Origins, Theoretical Foundations, and Economic Implications of Cryptocurrencies

Abstract

The theoretical foundations and indeed implications related to the emergence of digital assets, particularly cryptocurrencies, remain a scarcely explored area in recent academic literature. This chapter aims to analyze the presumed influences of various economic schools of thought on the genesis of Bitcoin, the monetary policies underlying several digital assets, and the evolution of their market capitalization since 2009. The study also addresses the case of several cryptocurrency exchange platforms, commonly known as crypto exchanges, and focuses on industrial entities, such as Ledger and Bitmain. An overview of use cases involving “smart contracts” and Blockchain technology is provided. This chapter seeks to revisit the emergence of different approaches to national regulation on a global scale and to establish international comparisons. The examples of Japan, long trapped in a deflationary spiral, and Argentina, facing hyperinflation, are particularly enlightening for understanding the legal treatment of digital assets and their perception by local authorities. Two central questions guide this exploration: what are the economic and ideological foundations underlying the conception of Bitcoin, and to what extent does the current development of the digital asset ecosystem remain true to the initial ideas of Satoshi Nakamoto?

1. Introduction

The financial crisis (2007–2008) and the massive adoption of new information and communication technologies (NICTs) have created a favorable environment for innovation¹. In this context, the Blockchain and Bitcoin emerged, providing a solution to double spending while introducing a single consensus mechanism. Indeed, the Blockchain has been one of the most important technological and technical innovations in recent years. In his paper on Bitcoin “a peer-to-peer electronic system,“Satoshi Nakamoto explains the use and the structure of this new system. The abstract of the paper explained the direct online payment from one source to another source without relying on a third-party source. The paper describes an electronic payment system based on the concept of cryptography. Nakamoto’s paper offered a solution to double spending, where a digital currency cannot be duplicated and spent more than once. The concept of a public ledger is introduced, where an electronic coin’s transaction history can be traced and confirmed if the coin has not been spent before, preventing the problem of double spending.

This new movement has evolved very rapidly, bringing with it new cryptocurrencies (presented as a better alternative to Bitcoin) and new concepts. In 2014, the arrival of Ethereum and smart contracts ushered in a new era for crypto-assets. The concept of decentralized applications, decentralized finance, and the explosion of ICOs have fundamentally changed our ecosystem. The purpose of this chapter is to present the origin and functioning of Blockchain, as well as its practical use in the industrial world. In addition, the development of this new technology has raised many questions from governments as to how it should be regulated. This important factor in the regulation of Blockchain will be analyzed through a comparative study between European countries, Japan, Canada, and the BRICS group. The transparent and decentralized platform of the Blockchain has attracted different types of industries, and organizations are increasingly moving toward the use of the Blockchain for various business purposes. An example is the employment of the Blockchain in the supply chain industry. Even if the Blockchain adoption in the supply chain industry is still something recent, studies have been conducted, indicating the Blockchain’s potential impact on supply chains. In the latest literature on supply chain operations, researchers and professionals claim that Blockchain can offer real-time transparency in the shipping industry among stakeholders such as port authorities, customs, and freight forwarders. The Blockchain provides a framework with secure data sharing, forecast, and risk analysis functions. According to Bocek et al. [1], smart contracts can decrease the number of intermediaries and allow for further automation in the supply chain process. Smart contracts can also cut operational costs. Pan [2] indicates that Blockchain technology can improve also information sharing between the supply chain stakeholders.

The use of Blockchain and, by implication, Bitcoin, has turned several industries in the global economy upside down, representing a major revolution in terms of regulation. Several financial institutions and organizations are now exploring different approaches to managing this new technology in the most efficient possible way. This chapter explores and presents the points of convergence and divergence regarding the regulations undertaken by the European Union countries, Japan, and the BRICS about the use of the Blockchain. To analyze and present the Blockchain, its challenges, its industrial applications, and the different regulatory approaches, this chapter is structured into four main sections. The rest of this section ends with a presentation of the origins and rise of Blockchain, and how it stands in comparison with the main economic theories. The second section covers the use of the Blockchain and smart contracts in the industrial world with a focus on the supply chain. The third section presents the different regulatory approaches taken by the countries considered in the analysis. Finally, the book chapter concludes with a fourth section dedicated to summarizing key findings and presenting conclusions.

1.1 Origins of the Blockchain

The 1970s and 1980s marked the beginning of two major phenomena that profoundly transformed societies worldwide: the liberalization of the economy and international financial markets and the rapid development of ICTs. The rise of new technologies accelerated sharply in the 1990s with the development of the Internet, then in the early 2000s with the advent of the smartphone and social networking. This enabled people to access computing power and data processing capabilities from their own homes. Consequently, these changes have introduced unprecedented challenges, particularly in terms of the role of the state, the protection of privacy, and respect for individual freedoms.

