Crypto Policy DAO

Blockchain Regulation Matrix

The Blockchain Regulation Matrix (BRM) establishes a framework outlining the concerns of regulating the blockchain from both the government and the consumer perspective, and in doing so, provides a pragmatic and clear approach to Web3 regulation. The BRM outlines regulation aspects of the blockchain by viewing it as a blockchain stack in many layers starting with the electricity physically supporting the blockchain at the base layer, all the way to the process of offloading crypto to fiat currency. With centralization and decentralization on either side of the matrix, the primary objective of the BRM is to understand where and how regulation of the blockchain should be developed specific to each layer.

Beginning with the electricty supporting the blockchain, as you hover over the images of each row, you'll see the specifics for that topic within that layer. The left side refers to projects that are centralized, while the right side refers to projects that are decentralized. For example, if there was an organization or business that wanted to provide electricity to miners in their area, that would be a centralized project. However, if there was a solar farm operating as a DAO that wanted to provide electricity to miners, that could be a decentralized project.

There are two illustrations of the Blockchain Regulation Matrix below, a short-form immediately below and a long-form afterwards.

Hover over each of the images below to read more information.

Electricity
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Concentration of electricity supplied to a blockchain from within countries or areas.
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies only to entities that are producing the electricity that powers the blockchain.

Electricity
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

Settlement Layer
Government Concerns
Not being able to update / edit fraudulent transactions
Not being able to identify immoral activity that could be deemed fraudulent
Consumer Risks
Lack of due diligence
Security and attacks
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Cons to lack of regulation
Potential displacement of development activities to more permissive jurisdictions
Does blockchain technology currently exist to fulfill the above concerns, and if so, what is it?
Proof of Stake (PoS) consensus algorithms that require significantly less energy

This row applies only to the layer of the blockchain where transactions settle permanently.

Settlement Layer
Government Concerns
Not being able to update / edit fraudulent transactions
Not being able to identify immoral activity that could be deemed fraudulent
Consumer Risks
Lack of due diligence
Security and attacks
Cons to over-regulation
Potential centralization of the blockchain settlement layer.
Cons to lack of regulation
Potential displacement of development activities to more permissive jurisdictions
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?
Proof of Stake (PoS) consensus algorithms that require significantly less energy
Byzantine Fault Tolerance (BFT) protocols ensuring fault tolerance
Advanced encryption techniques for secure transactions and data privacy

Node / Validator Layer
Government Concerns
Not reporting income
Fault tolerant consensus
Decryption Standards
Consumer Risks
Private Transactions
Selective Transactions
MEV Protection
Cons to over-regulation
Centralization
Inhibiting technological growth
Cons to lack of regulation
Potential displacement of development activities to more permissive jurisdictions
Transaction monitoring
Selective transactions and private transactions
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the nodes or validators that are validating the transactions for each block.

Node / Validator Layer
Government Concerns
Not reporting income
Fault tolerant consensus
Decryption Standards
Consumer Risks
Private Transactions
Selective Transactions
MEV Protection
Cons to over-regulation
Potential centralization of the nodes / validators layer.
Potential displacement of development activities to more permissive jurisdictions
Cons to lack of regulation
not being able to update or edit fraudulent transactions
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Computation-intensive Consensus Mechanisms
Government Concerns
Amount of electricity being used comparatively to similar technology that uses less
Fault tolerant consensus
Decryption Standards
Consumer Risks
High energy consumption leading to environmental concerns
Potential centralization of mining power
Vulnerability to 51% attacks
Cons to over-regulation
Stifling innovation and development of energy-efficient consensus mechanisms
Driving blockchain projects to operate in jurisdictions with more favorable regulations
Disincentivizing network participation due to excessive compliance requirements
Cons to lack of regulation
Lack of standardization leading to security vulnerabilities
Potential for concentration of power among mining entities
Difficulty in addressing fraudulent or malicious activities
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the blockchains with computation-intensive consensus mechanisms.

Computation-intensive Consensus Mechanisms
Government Concerns
Amount of electricity being used comparatively to similar technology that uses less
Fault tolerant consensus
Decryption Standards
Consumer Risks
High energy consumption leading to environmental concerns
Potential centralization of mining power
Vulnerability to 51% attacks
Cons to over-regulation
Stifling innovation and development of energy-efficient consensus mechanisms
Driving blockchain projects to operate in jurisdictions with more favorable regulations
Disincentivizing network participation due to excessive compliance requirements
Cons to lack of regulation
Lack of standardization leading to security vulnerabilities
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Capabilities-based Consensus Mechanisms
Government Concerns
Upgrading consumer security standards
Consumer Risks
Insufficient protection of user data and privacy
Potential exposure to smart contract vulnerabilities
Lack of recourse in case of unauthorized transactions
Cons to over-regulation
Hampering innovation by imposing rigid security standards
Reducing accessibility and inclusivity by raising entry barriers
Limiting the potential of decentralized applications (dApps) due to excessive control
Cons to lack of regulation
Proliferation of insecure smart contracts leading to financial losses
Erosion of consumer trust and confidence in blockchain applications
Difficulty in addressing cross-border disputes and fraudulent activities
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the blockchains with capabilities-based consensus mechanisms.

