Navigating Cryptocurrency Regulation: An Industry Perspective on the Insights and Tools Needed to Shape Balanced Crypto Regulation

1 Cryptocurrency basics

This section establishes relevant definitions
and provides a framework to consider the many
issues presented by cryptocurrencies.

1.1 What is a cryptocurrency
and a cryptocurrency network?

For the purpose of this guide, a cryptocurrency
is a digital non-governmental asset based on a
combination of cryptographic algorithms, whose
existence and transfer is confirmed and recorded
on a ledger that is distributed across a network
of independent computers (“validators”). Before
the existence or transfer of a cryptocurrency
can be recorded on the ledger, the network’s
validators must reach agreement according to the
network’s consensus protocol. The decentralized
architecture of the validator network is designed
to create trust in the absence of a centralized
authority, like a government or other central
entity. In a decentralized network, multiple entities
operate independently under a network-wide
shared governance framework, eliminating the
single point of failure or control. This architecture
reduces the risk of double-spending,
 while
preserving pseudonymity in a transaction. The
validators rely significantly (but not exclusively) on
cryptography tools to ensure security. For example,
cryptocurrency is used as a utility on the network
to incentivize (pay) node operators to validate

transactions and protect against spam, distributed
denial of service (DDoS) and other attacks.
Cryptocurrencies constitute their own unit of
account, although, in most cases, the price to
acquire a unit is usually quoted in governmentbased

fiat currency. Additionally, most
cryptocurrency projects allow for the issuance
of account addresses and the transfer of the
currency between sender and recipient, without a
centralized party and without the need for personal
identification typically required by such parties.
There are two types of cryptocurrencies: 
traditional cryptocurrencies, which are created by
a standalone blockchain such as BTC (Bitcoin)
and ETH (Ethereum); and  cryptocurrencies
that are digital representations of other
assets such as those backed by fiat currency
(sometimes referred to as stablecoins) such as
USDC issued by Circle. This paper is focused
solely on traditional cryptocurrencies, which are
considered to be mathematics-driven protocols

1.2 What are some characteristics
of cryptocurrency networks?

There are currently thousands of different
cryptocurrency projects and networks, many
with distinct design, architectures and features.
While most cryptocurrency projects rely on a
distributed ledger system, there are two primary
types of “access” permission: permissionless,
where networks are open and any entity can
participate in terms of sending transactions,
reading the history (ledger) of transactions, or 

participating in transaction verification; or 
permissioned, where participation in these
activities is limited by a governance framework
that restricts participation. The focus of this paper
is the former, permissionless cryptocurrency.
Additionally, the way networks reach “consensus”
between participant validators is varied; some
use proof of work (e.g. BTC), others proof of
stake (e.g. ADA) and other mechanisms.

Navigating Cryptocurrency Regulation: An Industry Perspective on the Insights and Tools Needed to Shape Balanced Crypto Regulation