Moreover, the 2008 financial crisis has created favorable conditions for the emergence of new alternatives to the traditional monetary and financial system. This dynamic context has led to the emergence of Bitcoin, creating an opportunity for innovations likely to provide more transparent, secure, and decentralized solutions. This event led to the reintroduction of decentralized and secure concepts, such as those outlined in Satoshi Nakamoto’s white paper. Published at the peak of the crisis to a private list of cryptographers on October 31, 2008, the eight-page white paper entitled “Bitcoin: a peer-to-peer electronic payment system” describes the technical foundations of Bitcoin [3]. Indeed, Bitcoin represents one of the most popular Blockchain technologies that hosts a digital ledger. Bitcoin provides the platform to mine, store, and trade Bitcoins via a complex computer algorithm that is tied to a distributed network [4]. In the traditional financial system, banks and other financial institutions solve the double-spending issue by keeping centralized records of transactions and checking each transaction against this record to ensure that a unit of currency is only spent once. However, Satoshi Nakamoto, a supporter of the cypherpunk movement, did not want to rely on a central entity that was vulnerable to attack, expensive to run, and likely to delay transactions. To avoid this problem, Nakamoto proposed a decentralized solution where all transactions are broadcast and recorded on a “public ledger” called the Blockchain, and where participants can agree on a single transaction order history. In other words, the Blockchain can be defined as a database of records of transactions that are distributed, maintained, and validated by a network of computers worldwide. Records are controlled by a large community, and no single person has control over them, making it impossible to modify or delete a transaction’s history. Each time, a person makes a transaction, it is transmitted to the network, and computer algorithms verify its authenticity. Once the transaction has been verified, this new transaction is then linked to the previous one to form a chain of transactions. And that is how it is called Blockchain, such as explain by Lambourdiere & al. [5].

Thus, Wamba & Queiroz define the Blockchain as a shared (distributed) and decentralized ledger. This is probably the biggest idea behind Blockchain. It is the idea that distinguishes it from databases or regular ledgers. Moreover, not all the Blockchains have the same characteristics. Two types of Blockchains exist, the “permissioned” and “permissionless” [6]. With permissionless Blockchains, anyone can participate. This is the case with Bitcoin and Ethereum, two cryptocurrencies that any individual can participate in and trade. Permissionless Blockchains are in theory more secure as there are more ledgers to confirm or deny claims. These types of Blockchains are also subject to malicious actors being able to enter the network and wreak havoc as they are more exposed and have no vetting process (Figure 1).

Figure 1.

Presentation of the Blockchain technology. Source: [5].

In complement to the security that comes from the distributed ledger, Blockchain technology also uses cryptography to add a higher level of security. The emergence of Blockchain, thus, marked a decisive milestone in the pursuit of a decentralized system free from the constraints of traditional financial institutions. The architecture of Blockchain, combined with an innovative approach to confidentiality and game theory, has made it possible to solve several challenges and to achieve significant notoriety. Following the success of Bitcoin, an increasing number of developers became interested in the potential benefits of Blockchain and sought to improve, diversify, or simply imitate the Bitcoin proposition.

The year 2011 witnessed the arrival of the first Altcoins (i.e. tokens other than Bitcoin). The rise of Altcoins, with their different approaches and innovations, has highlighted the diversity and flexibility of Blockchain technology. Although Bitcoin was the pioneer and remains the best-known digital asset, Altcoins have introduced varied ideas and solutions for existing problems and explored new use cases. These new currencies have attracted growing interest, creating a need for investors and users to trade them efficiently, securely, and conveniently. In this context, the first centralized crypto exchanges of asset emerged, offering a platform to buy, sell, and trade various digital currencies. With the proliferation of crypto-assets, a mechanism to facilitate their trade quickly became a critical necessity. While the original philosophy of digital assets emphasized decentralization, a distortion has become apparent in the development of centralized institutions to facilitate their exchange. Centralized exchanges for crypto- assets, often referred to as “exchanges,” operate as intermediaries, bringing buyers and sellers together under a single virtual roof. Unlike peer-to-peer systems, where transactions are direct between users, a centralized exchange functions as a trusted third party. Users deposit their assets on the platform, and the platform ensures that bids and ask prices are matched, facilitates transactions, and maintains an internal ledger. The growth of Bitcoin’s price from negligible value to several thousand dollars in just a few years demonstrates its growing adoption and recognition as a potential investment asset worldwide. Altcoins have followed, each with its innovations and solutions to the challenges presented in Bitcoin.

1.2 The theoretical foundation of the Blockchain

The reference to the gold standard brings to mind the link between the classical theory of the late nineteenth century and Bitcoin. The comparison between proof-of-work and the gold standard is often made by many developers, professionals, and observers of the digital asset industry, who also refer to Bitcoin as “digital gold.” The terminology used by Satoshi to define the role of those in charge of the network’s security (the “miners”) may refer to the energy-intensive activity of mining. Bitcoins, such as gold, exist in limited quantities, which no state or entity can control. However, a debate remains over Bitcoin’s intrinsic value, which can be resolved by admitting that the intrinsic value of a Bitcoin is at least equivalent to the average cost of the energy used to secure the network. Finally, it is by looking at the criticisms made by neoclassical economists regarding the gold standard and those made today about Bitcoin that we can observe some common features between the systems:

• Both systems lack monetary flexibility: Under the gold standard, a country’s monetary policy is closely tied to its gold reserves. This limits the ability of central banks to adjust the money supply to meet economic needs, whether to combat recession or control inflation. For Bitcoin, the emission is scheduled from the moment the network goes online.

• Pressure on gold reserves and energy consumption for Bitcoin: The limited increase in gold reserves has compromised the ability of the USA to increase the supply of dollars in circulation while maintaining its parity with gold. To some extent, concerns about the energy consumption required to secure the Bitcoin network may represent a threat to the network’s long-term durability.

• Cost and inefficiency: Maintaining gold as a reserve requires storage and security costs. In addition, mining gold to support an expanding monetary base can be seen as an inefficient use of resources. As the Bitcoin network becomes more widely adopted, technical limitations will emerge, particularly in terms of transaction processing times and higher fees in the event of heavy use.

