Part 1. Blockchain innovation

1. In the years that followed the Second World War (WW2), the governing elites of the European states at the heart of that tragic conflagration set out to create a new political and economic entity that evolved over the next decades into today’s European Union (EU). Among its main goals, laid out in “the Treaties”¹¹, the EU aims to promote the well-being of its people, an “area of freedom, security and justice”, “balanced economic growth”, as well as “a highly competitive social market economy”¹².
2. Technological innovation is widely recognized as one of the most powerful engines of economic prosperity in the presence of “inclusive economic institutions”¹³. One of the main underlying assumptions of the whole thesis is that continuous, sustained progress is necessary and desirable. That Europe cannot content itself with the progress it’s made in the three decades after the end of WW2, and that it should try to benchmark its political and economic performance and take actions aiming to continuously improve this performance.
3. In this part I am going to argue that “blockchain technologies” have opened three distinct yet entwined avenues of innovation. Taking inspiration from Davidson, De Filippi and Potts, I dubbed these three ways “Schumpeterian”, “Coasian” and “Northern”¹⁴.
   1.The “Schumpeterian” avenue promises to make more people benefit from better quality services at lower costs and is thus apt to contribute to “balanced economic growth”.
   2.The “Coasian” one can increase overall prosperity by reducing transaction costs thus allowing new economic models and contributing to improving EU’s “highly competitive” economy.
   3.The “Northern” one can support new institutional models, improve governance in organizations and mitigate rent-seeking and power-capture behaviours which weigh down value creation today. Such innovations could bring unique contributions to “freedom”, to balancing the economic growth, and to reinforcing the social aspects of the EU’s market economy.
4. In the first chapter of this part, I am going to set the broad stage of the exploration by looking at the main determinants of progress of the human civilization from historical, political, institutional, and economic perspectives.
5. In the second chapter we are going to introduce Bitcoin and the other crypto-assets (the “cryptoverse”) and argue that their contribution to technological innovation pales in comparison to what they offer in terms of socio-political, but also economical innovation.
6. In the third chapter, I shall explore the three fundamentally different, yet not-mutually-exclusive ways in which blockchain technologies and their “crypto assets” applications can contribute to improve our economies and our institutions.
7. While many other technologies have helped us make “Schumpeterian” leaps before, and some have revolutionized modern economies through “Coasian” breakthroughs, the third way, named after the 1993 Nobel Prize winner Douglass North, is what makes blockchain technologies truly unique, led some authors to designate blockchain “an institutional technology”¹⁵ and lead us to argue that blockchain, much more than AI, IoT, Big Data, etc. is a technology of special and particular concern to political and legal scholars.

Chapter 1.1 Historical determinants of well-being and prosperity

1. In the preface to his 1990 classic “Institutions, Institutional Change and Economic Performance”, Douglass C. North begins with these words: “History matters. It matters not just because we can learn from the past, but because the present and the future are connected to the past by the continuity of a society’s institutions.”¹⁶

