General conclusions

1. The European project has been conceived in the aftermath of the greatest human tragedy of the previous century, the Second World War. Its main goal was one of stability and peace preservation. Considered by political and legal scholars as an “UPO” (unknown political object, see part 1, par 13), it has been very successful.

2. Even though it has been remarkably extended and refined in the almost eight decades that passed since its beginnings, it is at its heart a profoundly conservative construct. In Part 1, par.8 I was quoting Douglass North saying: “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.”

3. Or in an era characterized by rapid technological progress, intense economic competition, and overall change in geopolitical conditions, Europe is falling behind, as observed by objective, reputable commentators including “The Economist” (Part 1, par. 35), Patrick Hansen (Part 2, par. 36) and the “Financial Times” (Part 3, par. 22).

4. This analysis of a new regulation that was hurriedly brought forward (see Part 2, par. 42) in response to a momentous, multi-faceted innovation, hints at possible explanations for Europe’s recurrent economic underperformance of the past decades. I argue that its ultimate cause is political and cannot be addressed short of a Treaty revision (and more likely a new pan-European constitutional convention).

5. Bitcoin, Ethereum and the cryptoverse are themselves the cogs of an “UPO” – an “unknown political object”. Indeed, the global internet infrastructure, combined with advances in cryptography, distributed computing and other areas of technology made possible that, for the first time in history, tens, hundreds of thousands, perhaps even millions of people are collaborating at scale and creating value voluntarily, outside the state and its coercive laws. The unexpected spread and adoption of crypto-assets proved that “decentralised groups of people can do risky, contentious and important things” . By acting as an “exit machine” , crypto-assets offer a political competitor to “Leviathan”, the existing state structures, and challenge the four centuries old conclusions of Hobbes and Hume, in a vivid illustration of the meaning of “digital transformation”.

6. I would remind of the 2014 Commission study noting that “EU’s innovation performance has been (on average) rather sluggish over the past two decades.” (Part 2, par 11) and the Commission report noting, two years later that “an ageing population and constraints on natural resources mean that future economic growth in the EU will be increasingly dependent on productivity-raising innovation.” (Part 2, par. 9). Despite an acknowledged need to foster technological innovation, the way the European law-making machine responded to the challenge is highly symbolic and illustrates profound institutional shortcomings.

7. In this respect, I found that a recent press article is particularly relevant and I will quote it extensively: “The sleep of reason produces monsters: Painter Francisco Goya’s ‘The sleep of reason …’ depicts what happens when people give up on rationality — they lose control and monsters take over. His 18th century etching is part of a series on, according to Goya, ‘the innumerable foibles and follies to be found in any civilized society’ caused by ‘custom, ignorance, or self-interest.’ Here be monsters: The EU prides itself on rational policy-making, but is no stranger to these monsters. The Commission, modelled after the French civil service, is strongly rooted in a post-Enlightenment belief in rationality. Highly qualified bureaucrats, selected on strict merit-based centralized procedures, carry out impact assessments and cost-benefit analyses before drafting laws, all with the aim of rooting out ideology and special interests and governing purely based on reason. Or that’s the theory. In practice, all these procedural steps sometimes just provide a thin layer of rationality for political decisions that have little to do with reason and a lot with power and special interests.”

8. After reading this analysis, one might think that the author of the above lines, J. Hanke Vela is talking about MiCA. But he’s not. Instead, he is referring to a completely different area of Union competence: “It’s particularly blatant when it comes to the German car industry, as evidenced in the latest row over another piece of car legislation: the Euro 7 pollution rules.” It goes to show that the serious problems this analysis has revealed, and that have deviated European legislation in the digital field from its mission of serving the public good, have deeper roots.

9. Another “Politico.eu” commentary sheds light on the broader balance between “innovation” and “regulation” in the EU when discussing an initiative to update the existing legislation on another area of rapid technological advance: genetically-modified organisms: “The EU’s ultra-restrictive GMO regulation […] sets extremely high hurdles for growing genetically engineered crops and allows EU countries to ban them even after they have been proven to be safe.”

10. Refocusing on the digital domain, subject of the second highest strategic priority of the Commission, we have to reflect further on the how the EU lawmakers are responding to facts and taking into account the lessons of the past in the process, if at all. I have discussed above the underwhelming results of GDPR, yet no learning from it seems to have been incorporated when drafting MiCA. Quite the opposite, the EU legislator chooses instead Orwellian doublespeak and magical thinking of the “eating the cake and having it too” type (see Part 2, par. 49).

11. In its defence, MiCA legitimises crypto-assets, facilitates the spawning of a new market in which the incumbents are protected, and which it primes for the arrival of new American firms and other third-country firms.

^{MiCA has good sides, bad sides, and ugly sides (source)}

-12. Although the legislative procedure has demonstrated value, improving the original Commission proposal, MiCA remains an inept regulation. It is internally inconsistent, contradicts the US doctrine toward technological innovation despite the comparatively abysmal track record of Europe in this area, and completely misses the essence of blockchain innovation.

-13. As forecasted by social scientists, as a “state-like” institutional actor, the EU “supports innovation” by … forbidding altogether the possibility of humans cooperating freely, at large scale, and peacefully producing value (what I called “Northern” or institutional innovation) . It would have been perhaps too much to expect a technocratic law-making machine to realise the paradigm shift, of “value creation in the absence of coercion by law”, proposed by blockchain and crypto-assets.

