Blockchain is often compared to the internet as a disruptive technology that will realign economic structures across the world. This analogy extends to law and regulation. Similar to internet-based services, digital assets raise a host of challenges for policymakers. They also pose general questions regarding the desirability and practicality of regulating decentralized systems. Such debates play out against a backdrop of concerns that regulatory action will chill innovation or push market activity to more tolerant jurisdictions. The story of internet policy in the late 1990s and early 2000s therefore provides important lessons for policymakers today when confronting digital assets. Two incidents are of particular significance: the Clinton administration’s 1997 Framework for Global Electronic Commerce and the judicial effort to address peer-to-peer (P2P) file sharing.
The early internet regulatory debates demonstrated that action by all three branches of government was important to resolve uncertainties and distinguish legitimate from illegitimate market activity. The history illustrates that policymakers have many tools at their disposal beyond direct prohibitions or exclusions from requirements. Claims that regulation is inherently impossible or damaging to market development are generally overblown. Focusing on policy objectives, rather than starting from traditional categories that were historically developed based on those objectives, will help policymakers develop appropriate rules for novel digital asset markets such as decentralized finance (DeFi).