Reference : Beyond Financial Regulation of Crypto-asset Wallet Software: In Search of Secondary L...
Scientific journals : Article
Law, criminology & political science : Multidisciplinary, general & others
Beyond Financial Regulation of Crypto-asset Wallet Software: In Search of Secondary Liability
Barbereau, Tom Josua mailto [University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) > FINATRAX >]
Bodó [University of Amsterdam > Institute for Information Law]
Computer Law & Security Review
[en] Blockchain ; Crypto-asset ; Non-custodial wallet ; Secondary liability ; Decentralised finance
[en] Since Bitcoin, the blockchain space considerably evolved. One crucial piece of software to interact with blockchains and hold private-public key pairs to distinct crypto-assets and securities are wallets. Wallet software can be offered by liable third-parties (‘custodians’) who hold certain rights over assets and transactions. As parties subject to financial regulation, they are to uphold Anti-money Laundering and Combating the Financing of Terrorist (AML/CFT) standards by undertaking Know-Your-Customer (KYC) checks on users of their services.

In juxtaposition, wallet software can also be issued without the involvement of a liable third-party. As no KYC is performed and users have full ‘freedom to act’, such ‘non-custodial’ wallet software is popular in criminal undertakings. They are required to interact with peer-to-peer applications and organisations running on blockchains whose benefits are not the subject of this paper. To date, financial regulation fails to adequately address such wallet software because it presumes the existence of a registered, liable entity offering said software. As illustrated in the case of Tornado Cash, financial regulation fails to trace chains of secondary liability. Alas, the considered solution is a systematic surveillance of all transactions.

Against this backdrop, this paper sets forth an alternative approach rooted in copyright law. Concepts that pertain to secondary liability prove of value to develop a flexible, principles-based approach to the regulation of non-custodial wallet software that accounts for both, infringing and non-infringing uses.
Interdisciplinary Centre for Security, Reliability and Trust (SnT) > FINATRAX - Digital Financial Services and Cross-organizational Digital Transformations
Fonds National de la Recherche - FnR
Researchers ; Professionals
This research was funded in whole by the Luxembourg National Research Fund (FNR) and PayPal, PEARL grant reference 13342933/Gilbert Fridgen. For the purpose of open access, the author has applied a Creative Commons Attribution 4.0 International (CC BY 4.0) license to any Author Accepted Manuscript version arising from this submission.
FnR ; FNR13342933 > Gilbert Fridgen > DFS > Paypal-fnr Pearl Chair In Digital Financial Services > 01/01/2020 > 31/12/2024 > 2019

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