• Physical counterpart: While traditional fiat money does have physical notes and coins (or gold in the past with the gold standard), a large portion of it exists as digital data, similar to Bitcoin, which exists only in digital form and has no physical counterpart.

• Confidence: “Fiat” refers to money that a government has declared to be legal tender, but it is not backed by a physical commodity (gold-backed dollar until the early 1970s) but rather by the trust that individuals, and governments have that other parties will accept that currency. The value of both fiat money and Bitcoin is largely driven by trust and perception. Fiat money has value because people trust the government and the economic system. Similarly, Bitcoin holds value because its users have confidence in its technology and its scarcity.

• Stability: The value and stability of both fiat money and fiat-collateralized stablecoins are underpinned by trust in their issuing authorities. For fiat money, it is the trust in the government and central bank. For stablecoins, it is the trust in the issuing company’s ability to maintain the peg to the fiat currency such as the US dollar, Euro, or other national currencies. This means their value is directly tied to the value of the respective fiat currency, making them similar in terms of stability and valuation. Both can act as a store of value, such as gold, although the stability of stablecoins depends on the mechanisms maintaining their peg to fiat currencies.

Furthermore, the comparison of Bitcoin with monetarist and neoliberal reveals also several similarities.

One of the key concepts of monetarism is that the money supply should grow at a predetermined, slow, and stable rate, given that money does not affect real variables, but can affect inflation. Furthermore, monetarists consider that the central bank should give priority to restricting the quantity of money in circulation. These ideas are compatible with Bitcoin’s code; new Bitcoins are created when a block is validated, the halving is programmed every 210,000 blocks, and the maximum quantity is 21 million Bitcoins.

Over the years, economic and monetary theory has played a key role in the way money is perceived and used. The twentieth century saw the development of several economic currents. Each of these movements took different approaches to economics and monetary policy in general and were more or less predominant at one time or another. However, the advent of digital technology has brought with it a new layer of complexity. The digital economy requires new methods of securing and authenticating transactions and data, which has become a major challenge in the information era. The cypherpunk movement, which emerged in the 1980s and 1990s, has its roots in the evolution of new technologies and their impact on privacy and individual freedom. As technological progress offered new perspectives, programmers, cryptographers, and activists came together to unleash the potential of cryptography to protect personal data. In 1976, a paper entitled “new directions in cryptography” addressed the concept of a distributed ledger was published. With advances in cryptography, another paper published under the title “Hot to Time-Stamp a Digital Document” in 1991 by Stuart Haber and Scott Stornetta introduced the concept of time-stamping the data rather than the medium.

Nevertheless, there are some incompatibilities regarding the origin and trust in currency. For Friedman, money gains its value from trust and credit in the monetary authority that issues it, whereas Bitcoin is not endorsed by any government or institution. Finally, monetarists do not preclude adjustments to monetary policy in response to economic conditions, which Bitcoin does not allow. By creating a decentralized, immutable, and self-sufficient system, Bitcoin is part of this movement centered on the defense of privacy and freedom in the digital age by offering the possibility of carrying out transactions without having to disclose one’s identity and without possible censorship by third parties. Bitcoin could therefore be seen as a form of translation of crypto-anarchist ideas to economics and monetary policy.

The evolution of Bitcoin and other assets has helped to diversify and enrich the ecosystem while highlighting the importance of the “triangle of incompatibilities” that balances security, decentralization, and scalability. The Mundell-Fleming triangle, also known as the incompatibility triangle, is an economic theory developed by the monetarist economists Robert Mundell [7] and Marcus Fleming [8] in the 1960s. He conceptualized the limitations faced by countries seeking to pursue an independent economic policy in a globalized world.

VItalik Buterin applies the triangle of incompatibilities to the Blockchain, calling it the “Blockchain trilemma.” Returning to the theoretical framework, he explains that a Blockchain cannot fully satisfy all requirements and must choose between two of the following three objectives: the network’s security is its ability to process transactions irreversibly, validating them to ensure their authenticity while effectively repelling attacks. This dimension guarantees that transactions, once recorded, cannot be altered or falsified. The second objective is decentralization, it reflects the idea that the network should not depend on a central authority or a single entity. By operating without a central body, it offers every participant uninterrupted and equal access to the network. The third and last objective taken into consideration in this trilemma is “scalability,” representing the network’s adaptability and responsiveness to increasing numbers of users and transaction volumes.

Buterin also identified some limitations inherent in Bitcoin’s design. While recognizing Bitcoin’s revolutionary advantages as a decentralized cryptocurrency, he found that its structure was unable to accommodate diversified applications and functions. For Buterin, this represented an obstacle to innovation in the sector. It was against this backdrop that he theorized the Blockchain trilemma. As a result, in 2013 Buterin began conceptualizing Ethereum, a platform that would incorporate full programmability without eliminating decentralization. Ethereum would be not just only a digital asset but also a platform for decentralizing any type of service or application. This vision was the driving force behind Ethereum’s development and laid the foundations for what would be the next major evolution in the cryptocurrency space. Published on January 23, 2014, on the Bitcointalk forum. The main aim of the Ethereum white paper is to offer an open platform where developers could create any decentralized application (dApps) with no need to build a new Blockchain for each application [9]. The central idea was that rather than having separate Blockchains for each application (such as Bitcoin for peer-to-peer transfer or Namecoin for domain name resolution), there could be one universal platform for all kinds of applications. At the core of this vision was the introduction of “smart contracts,” self-executing scripts that work when certain conditions are met. Ethereum’s networking capabilities, via the use of smart contracts, allowed the field of possibilities opened up by Bitcoin to be extended even further. So far, Bitcoin’s relatively small size compared to the financial sector as a whole means that it is not directly designed to influence macroeconomic variables, but as an innovative payment system.