-14. But more puzzling and unexpected still is that MiCA also “supports” economic innovation by … forbidding disintermediation and requiring instead that a “trusted third party” intervene. I believe it is important to quote the bitcoin paper again: “the main benefits are lost if a trusted third party is still required”. Perhaps nothing illustrates MiCA’s deep flaws better than recital (36) and Article 10(3) which prohibit the gains in efficiency that blockchain technology could bring by reducing transaction costs, and instead mandate the presence of a financial intermediary, basically negating one of the most important competitive advantages of the technology.

-15. Meanwhile, the next momentous technological revolution is already upon us: in the space of only a few years, artificial intelligence has left the labs that it inhabited for several decades and entered mainstream. The Commission had been reflecting on AI for several years but its efforts became frantic. The way the young and fragile European AI ecosystem has assessed these efforts is illustrated by a recent press article: “while regulation is definitely needed, the way the EU is going about it could hinder the industry’s growth”, an AI entrepreneur is quoted as saying in a piece titled “’They’ll all go to the US’: What the EU’s AI law means for European start-ups” Overall, MiCA is true to form and stresses once again that the EU legal construct is structurally inapt to foster digital innovation. This could seem anecdotic if it wasn’t echoed by many similar pieces and “par for the course” for the Union’s legislator.

-16. “Start-ups will go to the US, they’ll develop in the US, and then they’ll come back to Europe as developed companies, unicorns, that’ll be able to afford lawyers and lobbyists,” another stakeholder is quoted as saying in the same piece. “Our European companies won’t blossom, because no one will have enough money to hire enough lawyers.”

-17. At the end of June, more than 160 researchers, entrepreneurs and CEO have signed and published an open letter addressed to the “representatives of the European Commission, the European Council and the European Parliament” warning that the draft AI regulation “could lead to highly innovative companies moving their activities abroad and investors withdrawing their capital from the development of […] European AI in general”. While the topic here is AI, the same could have been said for “Big Data” European start-ups prior to GDPR and can be said today for blockchain and crypto-asset European start-ups.

-18. At the end of the first chapter (Part 1, par. 39), I was formulating the challenge facing Europe today: can its institutions respond to advances in technology with laws that would allow a “new Google” to spawn in the EU?

-19. I will recall here what Douglass North was writing (see Part 1, par 17): “the major role of institutions in a society is to reduce uncertainty by establishing a stable (but not necessarily efficient) structure to human interaction.”

-20. The general conclusion of this thesis is that, in an era of rapid technological progress, the governance structure of the European project appears “unfit for purpose”. Structurally unable to encourage and support the innovations Europe so needs, the Union’s decision-making bodies and its law-making machine seem outdated: wedded to doctrines which have been repeatedly proven inadequate and producing insufficiently competent laws that “reduce productivity” and are keeping Europe on a declining economic trajectory. Thus not only “history”, as the Economist was noting, but also the sobering flaws in the Union’s institutional architecture, explain “why Europe will never produce a Google.”

^{MiCA uses language reminiscent of Orwell's Nineteen Eighty-Four "doublespeak"(source)}

-21. More worryingly from a democratic governance point of view, the EU law making system shows signs of rigidifying and becoming entrenched. I would quote again here Douglass North: “In a world of uncertainty, no one knows the correct answers to the problems we confront […]. The society that permits the maximum generation of trials will be most likely to solve problems through time. […] Adaptive efficiency, therefore, provides the incentives to encourage the development of decentralized decision-making processes […] to explore alternative ways of solving problems.” By contrast, in G. Orwell’s novel “Nineteen Eighty-Four”, on the building of the “Ministry of Truth” three slogans are inscribed: “War is Peace / Freedom is Slavery / Ignorance is Strength”. MiCA’s language, which in effect boils down to “Forbidding is supporting” innovation, is reminiscent of the latter rather than the former.

Disclaimer

The content of this document does not reflect the official opinion of the European Union or the European Commission. Responsibility for the information and views expressed therein lies entirely with the author.

The End

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[228] D. C. North, op. cit., vii
[229] The Economist, “The future of crypto is at stake in Ethereum’s switch”, September 10, 2022
[230] S. Cristescu, “The Exit machine”, 2019
[231] J. Pelkmans, A. Renda, “How Can EU Legislation Enable and/or Disable Innovation”, op. cit.
[232] D. Ciriaci, N. Grassano, A. Vezzani, “Regulation, red tape and location choices of top R&D investors”, op. cit.
[233] J. Hanke Vela, “Brussels Playbook: The sleep of reason — Back to Ladas — Klitschko call”, Politico.eu, May 11, 2023
[234] ibid.
[235] B. Brzezinski, J. Hanke Vela, “Super crops are coming: Is Europe ready for a new generation of gene-edited plants?” Politico.eu, July 2023,
[236] The classic quote from G. Orwell’s “1984” novel comes to mind: “War is Peace. Freedom is Slavery. Ignorance is strength”
[237] ibid.
[238] S. Nakamoto “Bitcoin: A peer-to-peer Electronic Cash System”, op. cit.
[239] Z. Wanat, “‘They’ll all go to the US’: What the EU’s AI law means for European start-ups”, March 2023
[240] ibid.
[241] “Open letter to the representatives of the European Commission, the European Council and the European Parliament”
[242] D. C. North, “Institutions, Institutional Change, and Economic Performance”, op. cit., p.6
[243] ibid, p.9
[244] ibid, p. 81
[245] G. Orwell, “Nineteen Eighty-Four”, Secker and Warburg, 1949