2.1.3. Contrasting the European and American views on regulation vs. innovation
-21. In a recent commentary published after the European Parliament plenary formally voted on and adopted the MiCA regulation on April 20th, 2023, Patrick Hansen, the Director for “EU strategy and policy” at Circle, a big American company active in the crypto-assets industry, wrote: “Admittedly, Europe is not home to the largest crypto businesses today. Most of the value creation and capture is happening in the US and Asia. In the 2022 global crypto adoption index, not a single EU country is part of the top 20 countries. This raises the question why the EU decided to move forward with such a comprehensive, region-wide binding set of regulations in the first place?”
-22. MiCA’s explanatory memorandum refers to one of the strategy’s identified priority areas: “ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies.” It notes that ESMA and EBA have argued in 2019 that “while some crypto-assets could fall within the scope of (existing) EU legislation, effectively applying it to these assets was not straightforward”, that “some provisions in existing EU legislation may inhibit the use of DLT” . Moreover, “most crypto-assets appear to fall outside the scope of EU financial services legislation and therefore are not subject to provisions on consumer and investor protection and market integrity”.
-23. It thus appears that the thinking of the European legislators is that new laws can “enable and support the potential of digital finance in terms of innovation and competition” while mitigating “risks to consumers and investors”, and this without a need to openly acknowledge that the two objectives are most of the time at loggerheads and that a careful balance needs to be struck.
-24. This contrasts sharply with the attitude of the US legislators, as apparent from the minutes of a hearing before the Joint Economic Committee (JEC) of the United States Congress (the American legislator) from May 22, 2018, titled “Breaking through the regulatory barrier: what red tape means for the innovation economy”. In its "opening statement", the equivalent of an "explanatory memorandum", one can read “America's tradition of invention has been at the heart of our economic strength. As lawmakers, we must recognize that the only way forward is to place our trust in the American people and to get out of the way.”
US relationship to risk-taking is strikingly different from Europe's. How these two opposed approaches have played out in the technology domain is paifully obvious for anyone to see source
-25. Thus, in contrast to the European legislator, the lawmakers of the United States, home of 8 of the 10 largest tech firms in the world (the other two being not European but South Korean and Chinese, respectively) spell out from the get-go what they believe is not “the best way”, but really “the only way forward.”
Figure 5. Biggest technology firms in the world. Although rankings vary depending on the source, no EU firm reaches the top 5 in any of them.
-26. Further in the same document, Dr. Joseph Kennedy testifying in front of the JEC, lays out several principles for establishing sound regulations, of which the third stands out:
• Place more trust in the consumer - given sufficient information, consumers can be their own most effective advocates.
-27. Another invited witness, Christopher Koopman recalls how the internet revolution has started as “a platform with little prior restraint on the commercial activities undertaken [...]. When harms and failures did occur, we addressed them in an ex-post manner.” He proceeds to state that “to ensure that [the US] remains a leader in the innovation economy [...] we must balance important regulatory goals - safety and consumer protection - with a tolerance for mistakes, failures, and learning so that innovation can continue to move us forward.”
-28. From the above (and other) passages it appears with clarity that in order to support innovation the only way forward is to “place more trust in the consumer” and tolerate “harms, failures” and address them in an ex-post manner so that “innovation can continue to move us forward.” Unlike the Commission’s strategy, here the trade-off is explicit: to support innovation, the legislator should not rush to take consumer protection into his hands but should rather trust the consumers to protect themselves and only step in “ex-post”.
-29. In further support, I can also bring to bear academic arguments, such as those of Douglass North writing: “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. We must learn from failures […]”
-30. In all fairness, it should not be assumed from the above that the “frictions” between the crypto-assets and existing legal provisions noted by ESMA and EBA appeared only on one side of the Atlantic. Whereas the “civil law” system of most EU Members (and the EU) relies on a clear hierarchy between the legislator and the judicial power, with the later expected to identify and enforce “the intention of the legislator”, the “common law” system used in the UK and US gives a lot more autonomy to regulators and courts.
