How the Law and cryptocurrencies shape each other: A Conversation with Professor Eva Micheler

This interview was conducted in the Spring of 2025. It has been edited for brevity and clarity.

Harvard Undergraduate Law Review (HULR): What is important to know about cryptocurrency and distributed ledger technology to understand their role in the legal space?

Professor Eva Micheler (EM): There's a lot to know there. The first fascinating thing is that cryptocurrency is an attempt to create money outside of a central bank. The idea is that this is a peer-to-peer, person-to-person decentralized way of having a medium of exchange, a store of value, and a unit of account. That was the plan of Bitcoin, for example, which was launched just after the financial crisis of 2008. That plan didn't quite work as intended. Bitcoin, for some time early on, was, in fact, used as a medium of exchange, but it no longer is, and it certainly never was a unit of account. Now it is used for investment and speculation purposes. This idea of having money that is independent of the state was an initial idea, and where we've ended up is that these cryptocurrencies are an investment, an asset in which people invest money.

HULR: Can you tell me more about the distributed ledger technology that underpins this investment?

EM: Yes, so that's fascinating. The distributed ledger technology that underpins the investment is a combination of a number of technologies. The way it works is that there is a group of people who all keep the same ledger and update by agreement. This means that the ledger is very tamper-resistant, because if you wanted to attack it and hack it, you would have to hack all the copies kept by everyone who has the ledger. That's one aspect of the distributed ledger, of the record keeping and the updating that is done through some form of agreement between the participants. The other element is this private and public key cryptography. The way this works is that all participants have a public key that we can share. And if you send a coin to me, you send that coin to my public key, which is an alphanumeric account number, and you sign the transaction with your private key. Private and public keys are associated with each other. So we can have this peer-to-peer run network. We can have accounts, and we send money to each other through cryptographic means. And then there's another element to it. We've got the distributed nature of the blockchain, meaning that each person keeps a record of the transactions that occur. That has the effect that you immediately notice when somebody tries to modify a transaction.

HULR: Cryptocurrency is differently classified under the law across Europe. What are some different classifications of cryptocurrency under the law across Europe? What are the implications of having this variety of classifications?

EM: Some jurisdictions, such as the UK or Austria, characterize a cryptocurrency as property. And then they characterize it as an asset that you can own, that can be stolen, that can be transferred. And there are lots of property law questions on how this exactly works, but there's agreement that this is property. German law, for example, doesn't recognize cryptocurrencies as anything.

HULR: What are the implications in Germany’s legal system of not having cryptocurrency recognized as an asset? Does that create problems and loopholes in their legal system?

EM: The implications would be that you couldn’t steal cryptocurrency. People who are buying cryptocurrency in Germany are at much more risk than they would be in other countries. Cryptocurrencies can be traced de facto because this is a highly international environment. If somebody steals your crypto and it ends up on an exchange outside of Germany, you can enforce your rights there.

HULR: Interesting. So, what are the laws in place that are controlling cryptocurrency in Germany, and how does that compare to other places in Europe?

EM: The European Union, and also the UK, have started to regulate cryptocurrency, and they're treating them as digital assets. I'm now introducing another piece of information. This technology that we were talking about has been used not only for cryptocurrency, but also for other assets. For example, you can record rights to diamonds on a distributed ledger, or you can record shares on a distributed ledger, and this method of recording ownership in other assets on this distributed ledger is starting to be regulated in the UK and also in the EU. The way the regulation works, in the most simple terms, is such that they are treated in a similar way to securities, such as shares and bonds. You need to disclose information about them so that people who buy them are adequately informed about what kind of rights they get.

HULR: You mentioned asset digitization, which, to my understanding, and based on what you said, is when physical or analog assets are converted into a digital format, and that makes it easier to manage these assets. For example, this would look like an owner of a luxury bag rather than selling the physical asset, turning it into digital tokens that can each be sold online for some fraction of the cost of the bag. The physical luxury bag has now been transformed into a digital asset. This makes it possible for more than one person to own part of the bag. That management and digital format is underpinned by the distributed ledger technology that we saw in cryptocurrency. As a reminder, this distributed ledger technology ensures that every transaction is recorded on all servers that are part of the ledger. If I buy a token of the luxury bag, every record gets updated. In your article “Custody chains and asset values, why cryptocurrencies are worth contemplating,” you wrote about the legal problems troubling securities holding systems. Securities holding systems are structures by which people own and transfer securities such as stocks and bonds.

Could you expand on the significance of problems and how digitising these securities could solve those problems?