2. Blockchain and smart contracts: how they work and use cases

The potential applications of smart contracts could range from simple financial transactions to the management of complex supply chains and the creation of decentralized voting systems. Moreover, until now, there has not been any technological innovation that has more potential to advance the supply chain industry than Blockchain technology. In finance, smart contracts enable the creation of decentralized financial instruments such as loans, bonds, decentralized exchanges (DEX), and even derivatives. These innovations have made it possible to carry out financial transactions without the need for a trusted third party, thereby reducing costs and increasing efficiency. The main feature that distinguishes Blockchain from traditional databases is the combination of distribution, decentralization, and a consensus mechanism. If a business needs decentralized information, Blockchain is generally the solution because it is more efficient and less expensive than a traditional database. The business does not need to rely on intermediaries to register, track, and maintain the transaction data’s integrity.

Furthermore, the Ethereum white paper refers to smart contracts as “"more complex applications (than Bitcoin) in which digital assets are directly controlled by a small amount of code that executes various rules.” In simple terms, a smart contract is a computer protocol for defining the terms of an agreement between two parties, verifying its execution, and implementing it automatically (without human intervention) after the terms of the agreement have been written directly into lines of code. These contracts are stored and replicated on the Blockchain, which in principle guarantees their immutability and transparency.

Over the last few years, companies of all sizes have identified and tested dozens of Blockchain use cases and applications to help address operational problems, improve processes, and reduce business costs. These potential applications range from end-to-end process visibility and real-time product traceability to data security and transaction reconciliation. While these potential benefits are quite promising, some hurdles remain that prevent Blockchain technology from seeing widespread adoption. One of these key challenges is the lack of knowledge and understanding of this technology by executives and professionals. The aim of this section is, therefore, to clarify the functions and potential of this technology in the business world.

2.1 Smart contracts: functioning and trust-building benefits for an ecosystem of market participants

As an emerging technology with great potential, Blockchain offers a programmable environment for smart contracts. With the advantages of Blockchain, smart contracts have been widely used in Blockchain. Smart contracts can not only change the existing business model but also bring a lot of convenience to public life in reality [10]. The concept of a “smart contract” was first introduced in 1995 by Nick Szabo, who defined it as follows: “a smart contract is a set of commitments defined in digital form, including the agreement that the participants in the contract can implement these commitments” [11]. Therefore, smart contract, which is characterized by high development efficiency, low maintenance cost, and high execution accuracy, is a perfect fit for Blockchain technology. Indeed, it can be said that smart contract is one of the major characteristics of Blockchain technology. Being the core technology of Blockchain, Blockchain smart contract has become increasingly popular in Blockchain projects with great influence, such as Ethereum and Hyperledger.

With the advent of Blockchain technology, the smart contract has been defined and become possible. A smart contract is an integrated programming contract that can be embedded into any Blockchain data, transaction, or asset to create a system that forms a system, market, or asset managed by the program. Smart contracts can be found in a wide range of sectors. They can provide innovative solutions not only in the financial sector but also in business management such as assets, supervision, contracts, and others in the social system.

Contracts, whether for leases, mortgages, property sales, loans, or services, have been around for a very long time. Their purpose is to bring two parties together and to enforce the rights of each party. However, when one of the parties fails to fulfill its obligations, the result is a dispute and a considerable loss of time and money. This is how smart contracts come into play and provide innovative solutions. A simple way to understand smart contracts is to think of them as “programmable money.”. While both parties in a traditional contract must perform their responsibilities, smart contracts self-execute predefined actions when certain conditions related to a particular transaction are met (Figure 2) [6].

Figure 2.

Smart contract stages. Source: BusinessBlockchain.com.

The smart contract contains key data for both parties such as name, contact details, bank account details, and signatures, as well as information about the nature of the contract (lease, property sales, etc.), including the amount and payment date. When a smart contract is executed on the predefined payment date, it automatically withdraws the funds from the bank account and deposits them into the other party’s account. This makes the procedure more systematic and organized and avoids any problems associated with late payment.

Following the progressive evolution of Blockchain technology, the development of smart contracts can be classified into three stages: Blockchain 1.0, 2.0, and 3.0 [10]. In Blockchain 1.0, the main application is Bitcoin. The contract is mostly used to realize cryptocurrency transactions, and its function is relatively limited. And RSK (rootstock), the smart contract development platform, which is based on the Bitcoin ecosystem, also needs to be strongly compatible with Ethereum at this stage [12].

In Blockchain 2.0, with the rise of smart contracts, DApp (decentralized application) can be built on Blockchain, which improves transaction speed. The system performance is also enhanced and presents diverse functions. Based on the openness of Blockchain, it can be divided into public Blockchain and consortium Blockchain [13]. Among these, the most common development platforms are Ethereum and Hyperledger Fabric in the public and consortium Blockchains, respectively. Finally, the Blockchain 3.0 is characterized by the development of the Blockchain ecology and the rise of new platforms [14] (i.e., side chain/cross chain, etc.) [15, 16] with the aim of providing solutions to the problems existing in Blockchain 2.0. At the same time, they are also highly anticipated and controversial. The most prominent platforms for the development of smart contracts are represented by Ethereum, Hyperledger Fabric, and EOS. As these three platforms continue to develop, we are able to understand how Blockchain technology, driven by smart contracts, can support the development of the real economy at a deeper level in a new form of cooperation.

