beyond the principle of moderation in international rule of law, and forming legal hegemony? How can Chinese regulators protect the legitimate rights and interests of their own citizens and counter the encroachment of foreign laws? Faced with financial risks in the blockchain field, to what extent can China learn from the regulatory approaches of the United States and enhance its effective regulatory capabilities?
Chapter 5: Conclusion and Research Outlook
As a decentralized value internet, the design concept of mainstream blockchain embodies the ambition of value judgment and partial substitution of real-world regulation and legal mechanisms. The new technology industry is closely integrating with human life, especially in the financial field, and deeply involved in social and economic activities. Cutting-edge technology itself is a legal issue, not just a subject of legal regulation. Researchers must delve into the technology and the industry itself, conducting integrated research on technology/industry and legal issues. In 1996, renowned American judge and legal scholar Frank Easterbrook pointed out the risk of being a shallow multi-disciplinary researcher, that is, putting together two areas with little knowledge and drawing worse conclusions about these two areas. It is likely that lawyers’ understanding of computers and their predictions about new technologies are both wrong, which should make us hesitate about whether we can establish relevant laws for cyberspace. He also pointed out that at the time, “cyber law” was like “horse law,” just piecing together possible disputes in cyberspace and the rules for dispute resolution. The application of relevant laws still had to rely on contract law, tort law, and property law for solutions.
Subsequently, some Chinese scholars sharply pointed out that the questioning of “horse law” controversy forced scholars to reflect on the awkwardness of studying “network and law” and “horse and law.” It was just an academic speculation that everything was connected and everything was loose, using the gimmick of expanding into new fields to conceal the emptiness of knowledge. Frank Easterbrook’s warning to contemporary Chinese legal scholars, “Don’t speak if you don’t understand,” is significant. However, for Chinese legal scholars who generally lack a background in relevant technical knowledge, it is doubtful whether recent legal research involving high technology is based on sufficient preparation.
In the field of blockchain legal research, at least some of the risk regulation paths and legal thinking envisioned by scholars lack operability. Some policy suggestions are like “castles in the air,” which affect their academic value and may interfere with the correct direction of policy making, leading to inappropriate regulatory policies and increasing institutional costs.
In the past century, the autonomy of Chinese legal research has been severely lacking. Scholars believe that in the process of catching up with the modernization of law in China, there has been a transformative opportunity brought about by the information society. This undoubtedly provides a major opportunity for shaping the autonomy of Chinese legal research. Therefore, it is an inevitable choice to timely transform research concepts. Blockchain brings a certain opportunity to enhance the autonomy of Chinese legal research. However, some legal research results indicate that scholars have significant limitations in correctly grasping blockchain knowledge. The consequences of eagerly chasing academic hotspots are likely to create a large number of academic bubbles. Regarding blockchain, some scholars only propose broad suggestions such as “improving blockchain-related laws and regulations and enhancing governance of blockchain applications in the financial field,” which are far from effectively regulating blockchain. Some scholars are eager to achieve academic “originality” and create Chinese terms and concepts around blockchain, which is too far-fetched.
Coincidentally, since the “metaverse boom” in 2021, there have been numerous papers on “metaverse jurisprudence”, which is overwhelming. However, a large number of “metaverse jurisprudence” is just a rehash of traditional “cyberlaw” over the past thirty or forty years. Industry experts point out that there are different forms of metaverse, but only a few legal researchers with a technical background truly understand these differences. They classify the metaverse into centralized metaverse and decentralized metaverse from the perspectives of foundational technology and architecture, and specifically point out that the former is essentially no different from online games or social media, and does not require early legal governance, while the latter is based on blockchain networks and cryptocurrencies. So far, apart from a few scholars who attach importance to the legal challenges posed by decentralized metaverse, most researchers ignore this distinction. The popularity of metaverse jurisprudence research indicates that although the information society brings opportunities for shaping the autonomy of Chinese legal research, an overly eager attitude may run counter to the ideal vision. In addition, in recent years, various emerging technologies such as “digital law”, “computational law”, “algorithmic law”, “artificial intelligence law”, and “big data law” have gained popularity. It remains to be examined whether the research results uphold the academic bottom line of “don’t talk about what you don’t understand”. In my opinion, Frank Easterbrook’s severe criticism has a warning value for current legal scholars: on the one hand, scholars should strive to deeply understand the essence of blockchain instead of urgently chasing after hot topics. They should accumulate sufficient academic knowledge in advance, have a depth of understanding of technology and industry development trends that is close to that of industry experts, and avoid being misled by superficial appearances. On the other hand, legal research on blockchain should overcome the limitations brought by the fragmentation of current issues and the lack of overall theoretical perspective, and grasp major issues in this field.
