The appearance of the Blockchain in the modern technologies world pleased not everyone. In our time there is a considerable number of opponents of this innovative technology. They also include regulators, urging governments in many countries not to hurry the integration of this innovative digital solution of managing user data.
But today, given the elimination of regulatory concerns doubts, there is a high probability that this technology is expected to be widely used.
The Blockchain appears as a technology that could change many industries of the target economy. Experts recognize the Blockchain as revolutionary – it can perform fixing and storing data on the identification of individuals, financial or legal assets operations, and many other actions.
However, the technology of the distributed registry and its use is still subject to scrutiny at the initial stage of development, especially in the financial sphere, where regulators should not only coordinate the actions of economic institutions, but also ensure stability. In this regard, each regulatory body, which has certain powers, including the study of this specific sphere, provision of recommendations, and monitoring provides its own conclusions regarding the popularization of Blockchain. One part of the regulatory bodies positively comment on this technology, the other part adheres to a neutral position, and the third part negatively relates to Blockchain. However, there are factors causing fears of absolutely all regulatory bodies.
Lack of legal basis
As of today, there is no legal basis for adopting the technology of the distributed registry as a chain of immutable nodes that have reliable protection against unauthorized access, providing the most accurate data. In order for this technology to be used as a unique and secure source of data acquisition, it is necessary to have a legal basis that is not available today. The storage and recording of data in the distributed registry at the moment have no legal force. Because of that such information cannot be used as an argument in judicial institutions.
The legal nature of Blockchain
In addition to all of the above, there are also no questions regarding liability and territoriality. DLT, or commonly distributed registers, do not have a clear geographic location. The absence of a territorial affiliation of Blockchain represents a problem for the jurisdiction. First of all, this is due to the fact that each node of a commonly distributed registry can be subject to various legislative requirements. Moreover, in this case there is no central administration capable of taking responsibility for each separate node whose territorial affiliation could be used as a starting point for the regulatory position.
Based on these data, the notion of “responsibility” raises some doubts in the regulatory bodies, since there is no party that could be held accountable for the data contained in Blockchain, or for the operation of the distributed registry.
Legal basis for smart contracts
Questions about responsibility and territorial affiliation can also be attributed to “smart agreements”. In this case, the main legal issue is not only the geographical location of the site but the very procedure for concluding an agreement that falls under the jurisdiction of various states. Concerning obligations, it can be said that in smart contracts, in addition to the main parties, custodians and coders also take part. If one of the parties violates the terms of the agreement, there is a risk that the smart contract may deteriorate due to design errors or coding errors. So, in the event of a malfunctioning of the smart contract, it is extremely difficult to determine which party should take responsibility for this.
Lack of possibility to change personal data
The nature of distributed registry is contrary to the “right to oblivion” adopted by European law, which protects personal data, so the use of this technology creates a conflict.
Actually, the impossibility of making changes to the distributed registry is a problem. This is due to the fact that this provision is contrary to other rights recognized by the European government and a number of regulatory bodies. The “right to oblivion”, which is granted to every citizen residing in the territory of the EU, is a vivid example of this. This right gives every European citizen the ability to store personal data on paper sources or electronically in external databases and, if necessary, make changes to personal data or delete it at any time.
The only way that allows this right to be used with the distributed registry technology is to replace the right to “delete personal data” by imposing a ban on the use of this data by third parties. The corresponding task can be solved solely by combining automatic encryption of personal information or providing access to these data under certain conditions. However, as of today, Blockchain cannot even give an opportunity to ban the use of personal data by third parties.
Regulation of the Internet of Things with the Blockchain
The distributed registry technology can carry huge benefit for the Internet of Things, where absolutely all used devices are identified. In this regard, it would be useful to organize a common Blockchain network, which would store data on customer identification and each gadget, thereby providing the opportunity to conduct financial operations among the platform. The idea of using one or more DLTs for the Internet of Things becomes more and more popular day by day, which may subsequently require the creation of a legal platform that recognizes the DLT as regulatory registers.
All the problems mentioned above, related to the geographical location of sites, responsibility and the use of “smart agreements”, can also be applied to Blockchain for the Internet of Things.
Today regulators around the world cannot reach a certain agreement regarding the definition of distributed registry – they do not have a specific legal response to all the above issues. The fears of regulators regarding the use of innovative Blockchain technology, in this case, can be considered quite justified.
Legal user tools and framework
In cases where a distributed register is used as a base for determining financial instruments like securities and derivatives, it is necessary to recognize the validity of such instruments by regulatory bodies. The main financial instrument, issued in a distributed registry, is financial resources. Own financial resources at Blockchain network may have serious consequences for macroeconomics and monetary policy. Therefore, they require more careful analysis. Most regulators are currently conducting this analysis.
The legal basis of stored documents
Similar to the recognition of distributed registry technology as a unique and indispensable source of trustworthy data, a new level of recognition of information is needed so that Blockchain technology can be used in some types of entrepreneurial operations. In this case, it is not only about providing evidence of the impossibility of changing the user or transaction information, entered in Blockchain, but also recognizing that the document entered into the distributed registry has legal force and can confirm the ownership or the reality of the existence of an asset. In the event that the operation of checking the reality of the existence of property before the document is entered into the distributed register is sufficiently justified, and there is 100% confidence in the correct operation of cryptographic mechanisms, the recognition of Blockchain technology as a source of reliable data implies the use of data located in blocks as legal documents confirming the existence of property, as well as the right to own it. But today not every court can accept this.