The team at Augustus Cullen Law answer important questions that you may have about blockchain and how it is changing the legal environment.
What impact does blockchain have on the legal environment?
In a few short years, blockchain has moved from a niche concept, spoken about exclusively in tech circles, to the mainstream.
But what exactly is it and how does it work legally?
What is Blockchain?
Think of blockchain as the “spreadsheet in the sky”. In other words, a database that exists in the cloud.
Any information that can be saved into a database or spreadsheet can be saved in a blockchain. The content in the blockchain is then able to be shared among users on the network.
Bitcoin is the most well-known example of blockchain technology working. All transactions of this virtual currency, from user to user, are recorded in the blockchain and allow multiple parties to view the transaction records. No one individual or group can change the transaction record since everyone else can see it too.
This new way of storing data and the democratisation of providing information access to more people has the tech industry excited, and increasingly startups and established organisations are looking to implement blockchain technology themselves.
What about privacy and data protection?
Blockchain technology enforces a transparency between all parties involved in transactions made on the environment. This enforced transparency complies with the requirements under data protection law.
However, complying with the new European GDPR (General Data Protection Regulation) could be quite a different matter considering the consolidated responsibilities and sanctions for violating GDPR laws.
Blockchain contracts will be required to integrate appropriate data protection provisions if transactions involve personal data. As such, blockchain software developers’ focus needs to be on the requirements of ‘privacy by default’ and ‘privacy by design’ during the development and implementation stage.
Intellectual Property and Blockchain
Intellectual property rights also need to be considered. It is likely a client buying a blockchain solution will pursue exclusivity and appropriate reparations in the contract to safeguard against intellectual property claims over the technology they are acquiring.
Without applicable contractual securities, businesses risk being subjected to claims over intellectual property and experiencing both financial loss or reputational damage.
Contractual Warranty and Liability
Blockchain smart contracts allow for remote systems automation. Interlinking smart contracts to the Internet of Things (IOT) could improve cost monitoring and increase system efficiency, both of which have positive outcomes for businesses.
The creation of a commerce of services between devices, however, does raise queries over contractual liability and allocation of censure when an IoT device malfunctions.
Blockchain developers and suppliers need to ensure that transaction contracts with a customer for a blockchain solution limits their liability. In addition, an exact limited set of warranties need to be given that exclusively address zones within its governance, particularly when an organisation’s blockchain may involve third party technology or contractors.
Keeping Current with Evolving Laws
The blockchain technology is currently not subjected to any specific regulations and laws. Subsistence laws are customarily applied to new technologies as they emerge, and it is uncommon that a new law is introduced immediately in reaction to the emergence of new technology.
Lawmakers across Europe are looking to understand more about blockchain technology before implementing rules. This ‘wait-and-see’ approach is quite sensible as lawmakers look to avoid applying rules prematurely that might potentially prevent blockchain industry growth.
As such, blockchain technology contracts should assign responsibilities to parties to keep an eye on laws and regulations as they evolve.
What Next for the Blockchain Technology?
Blockchain provides governments, businesses, financial services and the technology industry a means to smoothen e-payments, execute contracts and provide secure online registers much more efficiently, while reducing errors, corruption, and fraud.
However, common contractual issues like liability allocation, warranties and the protection of intellectual property rights remain a potential problem when using for blockchain services.
To fully harness the power of blockchain, businesses will need to rise to these challenges as the technology becomes a part of the global financial and technology terrain.