Tipology : Encyclopedia
Category:   Fintech  

Abstract
The rapid evolution of information technology had a strong impact on individuals over the last few years; blockchain technologies represent the most prominent fields of analysis in economics, but also a challenge for the State. From a public policy point of view countries can decide to favour the development of the blockchain technology in their domestic juridical and economic system (crypto-friendly), or try to disincentive these businesses (crypto-unfriendly). Most countries including the European Union have not yet chosen to be friendly or unfriendly with respect to blockchain technologies.

Technology is a driver of economic growth in most theoretical models; history testifies that the path of growth of countries has been heavily influenced by technological revolution; technology is however a non-continuous process, and contributes in a non linear fashion to growth. J. Schumpeter (1950) underlined the role of the innovative entrepreneur in the technological evolution, being a disruptive feature in modern economic systems.
The first industrial revolution took place in the U.K. in the 18° century and lead to a structural change in Western economies, developing capital intensity and specialised labour. More recently, the internet revolution lead to what is considered as the fourth industrial revolution. The rapid evolution of information technology had a strong impact on individuals over the last few years; machine learning (Domingos 2015) and blockchain technologies represent the most prominent fields of analysis in economics, but also the main challenges for the State. Blockchain record and disseminate transactional and other facts underpinning economics, social and political interactions. Information is a very precious ‘asset’ in economics and technologies such as blockchain improve its flow (availability).
Blockchain technology serves as a ledger to store and verify data and other information (Abadi 2018); data cannot be modified or changed, and information on transaction is distributed in a ‘cryptographically secured ledger, which is distributed amongst a peer-to-peer computing network’ (Novak 2018).
Blockchain is also used for other purpose, like ‘generate consensus over those facts amongst non-intimates who are susceptible to opportunistic exploitation’ (Novak 2018, p.1) and this is the challenge for the public system we focus on.
Countries can decide to favour the development of the blockchain technology in their domestic juridical and economic system (crypto-friendly), or try to disincentive these businesses (crypto-unfriendly); Novak (2018) describes the degrees of crypto-friendliness in table 1 (p. 11).

Table 1 Degree of crypto friendliness
Degree of crypto-friendliness Generic policy dispositions Perceptions of policy risk

Crypto-friendly - Permission-less innovation

- Regulatory clarity / light-handed regulation
- Taxation clarity / low taxes
- Encouragement of use cases (incl. for public services)
- Fostering co-regulation, industry consultation or sharing perspectives

Crypto-unfriendly - Ban / suppress blockchain use - Precautionary principle
- Ban / suppress blockchain intermediaries (e.g. crypto-exchanges)
- Discouragement of use cases
- Severe regulatory treatment / heavy-handed regulation
- Discriminatory / high taxes
- Hostility toward, or dismissal of, blockchain industry perspectives

Crypto-friendly jurisdictions will introduce non-punitive tax rules for crypto-assets and liabilities, in order to manage the evolution of technology also in the labour market. Jurisdictions that are considered as friendly are Australia, Estonia, Singapore, Switzerland and certain jurisdictions in the United States.
Un-friendly jurisdictions do not introduce any legitimisation to these businesses, and examples are Bangladesh, China, Ecuador and New York State; the frustration of economic development has certain consequences in terms of global competition. Most countries, however, have not yet chosen to be friendly or unfriendly with respect to blockchain technologies.
A relevant example of public policies to support blockchain technology has been the regulation by the Swiss Financial Market Authority (SFMA) of Initial Coin Offering (ICO) of digital currencies (Novak 2018, p. 14); Switzerland has a CryptoValley in the Canton of Zug, with firms like Ethereum; ICOs are fundraising opportunities for investors to create a blockchain, and the Swiss public authority introduced simple rules aiming at increasing information, transparency and accountability. Australia introduced in 2014 a tax on cryptocurrencies trading, according to which the supply of digital currencies is subject to the Goods and Services Tax (i.e., the Value Added Tax in Europe). This doubled the tax burden since the Goods and Services Tax had to be paid on the value of goods and services, and on the value of digital currencies; this double taxation disincentive the investments in digital currencies, and the only in 2017 has been eliminated (Novak 2018, p. 16).
In Northern Europe, Estonia has been among the pioneer state in the supply of public services with blockchain technologies; Estonian citizens are rerecorded in blockchain, have an easy access to public services, and can vote electronically (Novak 2018, p. 18).
In Europe, how to regulate and what remain open topics in the debate; national authorities of member countries have reviewed the key problems in the legislation, taxation and management of these innovative technologies, but a common view is far from being agreed on. From a public policy point of view, consumers, being the weakest players, shall be protected; most authorities confirm that information on blockchains technologies and risks has to be improved, for protection to be effective. The balance between the quantity and quality of information is difficult, since cognitive bias can modify the decision making process.
The European Commission in September 2017 stated that a new interpretation of the regulatory framework is required; it should be inspired by a principle of proportionality, capable of grasping the specificities of FinTechs, regulating the activities carried out by the multiple financial operators in a uniform manner and with equal risks. Additionally, the renewed framework should assign powers of intervention to the supervisory authorities, consistent with this new architecture and allowing them to extend the controls on the multiple issues posed by the application of technology to financial activities (European Commission, 2017). The transnational nature of these business allow for certain regulatory arbitrage, that is detrimental for stability and trust.
In Italy the financial market supervision authority (Consob) reviewed the risks, legislation and key features of the FinTech services system (2018), underlining the need for a European level legislative intervention in order to effectively protect consumers and investors in the financial system.

References
ABADI J. 2018. Blockchain Economics, NBER working paper n. 25407, December.
CONSOB 2018. The development of FinTech; FinTech paper n.1, March, Rome.
DOMINGOS P. 2015. The Master Algorithm. How the quest for the ultimate learning machine will remake our world. Penguin, New York.
EUROPEAN COMMISSION, 2017. Summary of contributions to the 'Public Consultation on FinTech: a more competitive and innovative European financial sector', Brussel, 12.9.2017.
NOVAK M. 2018. Crytpo-frendliness. Understanding blockchain public policy. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3215629