Bitcoin: The First Self-Regulating Currency?
| Author | Samuel Elliott |
| Position | Graduate of the (LLM Eur, 2017) |
| Pages | 57-83 |
2018
LSE LAW REVIEW
57
Bitcoin: The First Self-Regulating Currency?
Samuel Elliott*
ABSTRACT
This article provides an examination of regulation theory as applied to Bitcoin. Through an
examination of the parallels with Ogus’ model for self-regulation, it is demonstrated that several
unique features inherent to cryptocurrencies offer the benefits of regulatory oversight without the
drawbacks. The article also provides a broader socio-regulatory analysis of Bitcoin in an attempt
to better understand the benefits of competitive self-regulation for platform user s. Finally, this
article examines whether cryptocurrencies should be regulated by way of traditional State-based
models and, if so, which of these approaches (if any) ought to be used to regulate the platform.
INTRODUCTION
Ogus’ model of self-re gulation relies on thr ee envir onmental factors being
present: that the activity is affected by some form of market failure; that private
law instruments are inadequate or inefficient to correct said failure; and that self-
regulation is a better method of resolving the failure than conventional
regulation.
1
However, such self-regulation has been conceptualised as all-bu t-
impossible in e-commerce. Our understanding of ownership over intangible
goods has been intimately linked to the ability to enforce and alienate our property
rights through trusted third parties.
2
Bitcoin has been challenging this conception
since its launch.
* Graduate of the London School of Economics (LLM Eur, 2017). Graduate of Dublin
City University (BCL Law and Society, 2015) Pre-Trainee at Matheson, Dublin, Ireland
(2017). My thanks to Professor Andrew Murray for his assistance in understanding the
legal issues surrounding Bitcoin. Further thanks to Killian Mills and Sean Gibbons in
helping to conceptuali ze the technical background to cryptocurrencies.
1
Anthony I Ogus, ‘Rethinking Self-Regulation’ (1995) 15 OJLS 97.
2
Ranging from a bank carrying out an electronic transfer to a Court enforcing ownership
of IP rights.
58
Bitcoin: The First Self-Regulating Currency?
Vol. 3
Satoshi Nakamoto
3
published Bitcoin’s ‘proof of c oncept’ in 2008.
4
Nakamoto notes ther ein that ‘commerce on the inte rnet has come to rely almost
exclusively on financial institutions serving as trusted third parties’.
5
He argues
that the need for a centralised intermediary creates inherent inefficiencies for the
digital transfer of wealth. To address this inefficiency, an alternative system, built
upon cry ptographic proof rather than trust, was proposed, allowing for direc t
peer-to-peer transfers without the ri sk of double spending.
6
Since then, Bitcoin
has seen exponential growth among users who are sceptical of State interference
and regulation in currency. There is no government, company, or bank in charge
of the management of Bitcoin.
7
This, however, neither means that the platform is
entirely anarchistic nor that it is unregulated as such. Building on Ogus’ model,
this article argues that Bitcoin is the first truly self -regulating currency. It resolves
a number of inefficiencies within intermediary-based transfers through a
decentralised, participatory model of regulation.
Instead, through an examination of Bitcoin’s sui generis features, w e can
identify a number of parallels between the participatory currency and traditional
regulatory models. We see that Bitcoin is underpinned by an implicit social
contract wherein consensus-building and voluntary association replace
centralised, rule-based forms of regulation. Thereafter, we will establish what the
best means for regulating the platform are, which includes investigating the total
deregulation of cry ptocurr encies altoge ther.
3
The creator of Bitcoin – though Nakamoto is widely believed to be a pseudonym. For
the sake of convenience, I have assumed Nakamoto to be male throughout this article.
4
Satoshi Nakamoto, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’
5
ibid 1.
6
Double spending is a problem within digital currencies wherein units of currency,
represented as files, may be spent more than once through duplication or falsification of
the same. See Usman W Chohan, ‘The Double-Spending Problem and Cryptocurrencies’
(2017) University of NSW Discussion Papers Series
February 2018.
7
Primavera De Filippi, ‘Bi tcoin: A Regulatory Nightmare to a Libertarian Dr eam’ (2014)
3 Internet Policy Review
2017.
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