Regulating Blockchain: An in-depth guide (14/15)

# Title: Regulating Blockchain: Concrete Proposals for Innovation and Enforcement Strategy

### Video Description:

Welcome to the 14th video in the series dedicated to Dr. Thibault Schrepel’s book “Blockchain Plus Antitrust: The Decentralization Formula.” In this video, Dr. Schrepel discusses several concrete proposals for regulating blockchain.

Access the book for free: [Book Link](

Buy the book: [Book Purchase Link](

For the transcript of the video, click here: [Video Transcript](

Visit Dr. Schrepel’s website: [Website Link](

### Video Outline:

1. Comfort zones
– Innovation hubs, safe harbors, sandboxes
– Incentives
– Regulatory capture

2. Enforcement strategy
– Practices against blockchain
– Practices centralizing blockchain
– Do not prosecute blockchain characteristics

3. Decentralize enforcement & regulation
– Futarchic antitrust
– Using blockchain
– Challenges

### Keywords/Tags Associated with the Video:
24-02-2021, blockchain, antitrust, regulation, innovation hubs, safe harbors, sandboxes, enforcement strategy, blockchain characteristics, decentralized enforcement, futarchic antitrust

### Full Video Transcript:

Hi there! This video is the 14th in a series dedicated to my book, “Blockchain Plus Antitrust: The Decentralization Formula.” You can access all the chapters by following the link in the description.

Today, I would like to discuss several concrete proposals for regulating blockchain. First, let me emphasize that I do not assume that everything should be regulated. Quite the contrary, I see the absence of regulation as the default. But two things here, especially for the computer scientists watching this video:
1. I explained in previous videos that blockchain needs regulation for two main reasons – to sanction illegal behaviors and to benefit blockchain participants.
2. Guess what? Regulation is coming, whether you like it or not. So, let’s dive into the subject and try to make it as good as possible.

First, I believe that comfort zones are an essential mechanism to be used and developed in this space. But what are they? The quick answer is the following: comfort zones are innovation hubs, regulatory sandboxes, and legal safe harbors. These are ways for regulators and policymakers to gather information about a specific technology and test new ideas while ensuring legal compliance.

– **Innovation hubs** are loose cooperation between firms and regulators that allow firms to raise questions and seek clarifications and non-binding guidance. They serve as testing grounds for businesses supervised by regulatory bodies.

– **Regulatory sandboxes** are spaces where firms can apply and, if accepted, agree to send regular information to regulators. In return, they receive a “no enforcement action letter,” meaning a letter from the regulator stating that certain aspects of the firm’s activities won’t be subject to enforcement.

– **Safe harbors** are legal provisions that exempt liability on the fulfillment of certain conditions. For example, Section 230 of the Communication Act in the United States. These safe harbors clarify when regulators won’t enforce the law, indicating whether a practice is legal or not.

Regulators tend to like these mechanisms because they enable them to gather information about technologies they do not fully understand or that are evolving rapidly. But the question is, why should companies join these comfort zones? In fact, when I discuss with regulators, I’m often surprised to learn that they struggle to get companies to apply. This is why I believe we have to work on incentives.

As I mentioned already, the incentive can be legal in the short term, protecting companies from enforcement, and in the long run, helping design better regulations – that is, if the firms don’t capture the sandbox. We can also imagine economic incentives. Tax breaks, for example, would likely be quite effective. Once companies are in, they can send information and experiment alongside regulators. Here, there is a balance between changing blockchain code and governance to enable legal enforcement while preserving the willingness to use these new types of blockchains.

If you ask me, this is as much an art as it is science. We need to test different solutions, whether we rely on enems modifiers, chameleon hashes, etc. The end goal is to enable enforcement, but only after an illegal practice has been implemented. Let us not use this comfort zone with the idea that we can prevent all illegal practices. If you’ve seen the movie “Minority Report,” you know it does not end well.

Now, I don’t know which one of these solutions is the best, and that’s precisely why we should test them using these sandboxes. But please note that we could also use agent-based modeling to simulate their effect or conduct lab experiments.

