Balancing Code and Law: Governance and Policy Challenges of Blockchain
About the Report
A new major report, Balancing Code and Law: Governance and Policy Challenges of Blockchain, offers a nuanced analysis of blockchain technology's relationship with legal and regulatory frameworks.
Beyond cryptocurrencies, blockchain now underpins applications ranging from decentralized finance and digital identity to supply-chain management, dispute resolution, and decentralized artificial intelligence. Yet recurring crises in crypto-asset markets have exposed structural weaknesses in governance, risk management, and oversight, intensifying the need for credible regulatory frameworks.
Moving beyond the utopian promise of "code is law" and the limitations of traditional regulation, this report finds that blockchain operates in a "contested zone" where technological protocols, legal norms, and social consensus collide. The central challenge for policymakers is no longer *whether* to regulate blockchain, but *how* to govern a technology deliberately engineered to resist the intermediaries and territorial anchors on which law has historically depended.
Key insights from the report include:
- Decentralization's Double-Edged Sword: While blockchain’s architecture promises to reduce reliance on centralized institutions, in practice, power is often redistributed to core developers, large token holders, validators, and infrastructure providers, creating new governance challenges.
- Qualifying "Alegality": The report examines key legal cases, from Mango Markets to Tornado Cash, to demonstrate that while law's reach is uneven and incomplete in this environment, blockchain does not operate as a fully autonomous "alegal" domain. Courts are increasingly grappling with how to assign liability and define misconduct within these systems, but a coherent framework has yet to emerge.
- The Regulatory Puzzle: An analysis of global regulatory strategies reveals a structural tension: frameworks built for identifiable, centralized actors struggle to govern genuinely decentralized protocols. This has led to regulation focused on "chokepoints" like exchanges, leaving core protocols in a state of legal uncertainty.
- The Path Forward: The report concludes that effective governance will require adaptive frameworks that acknowledge blockchain’s structural resistance to control as a permanent feature, not a temporary problem. This demands sustained deliberation between technologists, legal scholars, and regulators.
We are greatly indebted to the Project Liberty Institute for their support of the Program on Governance of Emerging Technologies, which made this report possible.
