The economic potential and risks of crypto assets: is a regulatory framework needed? | Bruegel

blockchain | cryptocurrencies | papers | regulation | Research Notes | Uncategorized

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What is the economic potential and the risks of crypto assets? Regulators and supervisors have taken great interest in these new markets. This Policy Contribution is a version of a paper written at the request of the Austrian Presidency of the Council of the European Union for the informal ECOFIN meeting of EU finance ministers and central bank governors.

Source: The economic potential and risks of crypto assets: is a regulatory framework needed? | Bruegel

Diar – Forward Outlook Digital Assets & Regulation Newsletter

papers | regulation | Research Notes

The Weekly Analytical Publication onDigital Currency, Assets, Payments & Regulation Diar provides concise coverage and analysis of significant developments within the global digital currency industry. This information service delivers the expert insight critical for informed decision making within the constantly evolving global finance & regulatory environment.

Source: Diar – Forward Outlook Digital Assets & Regulation Newsletter

Data Governance in the Digital Age | Centre for International Governance Innovation

decentralization | governance | papers | people | regulation | Research Notes

Data is being hailed as “the new oil.” The analogy seems appropriate given the growing amount of data being collected, and the advances made in its gathering, storage, manipulation and use for commercial, social and political purposes.Big data and its application in artificial intelligence, for example, promises to transform the way we live and work — and will generate considerable wealth in the process. But data’s transformative nature also raises important questions around how the benefits are shared, privacy, public security, openness and democracy, and the institutions that will govern the data revolution.The delicate interplay between these considerations means that they have to be treated jointly, and at every level of the governance process, from local communities to the international arena. This series of essays by leading scholars and practitioners, which is also published as a special report, will explore topics including the rationale for a data strategy, the role of a data strategy for Canadian industries, and policy considerations for domestic and international data governance.

Source: Data Governance in the Digital Age | Centre for International Governance Innovation

Baseline Territorial Sovereignty and Cyberspace by Sean Watts, Theodore T. Richard :: SSRN

decentralization | papers | regulation | Research Notes


The question of how territorial sovereignty operates in the interconnected yet diffuse, virtual yet material, and novel yet ubiquitous realm of cyberspace has proved enormously contentious. State practice in cyberspace presents a confusing array of behavior and justifications for conduct that runs along the enduring legal fault lines of territorial sovereignty. This article examines the legal history of sovereignty, emerging State cyber practice, and early legal views taken with respect to the application of sovereignty to cyberspace.

We concede contextual variations and exceptions to the integrity of territorial sovereignty have evolved for specialized domains such as the seas. However, we identify in territorial sovereignty a baseline rule of conduct and a corresponding duty on the part of States to refrain from interference with the integrity of conditions in other States’ territory. We argue that based on historical origins, legal evolution, international litigation, and recent State expressions concerning applicability of international law to cyberspace, the baseline rules of territorial sovereignty should be currently understood as a rule of conduct that generally prohibits States’ nonconsensual interference with the integrity of cyber infrastructure on the territory of other States.

We acknowledge that States may soon adapt sovereignty to operate differently in cyberspace, as they have in other contexts of international relations. However, in the absence of a lex specialis of cyber sovereignty and until States resort to deliberate international lawmaking, the baseline guarantee of territorial integrity provides a principled and normatively desirable understanding of sovereignty and how it relates to cyberspace. We urge States to act quickly to reaffirm their commitment to baseline Westphalian norms of territorial sovereignty in cyberspace while crafting, through accepted means of international legal development, a nuanced and effective doctrine of territorial sovereignty in cyberspace. A sound approach will acknowledge the binding legal character of territorial sovereignty as a limit on foreign interference but offer an emerging cyber-specific understanding much like that developed for other domains that have challenged national security and peaceful interactions between States.

Keywords: Cyberspace, Cyber, Sovereignty, Public International Law, State Responsibility, Computer, Violation of Sovereignty, Network

Source: Baseline Territorial Sovereignty and Cyberspace by Sean Watts, Theodore T. Richard :: SSRN

On Radical Markets

algorithms | blockchain | decentralization | discourse | ecosystem | governance | opinion | papers | politics | regulation | Research Notes | smart contracts

Another Kind of Radical Market

The book as a whole tends to focus on centralized reforms that could be implemented on an economy from the top down, even if their intended long-term effect is to push more decision-making power to individuals. The proposals involve large-scale restructurings of how property rights work, how voting works, how immigration and antitrust law works, and how individuals see their relationship with property, money, prices and society. But there is also the potential to use economics and game theory to come up with decentralized economic institutions that could be adopted by smaller groups of people at a time.