Given the decentralized nature of Blockchain-based smart contracts and the nature of the contracts themselves, Blockchain-based smart contract applications can be separated into three technical categories: Ethereum, Hyperledger Fabric, and Enterprise Operation System (EOS).

The first one (Ethereum) is an open source and universal public Blockchain platform with the function of smart contracts, where the point-to-point contract is executed via its special cryptocurrency Ether (ETH) and Ethereum virtual machine (EVM) [17]. Its applications cover sectors such as finance, smart grid, IoT, and sports quizzes. It can be used to create autonomous organizations, decentralized programs, and smart contracts.

The second, designed for use in the enterprise environment, is a modular and open-source licensed distributed ledger technology (DLT) platform for the corporate market. Key features include channel creation and pluggable implementation of multiple components [18]. It also offers innovation, adaptability, and optimization for insurance, banking, finance, real estate, healthcare, luxury, supply chain, and even digital music industries due to its modular and configurable architecture. An Enterprise Operation System (EOS) is a Blockchain underlying public Blockchain operating system. It is specifically developed for commercial distributed applications. It aims to achieve performance scalability of distributed applications by overcoming the issues of low performance, insufficient security, difficulty in development, and overdependence on transaction fees of existing Blockchain applications [19]. E-commerce, financial technology, and marketing are the main decentralized applications of EOS.

Moreover, the major difference between a smart contract and a traditional contract is that a smart contract uses computer language to record terms instead of legal language [20]. More precisely, smart contracts are automatically executed by a computing system and entirely stored in the computer. Smart contract built on Blockchain technology have the properties of tamper-proof and distributed transaction. Tamper proof is the main distinguishing characteristic of Blockchain, and its particular function is that once the smart contract has been successfully deployed, it can no longer be changed. Furthermore, thanks to the distributed function, each executed contract can be synchronized with each user’s data terminal. In a smart contract, the contract terms are digitally deployed to the Blockchain network in code format and are automatically performed when the trigger terms of the protocol set are met. These features make smart contracts ideal for contract term scenarios as they can reduce malicious manipulation and human intervention [21]. The use of smart contracts is still developing, mainly in the financial and government sectors. Programmable currency and financial functions can be achieved through smart contracts. In addition, smart contracts can increase the degree and efficiency of automatic transactions, decrease the costs of transaction and execution, and simplify the control of transaction actions. Hence, it has caught the attention of financial organizations and central banks. In addition, smart contracts have broad application prospects such as cloud computing, financial assets, property sales, digital payment, IoT, and sharing economy [22]. The importance of Blockchain is characterized by the interconnection and cooperation of different parts, rather than a single part, allowing the smart contract to play a central role. This is to say that a large number of practical functions can be done on the Blockchain, and the current application system can achieve a level of transparency and trust that is unprecedented [23].

2.2 Smart contract applications: supply chain and donation examples

According to the latest report by PwC (Pricewaterhouse Coopers), 2025 will be a turning point if Blockchain is widely applied across the world. Moreover, by 2030, the application of Blockchain will lead to a growth of $1.76 trillion in global GDP (1.4% of global GDP) [24]. As a result, Blockchain can not only boost the development of technological innovation but also be a driving force for the world economy. Countries around the world have developed the overall strategy for the development of the Blockchain industry, and Blockchain technology seems to have become the next playing field. Foreign giants, such as Google, Microsoft, JPMorgan Chase, Facebook, Amazon, and IBM, have all started to study Blockchain technology and introduced related technical solutions and applications. The Blockchain ecosystem embraces all aspects of the global economy and society. This technology has experienced exponential development and has been applied to areas such as intelligent manufacturing, financial services, tokenization of property, supply chain management, social welfare, and healthcare [25, 26].

In recent years, Blockchain technology has attracted the attention of central banks and financial institutions all over the world with smart contracts being the most significant characteristic of Blockchain applications. Thus, smart contracts can be applied to address fair trading or security problems in the financial sphere. In the Ethereum platform, to address the problem that the centralized TTP may expose the contract content, Zhang et al. [27] suggested a fair contract signing scheme for both parties using the Ethereum smart contract. In the signing process, the automatic smart contract is used to replace the original TTP agreement. This provides the fairness of signing to a certain extent, but the signature verification process cannot be performed directly by the smart contract. To address the problem that taxi charging is carried out by a third party, which causes conflicts between drivers and passengers, Zhang et al. [28] developed a secure charging protocol for agent driving service that is based on a Blockchain smart contract. Thus, the protocol removes the presence of an online third party via a publicly verified smart contract on the Blockchain of both parties, which ensures the fairness and transparency of the charging process. However, this agreement only applies to a “one-to-one” situation. Moreover, the use of smart contracts can be found also in the operations related to electronic cars. To tackle the problem that the charge indicated by an electric vehicle charging system may be different from the actual charge, and the potential security and privacy issues caused by the unreliable and opaque energy market, Sheikh et al. [29] proposed the consensus algorithm of energy security exchange. The goal is to process transactions on smart contracts, even if the processing cost is higher and the scalability needs to be improved. In the financial transaction sector, Ethereum has evident advantages in the public Blockchain. Besides being able to achieve procedurally secured transactions and financial contracts, in the public Blockchain, the synergy strength allows the contracts in Ethereum to fulfill different functions. As a result, this means that any application created on Ethereum can theoretically use the features of other applications. In addition, Hyperledger Fabric is more suitable for handling transactions on the consortium Blockchain. Since the official version was released, Fabric has been supported by many financial institutions, with many banks, using Fabric to create a consortium Blockchain, to realize Blockchain-based business innovation. Both technologies (Ethereum and Hyperledger Fabric) have their specific advantages, but the main point is to solve the problems of privacy and scalability.