-31. Subsequently, the US “Securities and Exchange Commission” (SEC) has gradually taken upon itself to enforce a century-old securities regulations upon crypto-assets, by bringing infringement cases to court. Yet, as Preston Byrne, a specialized US and UK lawyer and legal scholar observes, “Making companies like Coinbase treat crypto tokens as old-fashioned securities is like trying to regulate Starlink like we regulate road traffic.” Further down he adds: “For the last six years, crypto has accepted the economic realities of a Depression-era regulatory scheme. […] The old ways are finished, whether Congress likes it or not.”
-32. However, besides theoretical arguments, how these sharply different approaches to balancing innovation and regulation have played out is obvious for anyone to see: Europe has not managed to create a single global software firm in the past five decades, as its biggest, SAP, has been founded in 1972 and only ranks somewhere between the 7th and 11th places (depending on the source of the ranking). Contrast this for instance with Facebook (now Meta), created only in 2004 and ranking 6th. Its founder, Mark Zuckerberg is credited with this quote: “The biggest risk is not taking any risk... In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
-33. When it comes to innovation and growth, big firms and their location matters. Big firms have ample resources and can invest more in innovation than smaller sized firms. More importantly, big firms have more market clout and an ability to extract profits, which represent a redistribution of the economic value created, from the consumers to the firm’s headquarters and shareholders. As The Economist observes, big technology firms “operate dominant online platforms and are writing the rules of the new economy in the way Cockerill’s innovations did in his day.”
-34. A worldwide comparison of legislative and regulatory approaches to innovation is outside the scope of this document, but we will briefly note that the United Kingdom has chosen a lighter touch, as it’s only imposing rules for advertising crypto-assets to the general public, rather than sweeping obligations at issuance. In recent articles in Bloomberg and in the Financial Times, the Lord Mayor of London and other political commentators argue that the UK and (especially) “the City” (UK’s financial district) need to “embrace risk”, rather than focus on limiting it.
-35. At the other end of the spectrum, despite Xi Jinping naming “blockchain” as one of the technologies where China should strive to become a world leader, the Chinese authorities have all but banned issuance and trading of crypto-assets, which tends to corroborate the argument made in the first chapter that, while offering both “Schumpeterian” and “Coasian” innovation avenues, the most important blockchain and crypto-asset innovations are of the “Northern” type, challenging the existing political order – something which the Chinese regime is not expected to contemplate.
-36. To sum up, I would quote another article by Patrick Hansen, published in 2021 in the Stanford Law School Blogs: “between the alleged Chinese techno-authoritarianism and the US model […], the European Union (EU) has been striving for a “third way” in technology and economic policy for years. […] In view of the outcomes of recent policies (e.g., GDPR) and the current status of European tech companies, it is safe to say that whatever the current “third way” model is, this strategy is failing. Instead of catching up economically, Europe is falling more and more behind.”
-37. In the following chapters, as well as in Part 3, we’ll consider possible answers to the question: “Can MiCA reverse the trend?”
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[108] D. Acemoglu and J.A. Robinson, op. cit., p.77
[109] P. Hansen, “The EU’s new MiCA framework for crypto-assets – the one regulation to rule them all”, 2023, https://paddihansen.substack.com/p/the-eus-mica-framework
[110] Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937, op. cit.
[111] “Breaking through the regulatory barrier: what red tape means for the innovation economy”, hearing before the Joint Economic Committee (JEC) of the United States Congress, 2018,
[112] D. North, Institutions, Institutional Change and economic performance, op. cit., p. 81
[113] P. Byrne, “How to Build a Crypto-Exchange Post Coinbase”, 2023, https://prestonbyrne.com/blog/
[114] P. Byrne, “Economic unreality: a retrospective on a decade of ICO litigation”, 2023, https://prestonbyrne.com/blog/
[115] The Economist, “Europe’s history explains why it will never produce a Google”, Oct. 2018
[116] C. Hepker, “City of London Mayor: UK not ambitious enough”, Bloomberg 2023, and P. Harrison, “The City needs to embrace risk”, Financial Times 2023,
[117] Reuters, “China's Xi urges acceleration of development of blockchain technology”, 2019
[118] P. Hansen, “Europe’s Third Way is Web3: Why the EU Should Embrace Crypto”, 2021