Capabilities-based Consensus Mechanisms
Government Concerns
Upgrading consumer security standards
Consumer Risks
Insufficient protection of user data and privacy
Potential exposure to smart contract vulnerabilities
Lack of recourse in case of unauthorized transactions
Cons to over-regulation
Hampering innovation by imposing rigid security standards
Reducing accessibility and inclusivity by raising entry barriers
Limiting the potential of decentralized applications (dApps) due to excessive control
Cons to lack of regulation
Proliferation of insecure smart contracts leading to financial losses
Erosion of consumer trust and confidence in blockchain applications
Difficulty in addressing cross-border disputes and fraudulent activities
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Voting-based Consensus Mechanisms
Government Concerns
Ensuring fair and transparent voting processes
Preventing voter fraud and manipulation
Addressing potential collusion or vote-buying
Consumer Risks
Lack of anonymity in voting leading to privacy concerns
Vulnerability to Sybil attacks or stake concentration
Complexity of verifying the legitimacy of votes
Cons to over-regulation
Overly strict regulations hindering the flexibility and innovation of voting mechanisms
Potential centralization of voting power due to stringent requirements
Difficulty in adapting to rapidly changing technological advancements
Cons to lack of regulation
Vulnerability to malicious attacks on the voting process
Lack of accountability and transparency in voting results
Challenges in addressing disputes and irregularities
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the blockchains with voting-based consensus mechanisms.

Voting-based Consensus Mechanisms
Government Concerns
Ensuring fair and transparent voting processes
Preventing voter fraud and manipulation
Addressing potential collusion or vote-buying
Consumer Risks
Lack of anonymity in voting leading to privacy concerns
Vulnerability to Sybil attacks or stake concentration
Complexity of verifying the legitimacy of votes
Cons to over-regulation
Overly strict regulations hindering the flexibility and innovation of voting mechanisms
Potential centralization of voting power due to stringent requirements
Difficulty in adapting to rapidly changing technological advancements
Cons to lack of regulation
Vulnerability to malicious attacks on the voting process
Lack of accountability and transparency in voting results
Challenges in addressing disputes and irregularities
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Transaction Layer
Government Concerns
Ensuring traceability and transparency of transactions
Preventing illegal activities such as money laundering and fraud
Addressing cross-border transaction challenges and regulatory compliance
An anonymous public ledger inhibits appropriate recordkeeping
Consumer Risks
Exposure to potential transaction delays or fees
Privacy concerns related to transaction history being publicly accessible
Risk of inaccurate or irreversible transactions
Cons to over-regulation
Stifling innovation and experimentation with new transaction models
Restricting financial inclusion by imposing excessive compliance requirements
Hampering the usability and efficiency of blockchain transactions
Cons to lack of regulation
Increased susceptibility to fraudulent or malicious transactions
Difficulty in resolving disputes related to unauthorized or erroneous transactions
Lack of consumer protection and accountability
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the layer of the blockchain processing the transactions before they are permanently settled on the blockchain.

Transaction Layer
Government Concerns
Not being able to remediate theft or crime within their jurisdiction
Not being able to identify the criminal(s) behind the the exploits or scams
Fair transaction processes during times of increased activity
Consumer Risks
Cons to over-regulation
Cons to lack of regulation
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

On-chain Data Storage
Government Concerns
Storage space mapping
Data sovereignty and jurisdictional challenges in a decentralized environment
Ensuring compliance with data protection and privacy regulations
Addressing the potential use of blockchain for illegal or illicit data storage
Consumer Risks
Exposure of sensitive or personal data to public scrutiny
Risk of data loss or corruption due to the immutability of blockchain
Challenges in managing data access and permissions in a decentralized system
Cons to over-regulation
Impeding the adoption of blockchain for legitimate and innovative data storage use cases
Limiting the potential of decentralized applications (dApps) requiring data storage
Inhibiting data interoperability and portability across different blockchain networks
Cons to lack of regulation
Lack of standardized data storage practices leading to security vulnerabilities
Difficulty in addressing disputes related to ownership and control of stored data
Potential misuse of blockchain for storing illegal or harmful content

This row applies only to permanently storing data on the blockchain.