Through various encrypted assets and decentralized finance, blockchain systems and countries are competing for control and governance, resulting in some private entities obtaining partial “public power” from regulated communities and even society, challenging legal and regulatory rules in many aspects. The legal challenges of public chains require regulators to enhance their technological level of supervision and attempt to fill the “legal and regulatory vacuum” created by blockchain. Regarding the diversified applications of encrypted assets and decentralized finance, the construction of legal systems and regulatory strategies that adapt to future social relationships should become the mainstream of blockchain legal research, and valuable recommendations should be made in areas such as financial risk prevention, cross-border judiciary and cooperative supervision, promoting technological innovation, and safeguarding the new property rights of parties involved.
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73. ARAMONTE S, HUANG W, SCHRIMPF A. DeFi risks and the decentralization illusion [J]. BIS quarterly review, 2021: 33. Another scholar pointed out the factors that undermine the decentralized design of blockchain systems, see Magnuson. Blockchain and the Governance of the Public [M]. Translated by Gao Qiqi, Chen Zhihao, and Zhang Peng. Shanghai: Shanghai People’s Publishing House, 2021: 298-301. For a preliminary discussion on the new centralized architecture of blockchain, see Wang Yanchuan, Chen Zihan, and Yi Ran. Blockchain Governance: Principles and Scenarios [M]. Shanghai: Shanghai People’s Publishing House, 2021: 196-205.
74. FATF (2021). Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers [EB/OL]. (2021-10-28) [2023-03-05]. https://www.fsb.org/2021/10/updated-guidance-for-a-risk-based-approach-to-virtual-assets-and-virtual-asset-service-providers/.
75. As of June 2021, the market value of virtual currencies corresponding to the new and old chains is approximately 320 billion US dollars for ETH and approximately 7 billion US dollars for ETC. See Feixiaohao [EB/OL]. (2021-02-20) [2023-03-05]. https://www.feixiaohao.com.
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77. See QUINN C. Decentraland DAO votes to give Decentral Games $1 million grant [EB/OL]. (2022-06-17) [2023-03-18]. https://www.theblock.co/post/152690/decentraland-dao-votes-to-give-decentral-games-1-million-grant?utm_source=cryptoLianGuainic&utm_medium=rss. Scholars have pointed out that blockchain governance can be described by three balanced interest groups: developers, validators (“miners”), and token holders. Weberbach. Blockchain and the New Architecture of Trust［M］. Translated by Yang Dong, Xing Boyang, Sun Ruiqi, et al. Beijing: Machinery Industry Press, 2020: 112.
78. The Impact of FATF Travel Rule on the Cryptocurrency Industry Implementation Worldwide [EB/OL]. (2020-02-15) [2022-06-05]. https://www.jinse.com/news/blockchain/587808.html.
79. The U.S. SEC claims jurisdiction over all Ethereum network transactions［EB/OL］. (2022-09-20) [2023-03-01]. https://finance.sina.cn/blockchain/roll/2022-09-20/doc-imqmmtha8004100.shtml.
80. He Zhipeng. Jurisdictional Attack and Defense in Foreign-related Rule of Law［J］. Journal of Wuhan University (Philosophy and Social Sciences Edition), 2022(6): 133-143.
81. Easterbrook H F. Cyberspace and the Law of the Horse［J］. University of Chicago Legal Forum, 1996(1): 207-216.
82. Easterbrook H F. Cyberspace and the Law of the Horse［J］. University of Chicago Legal Forum, 1996(1): 207-216.
83. Dai Xin. Beyond “Law of the Horse”? Theoretical Advancement of Internet Law Research［J］. Local Legislation Research, 2019(4): 1-17.
84. Ma Changshan. Law in the Digital Society［M］. Beijing: Law Press China, 2021: 7, 19.
85. Ma Zhiguo, Liu Hui. Systematic Research on Legal Governance Rules of Blockchain in China［J］. Journal of Xi’an Jiaotong University (Social Sciences Edition), 2020(3): 72-80.
86. Wang Puyu, Zou Chuanwei. Differentiation of Various Forms of Metaverse［J］. Zhangjiang Science and Technology Review, 2022(2): 22-25.
87. Wang Defu. Risk Identification and Legal Governance of “Decentralized Metaverse”: An Observation of the “Metaverse Embassy” Incident［J］. Jingchu Law Review, 2022(3): 130-140.
88. Zhang Jinping. Challenges and Responses of Metaverse to Copyright Law［J］. Financial and Economic Law Review, 2022(5): 54-69.
Citation: Deng Jianpeng. The Legal Perspective of Blockchain: Issues and Paths［J］. Academic Forum, 2023, 46(03): 75-89.
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