One of the biggest issues that the domain of blockchain and related technologies faces in multiple ways is the regulatory uncertainty.

The first manifestation of this problem lies in the attempts by many regulators to fit the novelties presented by the domain into the old regulatory straitjacket. One of the most important examples is the treatment of the digital assets by the US SEC. In this approach, essentially any asset whose value depends on the efforts of an identifiable group of people (even ETH at the moment of its issuance) becomes a security.

At the same time, some or even all competent authorities leave certain aspects of the blockchain and related technologies without any clear official interpretation. For instance, almost nowhere in the world are blockchain ledgers recognized as a legitimate source of legal evidence, despite the fact that they may well in many cases be more reliable than the old ways of documenting things. Among other things, this makes it challenging to prove the provenance of certain important transactions, for instance for the purpose of establishing the initial acquisition value of digital assets.

Another major hurdle created mostly by the anti-money laundering regulation concerns the capacity of blockchain-related projects to forge banking relationships. Most banks appear to be so afraid of the potential sanctions that they prefer to avoid dealing with blockchain-related projects as much as possible. The case that best illustrates this is the effective forcing of the cryptocurrency-based prepaid card providers like Xapo and BitPay to leave the European market in the beginning of this year.

Finally, in many countries, digital asset holders have little clarity with respect to the treatment of their gains or losses from the tax perspective. This may well drive away many potential investors, especially those without an extremely high tolerance for risk, probably leaving the cryptocurrency investment space dominated by early adopters and high-risk speculators, which does not necessarily make for well-functioning crypto asset markets.

The difficulties caused by the regulatory uncertainty of course do not mean that the regulators would help if they chose the other extreme, namely, a detailed stifling blockchain-specific set of rules. The development of the world wide web should serve as an inspiration here as it took place in the absence of either of those extremes.

Realistically, though, it is hard to expect major countries’ governments to show leadership as far as blockchain regulation is concerned. They tend to either face other problems that are perceived to be much more pressing politically or they tend to place too much emphasis on objectives (such as maximizing tax receipts, curbing drug trade, maintaining tight control over the money supply and so on) that, if pursued too vigorously, are incompatible with creating optimal conditions for open experimentation in the blockchain space.

On the other hand, relatively small, more or less developed countries like Switzerland, Malta and Mauritius, have already positioned themselves far ahead of the larger counterparts in this respect. Such countries, unsurprisingly, tend to be the first playgrounds for innovative practices, especially in finance-related domains.

However, the position of any individual small crypto haven may change at any moment because of the external pressure by countries that are important to them from the economic or strategic standpoint, economic difficulties, political upheavals and other factors. That is why, it is arguably crucial for the ultimate success of the blockchain space as a whole for it to be able to potentially rely on a range of crypto havens to choose from.

This is where the potential position of Monaco comes in. The Principality has so far been largely flying under the radar compared to, for instance, Malta or Switzerland in terms of its legal approach to the blockchain but in January this year its elected National Council actually approved Bill 237 specifically devoted to the regulation of the blockchain space. (text in French). Amazingly, no major news outlet, crypto-focused or otherwise, has covered this major development.

Although there does not seem to have been any updates on the developments around this bill, according to the analysis by Mark Lipskier, at least on paper, it appears to be very promising because of its generalist approach [1], perhaps, so far without precedent anywhere else. Interestingly, the aforementioned AMB is supposed to be a “body of private law”, and during three years it will be uniquely responsible for blockchain regulation, as well as for overseeing 13 development programs.

During the aforementioned 3-year experimentation period, Article 7 of the bill provides that the enterprises interested in collaborating with the principality in developing solutions based on blockchains, smart contracts, algorithmic enterprises and cryptocurrencies will receive material assistance, as well as a guarantee of no hindrances from the regulatory perspective.

The bill also spells out the definitions of important terms such as blockchains, smart contracts, algorithmic enterprises [2] and cryptocurrencies, and recognizes blockchain technology-enabled ledgers as a form of legally binding document creation facilitating the usage of ledger contents in all kinds of legal contexts.

Despite its great promise, however, the passed bill in itself contains only very general terms and probably cannot be applied to actual cases directly, especially in a continental law jurisdiction such as Monaco. Thus, the ultimate effect of the bill will depend on the further regulatory actions will be promptly taken to substantiate its provisions. It also needs to be clarified what kind of material assistance blockchain-related enterprises can apply for, in what manner, and what exactly the no regulatory hindrance guarantee will imply in practice.

This is why the upcoming Monaco International Blockchain conference on November 29–30 may be of particular interest, especially the session devoted to regulation. One of the speakers during that session will be the founder of the Word of Blockchains Monaco Thierry Poyet, the author of the aforementioned bill. One has to hope that he will cover the developments around the blockchain law, and I also hope to be able to discuss with him personally in more detail or even arrange an interview, as I am planning to attend the conference.

In any case, stay tuned for my post-conference update which I will definitely provide here.

[1] With the caveat that I so far only managed to access the text of the bill and not the adopted law. It is, however, unlikely, that the adopted law differs from the draft in major respects.

[2] This term appears to refer to decentralized autonomous organizations but it is not wholly clear whether it is limited just to them.