Through smart contracts, all data in the supply chain can be displayed in real time. In addition, the decentralized, tamper-proof, and traceable nature of Blockchain facilitates inventory tracking at a detailed level, ensuring the security and reliability of all information in the supply chain and minimizing the risk of theft and fraud. In order to solve the problem of product information traceability in cross-border business of manufacturing companies, Xu et al. [30] designed a smart management scheme for manufacturing supply chain based on Ethereum Blockchain. It employs smart contract to implement process management and cross-chain architecture and ensures the compatibility, scalability, and security of the system. For the medical treatment of COVID-19, there were issues like inefficiency, one-point failure, and traceability in the existing system for handling the forward supply chain of COVID-19 medical equipment and the waste generated from medical equipment. To overcome these difficulties, AHMAD et al. [31] conceived and implemented the COVID-19 medical device supply chain based on Ethereum and IPFS (interplanetary file system) technologies. The purpose is to improve the data traceability of waste disposal and to implement automatic management by using intelligent contracts. Yet, data confidentiality and system scalability need to be promoted. Nirav et al. [32] presented an agricultural food supply chain system (KranTi) using Blockchain and a 5G network, which implements an automated credit payment system by using smart contracts. As a result, this technology is used to control the data flow of each role in the supply chain, as well as to manage order transactions and provide traceability of farmers’ financial data and goods information, although the overall cost is relatively high. To support information sharing in supply chain inventory management, Tobias et al. [33] developed a decentralized information-sharing model using Fabric. It applies chain code to handle the transaction process and realizes the administration of complex multi-access rights. In addition, it can secure the implementation of privacy policy in the process of information sharing. However, it is not suitable for large-scale applications due to the low-performance benchmark and poor scalability. To summarize, Blockchain smart contract is mainly used to solve the problems of data transparency, information traceability, and supervision in the supply chain. Thus, it can greatly simplify the transaction process in practical application areas.

The management of humanitarian information is often hampered by unreliable information and information silos between different humanitarian actors. Frictions can cause the exchange of assets between two parties to be slow or hindered. Tax, regulation, bureaucracy, fraud, intermediary participation, etc. are just some of the reasons for friction that can lead to increased costs or deadlines. The distributed register of the Blockchain enables it to address these problems by sharing information across the network instead of being held by a single party. Members can validate transactions and verify the identity of each participant. All members of the network of the “permissioned” network also have a unique identity, as well as different roles and access rights to information. The network’s secureness through cryptography and permissions significantly decreases the risk of unauthorized access to perform fraudulent acts. Also, with the consensus mechanism, all transactions are validated before being recorded in the Blockchain, which is inviolable and immutable. Supply chain visibility and data traceability can often be complex or impossible due to the dynamic nature of the humanitarian supply chain. Humanitarian operations can be significantly improved by increased supply chain transparency, which provides data to make decisions more efficiently and accurately and enables evidence-based interventions and management by exposing supply chain issues. This could lead to more effective treatment and increased accountability for different stakeholders. Blockchain offers the potential to increase transparency in the humanitarian supply chain. By providing a shared registry through a platform that enables the traceability and destination of physical humanitarian aid. This technology allows users to know who has handled different physical assets throughout the supply chain and how those assets have been transformed along the way. It allows for breaking down information silos by revealing the origin of a product from the supplier/donor to the final beneficiary. Thus, instead of waiting for reports at the end of a humanitarian mission, Blockchain can ensure a real-time record of all activities and products. This provides for closer collaboration, less duplication of resources, improved accountability, and more time efficiency. After applying Blockchain in the supply chain of the humanitarian sector, several studies highlight the added value of applying this technology in the financial supply chain of associations. Therefore, there is a real challenge to establish a peer-to-peer funding network to strengthen current funding models to reach people in need much faster and without the intermediation of a trusted third party, such as banks. This would cut the cost of financing international humanitarian aid. There is a need for more transparent, flexible, and efficient solutions for the organization of donations, as well as greater transparency and visibility of the use of these donations to reduce fraud and corruption, but also to identify funding gaps. Blockchain would, therefore, allow associations to better manage the distribution of donations and ensure that they are properly used to reach the final beneficiaries while having a record of each transaction that is distributed and publicly available.

3. Focus on the regulatory framework: a comparative study

It was during the period from 2014 to 2017 that institutional actors began to signal their interest in digital assets and in the opportunities offered by the Blockchain technology. The first traditional financial players to take an interest in Blockchain were venture capital funds. These investment funds quickly proved to be essential intermediaries between Silicon Valley’s “traditional technology” sector financiers and the foundations/teams working on the development of Blockchain initiatives. They will also help to attract the interest of certain retail investors, whose options have been strengthened by the arrival of “smart money” in the crypto market. Although existing regulations to date are mainly national [34], some international organizations are taking a stand on the subject of digital asset regulation. In June 2014, the Financial Action Task Force, an organization set up to establish international standards to prevent money laundering and the financing of terrorism, took an interest in digital assets for the first time. In a report published in 2015 [35] and completed in 2019 [36] it suggested guidelines not for a ban but for a risk-based approach to digital assets, and to strengthen international cooperation for an effective regulation. In December 2022, the Bank for International Settlements published a report entitled “prudential treatment of crypto-asset exposures” [37] in which it announced that from January 2025, commercial banks would be able to hold 1% of their Tier 1 capital in crypto-assets, and up to 2% for their Tier 2 capital.

