In this text we will discuss some issues related to the legal world and the technological world, explaining how new technologies are modifying different aspects of our society such as monetary issuance, contracts, and regulations on virtual assets.
(i) Crypto: A new model of monetary issuance
(ii) Smart contracts and the change in consumer relations
(iii) A look at regulations on crypto assets
- Crypto: A new model of monetary issuance
After economic crises there is always an attempt to rethink the reason for the failure of the economic model applied.
In 2008, after the fall of Wall Street and the chain effect that affected the world’s economies, the economic model that had been applied began to be rethought, this is how “Bitcoin” was born.
Bitcoin is more than an investment asset with great returns, it is a new economic model with an innovative monetary issuance policy.
The amount of money in circulation always increases over the years, and this causes the economic capacity of consumers to decrease because of inflation.
In traditional economic models, monetary issue policy is regulated by the Central Bank, which has the power to manipulate the monetary base and to increase or decrease the amount of money in circulation
In the monetary issuance scheme of the decentralized finance, or “DeFi”, inflation is non-existent. The bitcoin model is a deflationary model.
It is a model that is regulated by an issuance algorithm, understood as a deterministic model, in which the amount of bitcoin circulating in 2040 will reach 21m. From that moment onwards we will find ourselves in a stable, deflationary scheme.
Also, based on the principles of decentralization, bitcoin’s currency issuance scheme does not require the presence of third parties such as the Central Bank.
Finding ourselves at a time of global economic crisis as a consequence of Covid-19, could it be time to start rethinking the traditional monetary issuance model?
- Smart contracts and the change in consumer relations
New technologies are changing the traditional way in which business is done.
Basic consumer relations are usually governed by the application of contracts. Contracts are the most commonly used tools when it comes to entering into agreements between users, such as the case of the worker and the employer, or the case of the tenant and the landlord, among others.
When talking about contractual matters, it is important to understand that, according to our legal system, there are always certain formalities that contracts must contain in order for them to be considered valid, or certain acts that accompany them.
For example, in the case of the sale of a property, a third party, a notary public, must intervene, and the property must also be registered in the Public Registry of Commerce.
With the advance of new technologies, we are faced with a new paradigm, that of “Smart Contracts”.
These contracts propose two innovative principles: (i) that of decentralization and (ii) self-regulation, in this sense we can understand that smart contracts are “self-executing coded contracts”.
Smart contracts are usually encoded in the Solidity code of the Ethereum network, and they work through the syntax, “If and Then”, e.g.: “If they pay me, then I deliver the merchandise”.
Some of the challenges of the application of smart contracts in our country is the lack of regulation and legal loopholes in relation to them.
The basic idea of smart contracts is that there should be no centralized authorities or third parties involved in their execution.
Nowadays, it would be very difficult to imagine a smart contract regulating the sale of a property, as the idea of a notary public and the Public Registry of Commerce would not go hand in hand with the basic ideas or pillars of smart contracts.
Only time will tell what will happen with smart contracts and our domestic law, whether it will adapt to the ideas put forward by smart contracts or, on the contrary, whether smart contracts will have to adapt to the provisions of our domestic law.
- A look at regulations on crypto assets
The crypto ecosystem is currently experiencing exponential growth, with more and more users deciding to open an account on an exchange to start investing, as well as the different courses that are beginning to be created in universities, academies and other institutions with the aim of providing training in blockchain and cryptoassets.
The crypto-asset phenomenon is usually analyzed from two perspectives: (i) as a new investment medium with high returns and (ii) as a new economic and productive model based on the “DeFi” scheme.
As a consequence of the advancement of the crypto ecosystem, several governments have started to work on different types of regulations such as compliance, tax and financial regulations, seeking to start regulating the crypto market.
In Latin America we can see how different countries such as El Salvador, Colombia and Mexico are at the forefront in regulatory matters related to sandbox, crowdfunding and crypto assets.
In the case of Europe, we can understand that there are regulations at the regional level, by the European Union through the regulations of the well-known Digital Finance Package and also some regulations at the domestic law level in countries such as Italy and Malta.
In the USA, almost 30 states already have regulations governing the scope and limitations of the use of blockchain technology and smart contracts.
Faced with the advance of the new crypto paradigm, through the scheme of decentralized finance or “DeFi”, which seeks a direct relationship between users without the need for third parties such as banks or the state itself to intervene, several countries have begun to seek to neutralize this model.
Countries such as the USA and China are some of those that have started the race for the issuance of centralized virtual currencies, such as the Digital Dollar and the Digital Yuan, and Europe is also working on the issuance of the Digital Euro.
Only time will show us how the crypto ecosystem will evolve and what will be the relationship adopted by the world powers.