Blockchain technology is a fundamentally disruptive invention in tech spheres, having spawned a wide variety of products and ideas within a number of key industries. It has been the subject of intense speculation and interrogation as new ideas become mainstream, and new products rush to market – but the innovation is not without its impacts and implications, particularly from a legal standpoint.
But first, what exactly is blockchain? And how has it become such an important topic of discussion from legal and ethical standpoints? Blockchain, in brief, is the technology behind cryptocurrency – which, itself, describes decentralised digital currencies used as speculative assets in a contemporary, online market.
Blockchain describes the manner in which cryptocurrencies are mined, minted and verified; it is an immutable ledger, which logs and tracks the movement of specific items of data and cannot be altered or edited. This technology has begun to see wider usage in other industries, as a novel way to share information and trade assets. From NFTs to the smart contract, blockchain is revolutionising industries – but with some serious potential costs.
One of the key legal implications presented by blockchain technology relates to jurisdiction. This is particularly visible in cryptocurrency and NFT markets, where blockchain is used to verify ownership and trade of assets with speculative value. These exchanges are happening digitally, and as such, in relatively unregulated markets. Huge sums are traded in markets free of oversight – presenting unique issues when fraudulent activity occurs.
But the real legal issues present themselves to businesses incorporating blockchain technology internationally; nodes of a blockchain network can exist in a wide number of locations, meaning that a series of transactions could need to adhere to the rules and regulations of ten different nation states.
Speaking of jurisdiction, the difference in regulation between two distinct countries could form the difference between a valid and void contract – with particularly dire consequences for the business attempting to incorporate blockchain technology as a tool for transfer of ownership.
For these businesses, a blockchain lawyer would have to draft a system of internal governance, and a framework through which parties involved can agree to specific terms and rights within future smart contracts.
Lastly, blockchain is often espoused to be the future of security on the internet, owing to its immutable ledger and impenetrable transaction pathways. However, blockchain remains an extremely high risk when it comes to cyber-security, in a number of ways.
Chiefly, though, cyber-criminals rarely attack the most robust part of a transaction chain. It is not commonplace for fraudsters to intercept payments to and from online retailers; instead, they phish users of online retailers and harvest their information, gaining access in the process.
By this same token, blockchain is only as safe as the users engaging with it. This can have disastrous impacts legally, where blockchain products can be, effectively, legally transferred – thus removing claims of ownership.