3.1 The European and North American legislation

In 2012, the European Central Bank (ECB) published its first report on virtual currencies. It acknowledged not only their existence but also highlighted the associated risks [38]. In 2014, the more conservative European Banking Authority (EBA) warned of the risks associated with virtual currencies, suggesting that banks should be discouraged from buying, selling, or holding them and that exchange platforms should be subject to the anti-money laundering directive [39]. In 2017, the European Securities and Markets Authority issued warnings about the risks associated with ICOs [40]. In 2018, the European Union adopted rules to regulate crypto-assets as part of the fifth Anti-Money Laundering Directive (AMLD5). In a statement made in 2019, Mario Draghi considers that Bitcoin and digital assets do not fall within the ECB’s remit, and the does not classify them as money but as assets. In France, the regulation of crypto-assets is framed by articles 85 to 88 of the 2019 PACTE (Action Plan for Business Growth and Transformation) law [41], which establishes transparency and investor protection requirements for crypto-asset issuers. In compliance with European AML directives, supervision of digital asset service providers (DASPs) and issuers of token offerings to the public at the French Financial Markets Authority (AMF). Issuers of tokens must obtain an optional visa from the AMF to be able to communicate about the operation to French investors [42]. In September 2020, the European Commission published a proposal for a Markets in Crypto-Assets (MiCA) regulation aimed at harmonizing the regulation of digital assets within member states. After years of negotiations between European co-legislators, the MiCA regulation, based largely on the French model and reinforced by stricter requirements in terms of share capital, risk management, supervision, and control, was adopted on April 20, 2023. It is scheduled to come into force on January 1, 2025 [43].

Around 11% of Americans [44] and 13% of Canadians [45] will own digital assets in 2021. In North America, the regulation of digital assets in the U.S. and Canada share the common feature of being two federal states within which state regulation is important. However, the approaches of U.S. and Canadian regulators differ in several respects. It is hard to find uniformity in the legal treatment of digital assets in the U.S. among the various federal agencies. The Financial Crimes Enforcement Network (FinCEN) does not consider cryptocurrencies to be legal tender, but since 2013 it has considered exchanges to be money transmissions (under its jurisdiction) and considers tokens to be “other value that substitutes for money.” The Security Exchange Commission defines a security as a financial instrument issued by individuals, corporations, and governments that is traded on a financial market [46]. The SEC generally considers that “coins,” such as Bitcoin, are not securities because they do not represent an ownership or profit interest in a company, and they function as a “form of currency and are used to conduct transactions on a decentralized network [47]”. Tokens, on the other hand, can take a variety of forms and may be considered securities by the SEC depending on their nature and use. If a token meets the definition of a security, it is subject to securities regulation and must be registered with the SEC unless it meets an exemption. From a tax perspective, the internal revenue service (IRS) considers digital assets to be property and taxes them as such. The coins or tokens obtained from mining are taxed as gross income at the value of the digital asset on the day it is obtained.

On June 19, 2014, Canada enacted Bill C-31, the world’s first federal crypto-asset legislation, subjecting “virtual currencies” to the same obligations as money services businesses regulated under anti-money laundering laws. However, Ontario, home to the country’s largest capital markets, is making its own decisions on access, although it is looking to the primary regulator for guidance. The CSA, in conjunction with IIROC (the Investment Industry Regulatory Organization of Canada, the regulatory umbrella for the provincial regulators), has published clear guidelines for crypto-asset companies, emphasizing that public dialog is encouraged and that these guidelines are not permanent, but will evolve with the cryptocurrency world.

3.2 Regulation in Bresil, Argentina, Japan and China

In February 2014, the Banco Central do Brasil (BACEN) warned the Brazilian public about the use of crypto-assets [48] and specifically highlighted their volatility. This instability was attributed to various factors, such as the low volume of transactions and the lack of recognition of crypto-assets as a reliable payment instrument. Although BACEN was aware of these risks, it did not introduce strict regulations at the time, leaving itself open to intervene later in the situation. The Federal Revenue Service (Receita Federal) has established guidelines for the declaration of crypto-assets. In fact, already at the end of 2014, it required that Bitcoins be declared under the category of “other goods and rights.” Thus, Bitcoins were considered similar to financial assets and were defined as “income” received in the form of goods or rights valued in currency. Consequently, if a Bitcoin transaction generates a profit of more than R$35,000, this profit is subject to a 15% tax.

Crypto-assets are an innovation that does not easily coexist with the current legal Argentinian structure (Ley 26.831 de Mercado de Capitales) and requires legal adaptations. The Central Bank of the Argentine Republic (BCRA) has warned of the risks associated with crypto-assets and has declared its competence to regulate them, but has not yet established concrete regulations. The Financial Information Unit (UIF), responsible for the prevention of money laundering, has recognized crypto-assets and has established the need for increased monitoring of transactions involving these currencies [49]. In 2019, the BCRA implemented restrictions to prevent currency outflows when trading crypto-assets, but foreign exchange firms in Argentina said they could still acquire crypto-assets with Argentine pesos. The country, still affected by hyperinflation (+113.4% year-on-year in July 2023), wants to prevent a drain on the country’s dollar reserves, while an increasing number of Argentines see Bitcoin and stablecoins as an alternative to the current monetary system and a means of protecting their purchasing power against inflation [50].