Perhaps the most famous examples of decentralized institutions from game theory and economics land are (i) assurance contracts, and (ii) prediction markets. An assurance contract is a system where some public good is funded by giving anyone the opportunity to pledge money, and only collecting the pledges if the total amount pledged exceeds some threshold. This ensures that people can donate money knowing that either they will get their money back or there actually will be enough to achieve some objective. A possible extension of this concept is Alex Tabarrok’s dominant assurance contracts, where an entrepreneur offers to refund participants more than 100% of their deposits if a given assurance contract does not raise enough money.

Prediction markets allow people to bet on the probability that events will happen, potentially even conditional on some action being taken (“I bet $20 that unemployment will go down if candidate X wins the election”); there are techniques for people interested in the information to subsidize the markets. Any attempt to manipulate the probability that a prediction market shows simply creates an opportunity for people to earn free money (yes I know, risk aversion and capital efficiency etc etc; still close to free) by betting against the manipulator.

Posner and Weyl do give one example of what I would call a decentralized institution: a game for choosing who gets an asset in the event of a divorce or a company splitting in half, where both sides provide their own valuation, the person with the higher valuation gets the item, but they must then give an amount equal to half the average of the two valuations to the loser. There’s some economic reasoning by which this solution, while not perfect, is still close to mathematically optimal.

One particular category of decentralized institutions I’ve been interested in is improving incentivization for content posting and content curation in social media. Some ideas that I have had include:

  • Proof of stake conditional hashcash(when you send someone an email, you give them the opportunity to burn $0.5 of your money if they think it’s spam)
  • Prediction markets for content curation(use prediction markets to predict the results of a moderation vote on content, thereby encouraging a market of fast content pre-moderators while penalizing manipulative pre-moderation)
  • Conditional payments for paywalled content (after you pay for a piece of downloadable content and view it, you can decide after the fact if payments should go to the author or to proportionately refund previous readers)

And ideas I have had in other contexts:

Twitter scammers: can prediction markets incentivize an autonomous swarm of human and AI-driven moderators to flag these posts and warn users not to send them ether within a few seconds of the post being made? And could such a system be generalized to the entire internet, where these is no single centralized moderator that can easily take posts down?

Some ideas others have had for decentralized institutions in general include:

I would be interested in hearing Posner and Weyl’s opinion on these kinds of “radical markets”, that groups of people can spin up and start using by themselves without requiring potentially contentious society-wide changes to political and property rights. Could decentralized institutions like these be used to solve the key defining challenges of the twenty first century: promoting beneficial scientific progress, developing informational public goods, reducing global wealth inequality, and the big meta-problem behind fake news, government-driven and corporate-driven social media censorship, and regulation of cryptocurrency products: how do we do quality assurance in an open society?

All in all, I highly recommend Radical Markets(and by the way I also recommend Eliezer Yudkowsky’s Inadequate Equilibria) to anyone interested in these kinds of issues, and look forward to seeing the discussion that the book generates.

Blockchain is facing a backlash. Can it survive? | World Economic Forum

bitcoin | blockchain | governance | regulation

Despite these advances, there has been a growing backlash from opinion leaders as the technology’s drawbacks become better known. Perhaps you’ve heard that Bitcoin alone uses 0.25% of the world’s electricity? Other blockchain systems, such as Ethereum, use similar approaches that require computers to burn electricity unnecessarily. Perhaps you are concerned about the number of accidents, hacks and scams possible in this new space, where the law has not yet found its feet? Or you may have heard that crime and terror networks could use these technologies to transfer funds. Blockchains and digital currencies pose important questions to both their advocates and regulators.Pioneers in the industry are alert to such concerns and have attempted collective self-regulation. The Brooklyn Project, an industry-wide initiative to support investor and consumer protection, was launched in November 2017.“By acting responsibly today, we can help make sure we are collectively able to reap the benefits of this powerful technology tomorrow,” explained co-founder of Ethereum Joseph Lubin. The following month, a coalition of cryptocurrency organizations and investors representing $650m in market capitalization established Project Transparency. It seeks to protect investors by enabling more disclosure within the digital currency sector.

Source: Blockchain is facing a backlash. Can it survive? | World Economic Forum

Bitcoin Was Prone to Bubbles Until Bears Could Bet Against It – Bloomberg

bitcoin | finance | quantitative analysis | regulation

Limits to arbitrage can help explain why Bitcoin has been so bubble-prone. Until recently, it was easy enough to take a long position, but expensive and risky to bet against the cryptocurrency. Things really changed in December, when U.S. regulators allowed the trading of Bitcoin futures. That move came in the middle of a historic runup in the price of Bitcoin and other cryptocurrencies. But as soon as futures contracts began to trade, an interesting thing happened — futures prices suggested that Bitcoin’s growth would slow.What happened next is historic. Bitcoin’s price crashed from a high of about $19,000 to less than $7,000 as of the writing of this article:

Source: Bitcoin Was Prone to Bubbles Until Bears Could Bet Against It – Bloomberg