Exploring blockchains cyber security techno- regulatory gap. An application to crypto-asset regulation in the EU

Abstract

Blockchain technology has taken off rapidly in the last decade, as blockchain- based applications have expanded across sectors and acquired substantial global user support. This rise has been accelerated in the domain of cryptocurrencies, as one of blockchains’ most famous (or infamous) applications. This relatively novel type of a financial asset class with increasingly large market valuation has sparked the interest of regulators and law makers. As a means of fostering fintech innovation, the EU has stated its support for adoption and development of blockchain and cryptocurrencies in the European Economic Area. Nevertheless, cryptocurrencies lie at the top of a potentially dangerous feedback loop mediated by market valuation. Cyber-attacks targeting cryptocurrencies (and the underlying blockchain technology) have been on the rise, costing users and businesses millions of euros. From a European Union regulatory standpoint, high cyber security resilience is a precondition for sustainable innovation in an increasingly digitalized financial sector, where protecting users and businesses is a priority. In this paper, we discuss aspects of blockchains' technical vulnerabilities and related cyber-attacks in order to develop a deeper understanding of the extent and efficiency of possible regulatory remedies concerning crypto-assets in the EU. We present a regulatory overview of the emerging fields of cyber risk and blockchain in Europe and illustrate a techno- regulatory gap which requires further attention. We underline the difficulty of assigning traditional cyber regulatory measures due to certain technical characteristics related to blockchains. We maintain how the relationship between cyber law and technology may evolve in the near future, as decentralized technologies and the cyber risks that go with them, continue to develop rapidly. By providing an interdisciplinary perspective of cyber security in the blockchain domain, we aim to bridge the gap that exists between legal and technical research, supporting policy makers in their regulatory decisions concerning crypto-assets, decentralized technologies and associated cyber risks.