Regulatory policy

Phantom Finance: A review of the scientific literature on the public policy impact of blockchain-based digital economies

As the Internet continues to transform our modern world, new developments in distributed ledger technologies (DLT) promise to revolutionize the monetary system as we know it. A prime example is the emergence of digital asset economies, which encourage users to buy and sell secure data on the blockchain as a form of commodity token. Yet, even as a growing number of technologists, investors, and nation states have embraced virtual assets like the next iteration of financethese economies face an uncertain political future because of their novelty, opacity and tradition. role of the state in monetary creation. Additionally, given the rapid adoption of these products and the continued lack of regulation, further evidence-based discussion is needed to fully understand the effects of this phenomenon and target legislation accordingly. Therefore, my analysis draws on the findings of 17 peer-reviewed articles to highlight the impact of these digital asset economies on six public policy areas.

Use for payments

A majority of studies have revealed that digital assets could prove more useful for monetary transactions than legacy systems. In particular, Rueben Grinberg (2012) reviewed developer websites and coding databases for highlight the ease of sending microtransactions compared to centralized companies like Apple or PayPal. Several studies have also determined that financial transactions benefit from digital assets low cost executable in real time. More recently, three eminent authors Noted blockchain technology had the potential to ensure that digital assets could make economic resources transferable regardless of space, time and cost, using a survey approach (or a time series) to track each asset’s effect on price with distance.

However, some articles have reported concerns about the speed and durability of digital assets. Grinberg (2012) pointed out that Bitcoin competed with products facilitating internet payments and was unlikely to remain competitive if competitors could lower their prices. Additionally, Marthinsen and Gordon (2020) cited the scalability of DLT networks as one of the industry’s biggest challenges, noting that current dollar-pegged (“stablecoin”) asset networks such as Tether have processed a maximum of just 270,000 transactions per day.

Data security, fraud and crime

Some authors focused on the underlying blockchain platforms for increased data retention and distributed hosting responsibilities, even as concerns about illegal activity dominated. Catilini and Gans (2019) found that blockchain technology could prevent information leaks by allowing participants to verify transactions made in a digital token. However, their abstraction from technical systems may have complicated the external validity of this study based on the token configurations involved.

Another major area of ​​agreement was the possible use of digital assets for criminal activity, centering on the ease of using virtual currency to evade taxes, buy drugs and launder money compared to the physical currency or bank deposits. This was due to the nickname character of transactions and the greater comfort involved compared to physical crimes based on currency. Curiously, however, Saiedi, Brostrӧm, and Ruiz (2021) found greater demand for the bitcoin architecture in countries that have experienced inflation crises, taking into account geospatial uses to deduce the socio-economic situation of each country. While these results do not invalidate the role of digital assets in crime, they do suggest that crime and the presence of digital assets may be correlated based on individual environment rather than causal impact.

Decentralization and technological stability

Studies investigating the impact of digital assets on technological stability and centralization have found that networks increased decentralization and democratized access to data, pushing financial power to users. Niranjanamurthy, Nithya and Jagannatha (2019) Speak clearly blockchain data as “complete, consistent, timely, and accurate”, while other authors have noted that digital asset networks could better resist malicious attacks to their lack of a centralized single point of failure.

Conversely, Spithoven (2019) found that the use of digital assets for emerging “distributed finance” applications, also known as DeFi (involving products such as automated lending platforms and accounts interest), excessive knowledge required to navigate, and even Grinberg (2012) expressed concern that the technology could fail if wallet addresses were entered incorrectly. Niranjanamurthy, Nithya and Jagannatha (2019) also found that the performance of services hosted on centralized servers would always be faster and less limited than those hosted on blockchains but would sacrifice decentralization.

Political viability and governmental recognition

Existing studies were mixed on the political viability of digital assets. According to Grinberg (2012), the lack of government recognition was not ipso facto a barrier to adoption, with other examples of unsupported currencies such as the “Swiss Iraqi Dinar”, circulate successfully for long periods. Additionally, Stewart (2017) found that smart contracts powered by digital assets could improve positive behavior by users by creating a ‘mythical’ level of legal obligation, with users becoming ‘digital citizens’.

However, many authors have expressed uncertainty about the extent of these analogies. For example, Spithoven (2019) claimed that without strong external regulation, cryptocurrencies could become look like a “Veblenian” market characterized by predatory behavior. Similarly, Grinberg (2012) noted that trust in certain digital assets could collapse without proper guidance, whether with the development of superior technology or significant government repression.

Financial instability

Notably, relevant studies have reached universal agreement that the volatility of digital assets does not pose a danger to investors. Some have suggested that they might work as a haven against inflation caused by excessive currency debasement, while other quantitatively proven that assets like Bitcoin do not represent “systemic risk” and dismissed fears of a digital asset “bubble.”” Adrian and Mancini-Griffoli (2019) issued the only note of caution with regard to volatility, but recognized the potential for high return on investment.

Energy consumption

Energy use is a growing concern in popular debates, but was notably absent from the majority of the literature reviewed. Denisova, Mikhaylov, and Lopatin (2019) noted that such comparisons remain difficult to make given the high power consumption of traditional banking, with some metrics suggesting digital assets can be a net positive for the environment because of their promotion of green energy.

Denisova, Mikhaylov, and Lopatin (2019) ultimately found that the use of digital assets could encourage the efficient use of electrical energy in traditional energy markets, and the development of new possibilities for the creation of distributed solutions. But Niranjanamurthy, Nithya and Jagannatha (2019) found this ever-dominant bitcoin represented the greatest energy expenditure among blockchains, requiring immense power in the transaction validation process. This continues to be problematic for countries dependent on cheap hydrocarbons, even though Bitcoin miners have a biggest trend global use of renewable energies.


In addition to the need for continued evidence-based research, peer reviews of established research play a vital role in popular fact-checking convention, such as examining notions that price volatility and energy consumption make digital assets unsustainable. Along the same lines, policymakers should avoid a one-size-fits-all approach when addressing the benefits and risks of adopting digital assets. Instead, as bans and deregulation expose society to unnecessary harm, regulators should adopt an approach that preserves benefits for payments, decentralization and financial benefits while combating the risk of crime, instability and waste of energy. After all, while digital assets may seem like “shadow finance” to many, the need for measured regulation and the impacts it could have on American prosperity are probably very real.