Before I move on, I want to emphasize the risk of **regulatory capture**. Market players within the ecosystem will be tempted to promote regulation that benefits them. Market players outside the ecosystem will be tempted to capture regulation to hamper blockchain growth, and public institutions could also be tempted to capture regulation for themselves. Blockchain applications compete with specific public services and the power to print money. Regulation could protect public power, sometimes for valid reasons, but other times for less good reasons. So, let’s make sure to monitor regulatory capture.

Onto my second proposal: **enforcement strategy**. Antitrust agencies and enforcers should adopt a clear and strategic enforcement strategy. Here’s what I mean in three points:

1. Agencies should conduct investigations and prosecute practices that harm blockchain participants. Some of the market players from the centralized world will compete fairly, but others will try to implement illegal behaviors to eliminate blockchain applications. Let’s go after these practices. For example, when centralized market players unfairly prohibit blockchain advertisement or when banks refuse to open bank accounts for blockchain developers (currently being trialed in Brazil).

2. Agencies should also target illegal practices that re-centralize blockchain because they destroy the point of the ecosystem. This is especially true at the key layers, as I explained in previous videos. For example, cartels between core developers should be prosecuted without hesitation. However, when agencies go after practices implemented within blockchain ecosystems or using blockchain to impact the real space, they should be careful not to endanger blockchain’s survival. We must adopt a Darwinian perspective and preserve what differentiates blockchain from other digital infrastructures.

3. Agencies should avoid prosecuting the central characteristics of blockchain, such as the transparency of public permissionless blockchains. Although this transparency may raise antitrust concerns, it also makes the market more fluid and mitigates information asymmetry.

Now, onto my third and final proposal. This one might not be applicable today, but for the years ahead, I believe that blockchain should be used to decentralize enforcement and the design of regulation. This would resolve a key tension between the decentralization that blockchain participants aim for and the centralization of public institutions. I call this concept **futaric antitrust**.

To achieve this, we need to look at prediction markets. Prediction markets form a mechanism to identify sincere beliefs by forcing participants to put their money where their mouth is. Instead of asking people what their preference is, prediction markets ask what people think will happen. Participants assign a probability to a future event between 0 and 1 and create a bet based on that probability. After the event has or has not materialized, only those who bet on the correct outcome receive a payoff, while others lose their bets.

By leveraging blockchain, we can create a futaric antitrust mechanism using prediction markets. This approach allows us to combine decentralization and enforcement in a way that aligns with the philosophy of blockchain. It also mitigates the risk of regulatory capture by central authorities.

In conclusion, there are concrete proposals for regulating blockchain. Comfort zones like innovation hubs, safe harbors, and sandboxes provide space for testing and gathering information. Incentives can promote participation, and a clear enforcement strategy should target illegal practices while preserving blockchain’s unique characteristics. Looking ahead, futaric antitrust offers a decentralized approach to regulation using prediction markets.

Thank you for watching, and remember to access the book and transcript using the links in the description. Visit my website for more information [here](

*Note: This transcript has been optimized for SEO using relevant keywords and tags associated with the video. For the most accurate and complete transcript, please refer to the video or visit the provided sources.*

– Dr. Thibault Schrepel’s Book: [Blockchain Plus Antitrust: The Decentralization Formula](
– Dr. Thibault Schrepel’s Website: [](
– Video Transcript: [Transcript Link](

Video made by Dr. Thibault Schrepel (VU Amsterdam/Stanford)
Access the book (free):
Buy the book:
Video’s transcript:
My website:
Video outline:
1. Comfort zones
00:56 Innovation hubs, safe harbors, sandboxes
02:38 Incentives
04:14 Regulatory capture
2. Enforcement strategy
04:58 Practices against blockchain
05:42 Practices centralizing blockchain
06:52 Do not prosecute blockchain characteristics
3. Decentralize enforcement & regulation
07:18 Futarchic antitrust
10:00 Using blockchain
12:11 Challenges

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