On-chain Data Storage
Government Concerns
That misinformation cannot be censored
Illicit profits from non-original work
Consumer Risks
Original artists not being able to censor copycats.
Cons to over-regulation
Cons to lack of regulation

Asset Layer - Stablecoins
Government Concerns
Ensuring stability and value preservation of stablecoins
Preventing money laundering and illegal transactions
Are stablecoins defined correctly in programming terms
The effects of internal inflation based on the unlimited burning / minting mechanisms of popular stables
Addressing potential systemic risks from widespread stablecoin adoption
Does crypto transaction provenance equally replace not having serial numbers on gov't released stablecoins?
Consumer Risks
Risk of stablecoin issuer insolvency or mismanagement
Lack of transparency in stablecoin reserves and collateral
Potential loss of value due to changes in underlying collateral
Irrevocability of fraudulent transactions
Cons to over-regulation
Hindering the growth and innovation of stablecoin use cases
Restricting accessibility and availability of stablecoin services
Imposing barriers for startups and new entrants in the stablecoin market
Cons to lack of regulation
Lack of consumer protection and accountability in stablecoin issuance
Vulnerability to financial crises or market manipulation
Difficulty in addressing cross-border regulatory challenges
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the asset layer, or token layer, and is only referring to stablecoins.

Asset Layer - Stablecoins
Government Concerns
Consumer Risks
Cons to over-regulation
Cons to lack of regulation
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Asset Layer - Fungible Tokens
Government Concerns
Mutability presents a scenario of being "derived from the efforts of others" which leans towards being a security.
Protecting consumers from fraudulent or misleading token offerings.
Consumer Risks
Security of transactions: Ensuring that transactions involving fungible tokens are secure, protecting users from hacking, theft, or unauthorized access to their tokens.
Centralization risks affecting token liquidity, market stability, and control.
Cons to over-regulation
Overly stringent regulations could stifle innovation in fungible token use cases and hinder the growth of blockchain projects and applications.
Excessive regulation might discourage token issuers and developers from exploring new models and tokenization methods.
Cons to lack of regulation
Lack of regulatory oversight could lead to fraudulent or misleading token offerings, potentially resulting in financial losses for investors.
Absence of clear regulations might deter legitimate projects from entering the market due to uncertainties surrounding legal compliance.
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the asset layer, or token layer, and is only referring to fungible tokens.

Asset Layer - Fungible Tokens
Government Concerns
Consumer Risks
Cons to over-regulation
Cons to lack of regulation
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Asset Layer - Non-Fungible Tokens (NFTs)
Government Concerns
classification uncertainty for diverse NFT assets like property records, medical records, or even voting mechanisms
Data privacy of sensitive NFT content
Not registering with FinCen or the SEC if selling securities
Being a vehicle for money laundering
Consumer Risks
Data exposure in NFTs, even with restricted access
Ownership disputes over real-world asset NFTs
Limited access to tokens due to over-regulation
Inability to create securities in a regulated environment
Cons to over-regulation
Stifled innovation due to heavy regulations
Barrier to entry for startups due to compliance costs
Lack of security standards and risk management standards
Limited consumer protection from upgradable features
Cons to lack of regulation
Vulnerability to NFT fraud without clear rules
Ownership ambiguity leading to disputes
Lack of potential international economic growth
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

This row applies only to the asset layer, or token layer, and is only referring to non-fungible tokens (NFTs).

Asset Layer - Non-Fungible Tokens (NFTs)
Government Concerns
Consumer Risks
Cons to over-regulation
Cons to lack of regulation
Does blockchain technology currently exist to fulfill these obligations, and if so, what is it?

Exchange Layer
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to companies that operate as an exchange.

Exchange Layer
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

Protocol Layer
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to companies that operate as a project deployed on the blockchain.

Protocol Layer
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

Application Layer
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to companies that apps giving access to other protocols that are on the blockchain.

Application Layer
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

Permanent Storage Layer
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to protocols providing immutable data storage to their users.

Permanent Storage Layer
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

Internet Browser
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to internet browsers and their context of the blockchain.

Internet Browser
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

The Developer
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to developers who are coding any aspect of their project relating to the blockchain.

The Developer
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

DeFi Architecture and Security
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to the security of DeFi architecture concerning the dependency of other third-party apps when building on the blockchain.

DeFi Architecture and Security
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

DeFi Architecture Standards / Auditor
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to creating standards for the DeFi Stack and its Architecture, and for future DeFi Interopability Auditors.

DeFi Architecture Standards / Auditor
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries

Fiat Onboarding / Offboarding Access
Government Concerns
Protecting consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Inability to use the blockchain to solve real-world problems
Inhibiting technological growth
Limiting economic growth
Cons to lack of regulation
Potential risks of concentration and control by certain countries

This row applies to protocols providing access for users to onboard and offboard fiat to their users.

Fiat Onboarding / Offboarding Access
Government Concerns
Protecting Consumers from loss of use due to a geopolitical situation
Amount of electricity required to maintain the blockchain and the amount per transaction
Consumer Risks
Potential geopolitical risks leading to electricity access disruptions
Cons to over-regulation
Potential geopolitical risks leading to electricity access disruptions
Cons to lack of regulation
Potential risks of concentration and control by certain countries