EM: Yes, one problem is the way that securities are currently held in many common law countries, including the US. The problem is that it is difficult to exercise rights against issuers, and that's because there is an issuer, and then there's an intermediary, and then there's another intermediary, and another intermediary through which you have to pass to access your security. The UK is particularly affected by this, and so the result is, if you want to vote on how to change a security, you need to go through this chain of intermediaries, and then information can get lost, and your vote may not reach the issuer. If you want to enforce a claim against the issuer, you may not be treated as a shareholder. And the idea is that the technology could create a master record of all owners, also the intermediated ones, and enable them to be directly entitled. In theory, very much in theory, you could share a digital ledger where you don't need intermediaries.

HULR: So to summarise here, because the distributed ledger technology updates the transaction on all servers immediately, you would not need to pass through intermediate parties to access your security. This would make the holding and, crucially, the exercising of the right on that security much simpler.

What are some other ways in which EU and UK law is adapting to cryptocurrency and distributed ledger technology?

EM: There is also a sandbox, a controlled regulatory environment, that has been launched in the UK, the digital security sandbox. There is a sandbox that has been launched in the EU, and the sandbox is the regulator, saying, we welcome projects that develop this digital securities ledger, and in order to support that. As the regulator will allow you to operate in an environment with less regulation. We will initially not apply our full rule book to these projects. So we will not treat them like a traditional securities depositary, but we will give them some breathing space to develop their business model. Then the rules are gradually imposed on them. Initially, the business using the sandbox can only offer to certain clients, and as they learn the ropes, we lead them gradually into the fully regulated realm. The idea is that this should work in practice. We will see; the UK only launched before Christmas of 2024, and they have got the most serious problem with the security holding systems going through too many intermediates. The hope is that sandboxes will promote innovation, in particular with the distributed ledger technology, that will make the holding and management of securities easier.

HULR: When did the EU introduce this sandbox initiative, and has it been successful?

EM: The EU introduced this a while ago. My intuition is that there hasn't been much take-up. I need to say, however, that the civilian countries in the EU have less of a problem with the securities holding system. Under German law, or under a number of civilian jurisdictions, indirect investors are fully entitled.

HULR: So, sandboxes are these controlled environments where businesses can innovate and set goals to foster innovation, but not incur the regular, normal regulatory consequences initially.

Another question I have is about the distributed ledger technology and how that can be used for regulatory purposes. You spoke about this in your article “Regulatory technology: replacing law with computer code.” What is the potential role of this technology in the regulatory space, and how successful has this been?

EM: This is really fascinating. The regulated entities, such as banks, need to share information with regulators regularly. They need to tell the regulator how many mortgages, for example, they have granted, so that the regulator can monitor on a continuous basis whether they're taking too much risk. This is a post-financial crisis measure. The regulated entity collects the information, puts it into a file, and sends that file to the regulator. The regulator collects the file, puts it into its system, and then all is well. They have stayed within safe limits. The idea is, it would be easier if they shared a database such that the people who make a lending decision put that into their internal system, and that information is then fed to the regulator in real time. You could do this through a distributed ledger, so all the banks share the mortgage reporting system, and their computer systems are connected with the regulator. The regulator takes the information from them automatically. That would save money, because we would need fewer people to put this in a file, send it on, receive it, and put it into the other system. I was part of a project funded by the Science Research Council in the UK, and we did a feasibility study about how distributed ledger technology could be used. We concluded that technologically, this would be a good idea. However, the business model for funding the transition is not feasible. The investment needed to create the infrastructure is too high. That's because switching all these systems into a shared ledger is extremely costly, and the savings accrue in the distant future.

HULR: So, in terms of the legal implementation for this distributed ledger technology in the regulatory space, it's not likely that it is going to be adopted. But the digital securitization and the sandboxes that you mentioned have potential, especially in the UK.

EM: Yes, that's what my guess is. The other thing where I think the technology can gain some traction is in the space of electronic trade documents. This is when goods are shipped across borders; they are usually accompanied by documents, and they can be digitized. There, I also see a potential for the technology to be useful. It does have the same cost barrier, but the savings are larger, so it's a quicker return on your investment.

HULR: Interesting! Thank you so much for your time and for sharing your insights.

Speaking to Professor Micheler made clear the scope of the usage for distributed ledger technology in the law, not only in making it easier to act on securities that one holds but also making it potentially easier to regulate entities such as banks. Lastly, it is important to mention the paradox itself of cryptocurrency becoming a more regulated entity that is recognised under UK and EU law. Originally, cryptocurrency was born out of the financial crisis due to low trust in financial institutions. The idea was to have a way to have cash systems that are independent of banks and the government. We have now, however, come to the point where more and more supporters are pushing governments to regulate cryptocurrency and write it into the law to grow the base of supporters of cryptocurrency. This is because if cryptocurrency is government-regulated, it is perceived to be a safer investment, and thus it attracts more consumers. This, in turn, drives up the price of cryptocurrency, which benefits the original crypto-enthusiasts. In some ways, therefore, the fact that there is a discussion around cryptocurrency’s role in the law suggests that cryptocurrency has lost its original intention.