In April 2017, Japan recognized Bitcoin as legal property under the Payment Services Act. The Virtual Currency Act of 2017 [51] allows cryptocurrencies to be used to make payments. The regulatory framework regulates exchanges. Exchanges must comply with anti-money laundering and anti-terrorist financing obligations. Foreign platforms are also allowed to offer their services in Japan as long as they are subject to similar obligations. Completely anonymous digital assets are strictly forbidden. Japan’s originality is symbolized by the Japan Virtual Currency Exchange Association (JVCEA). The JVCEA was established in October 2018 by 16 digital asset exchanges operating in Japan. JVCEA is a self-regulated organization recognized by the FSA. The association is working on various issues, such as the integrity of exchanges and the amount of customer assets held in hot wallets, which are more susceptible to theft. The offering of digital assets to investors is under the supervision of the FSA, which is responsible for the approval of each listing. For example, USDT, the world’s most traded digital asset, is not approved by the regulator, which considers the issuer to be risky. Regarding taxation, Japan has abolished value-added tax on exchanging cryptos for fiat currencies.

China banned crypto-assets and related activities (including mining and ICOs) in 2017 [52]. However, the use of Blockchain technology is not completely closed in China. In September 2018, the Hainan Free Trade Zone Blockchain Experimental District, where the Huobi exchange is headquartered, was approved by the Chinese Government. Additionally, China’s central bank is the world’s first to offer its own digital version of central bank money. This Central Bank Digital Currency (CBDC) is based on Blockchain, although the lack of decentralization of the network makes this technology almost “unnatural.” Another example is Hong Kong, which is actively participating in the development of the Blockchain industry as its special status means that regulations are more favorable to digital assets.

The Russian Government has long been critical of digital assets [53]. In July 2020, the Russian Government adopted the Federal Law on Assets to Digital Financial Assets and Digital Currency, which sets out general concepts for the regulation of digital assets. According to a study by the United Nations Conference on Trade and Development (UNCTAD), despite a very theoretical framework for the sector, in 2022, Russia is the second country with the highest proportion of its population holding digital assets, after Ukraine (11.9 and 12.7%, respectively). In 2022, Kozhedubova and Kovaleva’s study shows that by the end of 2020, Russia will be the country with the highest volume of undeclared digital asset transactions (41% of global transactions) and whose population will be the most targeted by cyberattacks involving crypto-assets (11.2% of global attacks).

4. Conclusion

In conclusion, the emergence of Blockchain and Bitcoin has significantly reshaped industries, providing innovative solutions to financial challenges and technological advancements. Satoshi Nakamoto’s pioneering paper on Bitcoin established a decentralized, transparent ledger that addressed the critical issue of double spending. The evolution of this technology has led to the emergence of various cryptocurrencies and concepts, such as Ethereum’s smart contracts and decentralized applications, which are transforming the crypto-asset landscape. Moreover, the Blockchain trilemma, which reflects the trade-off between security, decentralization, and scalability, is evident in the evolution of Bitcoin and the subsequent development of Ethereum. Ethereum’s introduction of smart contracts addresses the limitations of Bitcoin’s design and fosters a new era of decentralized applications. The programmable nature of the smart contract is revolutionizing various industries, particularly in finance and supply chain management.

Smart contracts, which operate on Blockchain platforms, such as Ethereum and Hyperledger Fabric, offer benefits such as increased efficiency, reduced costs, and greater transparency. Potential applications range from financial instruments to supply chain management, with real-world examples demonstrating the technology’s transformative impact. As countries and businesses around the world recognize Blockchain’s potential, overcoming challenges, such as understanding the technology, will be critical to widespread adoption. Blockchain’s decentralized, tamper-proof nature is particularly relevant in supply chain management, ensuring real-time visibility and traceability. Applications in humanitarian efforts further demonstrate the potential for transparency, accountability, and efficiency. While challenges such as scalability remain, Blockchain’s ability to reshape industries and redefine trust in transactions positions it as a critical technological innovation with far-reaching implications for the global economy.

There has been a notable shift in the regulatory landscape surrounding digital assets and Blockchain technology over the period studied from 2014 to 2023. The involvement of institutional actors, in particular venture capital funds, has played a crucial role in bridging the gap between traditional financial institutions and Blockchain initiatives. International organizations, such as the Financial Action Task Force and the Bank for International Settlements, have shown interest in establishing guidelines for a risk-based approach to digital assets, although existing regulations remain predominantly national. Overall, the regulatory landscape is evolving globally. Jurisdictions are shaping their approaches based on the unique challenges and opportunities presented by digital assets and Blockchain technology. To ensure effective and harmonized regulation in this rapidly evolving area, the adoption of international standards and cooperation will become increasingly important.

To conclude, this study provides an overview of the existence and implementation of Blockchain technology in the world’s modern economy. It focuses on the ongoing development of smart contracts. It also takes a “theoretical” look at the characteristics of Blockchain, drawing on various economic theories and comparing common and different approaches. Given the importance of this technology, the functioning of the Blockchain and the mechanisms of smart contracts are presented. This has led us to present an overview of the use of Blockchain and smart contracts. Three main sectors have been analyzed: finance, supply chain, humanitarian donations, and supply chain. Given the importance of this new technology, the regulatory response of the world’s economies is different. In this context, we present the main regulatory features of the EU, North America (USA and Canada), Japan, Brazil, Argentina, China, and Russia.