top of page

Regulating Cryptocurrency : Lessons From Human Rights



The story of human rights began with an idea. An idea that each individual possesses a set of inherent protectable rights. This idea led to the codification of the Universal Declaration of Human Rights in 1947, a declaration that became historically significant for setting out the rights we now consider “basic” and “fundamental” today. Freedom from torture, freedom from discrimination against religion, race and gender, the right to free speech. Before this, these were non-existent in most places, but now the thought of not having them evokes feelings of injustice. When once these rights were ignored, scoffed at or simply non-existent, the idea of human rights have since become, to an extent, international standard.


So what can we learn from the successful implementation of human rights in the implementation of cryptocurrency regulation?


Differences and similarities


We begin by first considering whether cryptocurrency regulation and human rights are in fact comparable at all.


We start with the differences: Cryptocurrency regulation is an objective area of law. It typically relies on certainty and technical knowledge. As opposed to human rights, which is subjective and is affected by cultural, societal, and political norms.


That said, the subjective nature of human rights had enabled it to strongly capitalise on social movements and awareness. Cryptocurrency regulations, on the other hand, being a technical and somewhat dry area of law in comparison, may not be able to enjoy those same enablements.


Both are similar, however, in that they were both introduced as recent and future-focused ideas. Both also have similar goals, that is, to be internationally applicable (click here to learn why international crypto regulation is necessary for the adoption of a global currency).


Legislative & Judicial borrowing


Anne Smith wrote an excellent paper on the effect of constitutional borrowing and internationalism in drafting a country’s bill of rights. She observed how using or “borrowing” clauses from the constitutions of others enabled drafters to focus on a “more neutral, objective and universally approved standard” which then led to the internationalisation of such principles (1).


The same observation is applicable to the development of cryptocurrency laws. To achieve a “neutral, objective and universally approved standard”, legislators should try to adopt the work that others have put in.


While it is not uncommon for legislators to “borrow” from other jurisdictions, it is important for drafters to be more selective when doing so. Europe’s Markets in Crypto-assets (“MiCA”) which is expected to take effect in 2023 is arguably the best regulatory instrument on cryptocurrency to date. It is regarded by many to be the most comprehensive, forward-thinking and universally acceptable regulatory instrument on cryptocurrency (click here for a basic comparison between different regulatory instruments) (2).


Additionally, while there are no such constitutions to borrow per se, the idea that legislative borrowing could help standardise the positions of different jurisdictions would still be applicable, even if it were treated as a standalone idea.


If I may take a step further, I would also include judicial borrowing as a means to achieve internationalisation. Professor Christopher McCrudden describes how judiciaries are enhanced when they “struggl[e] through a series of conflicting principles which need to be resolved in conversation with judges in other countries” (3).


Being a novel area of law, adjudicators are often expected to rely on jurisdictions outside of their own. However and again, adjudicators are encouraged to be selective in their choice of jurisdiction. Europe is known to make bold decisions in relation to cryptocurrency. Take for instance the European case of Skatteverket v David Hedqvist which ruled that the services offered by a Bitcoin exchange were exempt from value-added tax (“VAT”). The Court of Justice of the European Union considered Bitcoin to be a currency under their VAT directive and, therefore, exempt from VAT (4).


The difficulty in applying the judicial decisions of a civil law jurisdiction in a common law country and vice-versa is noted. However, one should look at the regulation of cryptocurrency through a practical lens. Crypto regulation is an objective standard of best practices applied in a financial setting and such best practices are often applied cross-jurisdictionally. One example of this is the Principles for Financial Market Infrastructures (“PFMI”) which set international standards for the regulation of financial market infrastructures for 28 members (5). Member states include Australia, the UK and Hong Kong which apply English common law, and Germany, Italy and Japan which are civil law jurisdictions. Judges in common law jurisdictions should, therefore, not shy away from applying regulatory decisions made by judges in civil law jurisdictions, and vice-versa.

This is further supported by the objective nature of cryptocurrency regulations which I propose makes it easier to “borrow” from international judicial decisions. In contrast to human rights, cryptocurrency regulation or financial regulatory instruments are not dependant on the results of opinion polls, cultural norms, or an individual country’s notions of justice.


Conclusion


Insofar as the successes of the implementation of international human rights have shown us, targeted legislative borrowing has the potential to set international standards for the regulation of cryptocurrency. Additionally, judicial borrowing lays the groundwork for legislators tasked to regulate the space.



References:

  1. International and Comparative Law Quarterly <https://www.readcube.com/articles/10.2139%2Fssrn.1916079>

  2. Europe’s MiCA Crypto Rules Are Coming Soon. Here’s Why They Matter <https://www.coindesk.com/policy/2021/11/02/unpacking-europes-looming-mica-crypto-regulation/>

  3. A Common Law of Human Rights?: Transnational Judicial Conversations on Constitutional Rights <https://www.jstor.org/stable/20468339>

  4. Case C-264/14 [2015] BVC 34; Council Directive 2006/112/EC (“VAT Directive”)

  5. Principles for financial market infrastructures <https://www.bis.org/cpmi/publ/d101a.pdf>


Comments


bottom of page