1.1.1 The EU: a “state-like” institution fostering “predictable behaviors” and cooperation

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1. In the context of studying the European Union and its law, it is essential to ask the right questions, and I mentioned above the answer to “Why the EU?” The European Union is the result of a several decades-long political process whose main goals are peace on the continent and the prosperity of its people. More than seventy years after this process has been set in motion with the “Schuman declaration”¹⁷ and the creation of the ECSC, it is apparent that it has been, to a very large extent, successful.
2. If wars still erupted on the European continent, they happened outside the confines of the EU, as in the early ’90-ies in ex-Yugoslavia and recently when in 2022 Russia invaded Ukraine. These wars provided a stark contrast, illustrating the ability of the EU to preserve peace among its members while war remained a tragic possibility outside its borders, in its immediate vicinity.
3. As concerns prosperity and well-being, after the devastations of WW2 which saw parts of Europe suffer famine in 1946 and 1947, the economies of the countries which participated in the construction of the EU have rebounded with force, to the point where today the EU countries are among the richest, most developed, and most prosperous countries on Earth.
4. So, it is only natural to ask, “What is the EU, and how does it act to achieve such success?”
5. The EU is one of the most complex political constructs ever devised and has been called an “UPO”¹⁸ (unknown political object). It is a sui-generis political, institutional, and legal entity which also acts as an economic actor.
6. Whereas it doesn’t check all the boxes of what defines a “state”, for the purposes of this analysis it qualifies as a “state-like” institution. Indeed, the mechanism I’ll be investigating here, a regulation, will apply directly in all the Member States as if it had been a law of each state in part.
7. As for the reasons of EU’s effectiveness in the past seven decades, we can usefully turn to scholars of human history and development. In its widely acclaimed book “Sapiens”, Y.N. Harari distils human progress to the ability of “common myths” or “imagined orders” to get large numbers of “strangers” to cooperate successfully, to create mass-cooperation networks¹⁹.
8. In their seminal book “Why Nations Fail” D. Acemoglu and J. Robinson write: “[…] the extent to which people trust each other or are able to cooperate are important but they are mostly an outcome of institutions, not an independent cause.”²⁰
9. Douglass C. North defines institutions as “the constraints that human beings impose on themselves”²¹. He proceeds to state that the “major role of institutions in a society is to reduce uncertainty by establishing a stable (but not necessarily efficient) structure to human interaction”²². It might seem counter-intuitive that human cooperation and subsequent development and progress rely not (or not only) on the availability of choices but (also), on the existence of deliberate constraints which reduce choice (i.e., “institutions”).
10. The philosopher and social scientist Jon Elster, building upon the work of classical philosophers such as David Hume and Thomas Hobbes explained that “collective action” and the social order stood upon two concepts:
    1.1.Stable, regular, predictable behaviour
    1.2.Cooperative behaviour²³.
11. By imposing constraints and limiting the set of choices available, institutions also increase predictability. Social scientists posit that “there are no societies, only individuals who interact with each other”²⁴. Under uncertainty, those interactions, also named transactions, entail risks. Economists in turn have taken to assess, quantify and measure the risks involved as costs, and are thus speaking about “transaction costs”²⁵. Ronald Coase, in his seminal 1937 paper “The Nature of the Firm”²⁶ argues that it is primarily transaction costs that contribute to shaping the boundaries between markets and capitalist institutions such as “firms”.
12. In its explanatory memorandum, the MiCA regulation states that its first objective is “legal certainty” and goes on to elaborate: “For crypto-assets markets to develop within the EU, there is a need for a sound legal framework, clearly defining the regulatory treatment of all crypto-assets that are not covered by existing financial services legislation.”²⁷ This is an explicit objective of making the EU economic environment and the actions of its various actors more predictable.
13. When it comes to “states” and “state-like” institutions, D. North observes that, although being “predictable”, they are “a mixed bag”, some of which induce productivity increases and some that reduce productivity²⁸ – where “productivity” is seen as the essential contributor to the general well-being and prosperity. A major difference between firms and institutions is that “productivity decreasing” firms can be competed-out and disappear, whereas states and state-like political institutions are long-lived as they tend to enjoy natural monopolies.
14. To sum up, in the context of this analysis the EU can be seen as a “state-like” institution which successfully managed to keep peace for its members, and to foster both “predictable” behaviours and cooperation.

[11] TEU and TFEU, see above
[12] TEU, Art.3(1), (2) and (3), op. cit.
[13] D. Acemoglu & J.A. Robinson, “Why Nations Fail – The Origins of Power, Prosperity and Poverty”, Random House, 2012, p.77
[14] S. Davidson, P. De Filippi, and J. Potts, op. cit.
[15] ibid.
[16] D. C. North, op. cit., vii
[17] R. Schuman, 1950, https://www.consilium.europa.eu/en/70-schuman-declaration/
[18] R. Schwok, « Théories de l’intégration européenne. Approches, concepts et débats » Montchrestien, 2005, p.11
[19] Y. N. Harari, “Sapiens. A brief history of humankind” Penguin, 2011, p. 149,181
[20] Acemoglu & Robinson, “Why Nations Fail”, p.57
[21] D. C. North, op. cit., p.5
[22] D. C. North, ibid, p.6
[23] J. Elster, op. cit.
[24] J. Elster, ibid, p.248
[25] O. Williamson, op. cit., p.1 and D. North, op. cit. p. 33
[26] R.H. Coase, “The Nature of the Firm” (1937). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1506378
[27] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937, p.2
[28] D. C. North, op. cit., p.9