By While the technical limitations of blockchain technology need to be addressed, so too, do the legal and regulatory challenges. There must be a dual development both of the networks that form the infrastructure of the crypto stack and the legal and regulatory environment in which blockchain must operate in order for the widespread use of blockchain to become a reality.
Founding Jurisdiction
The first challenge that must be considered when creating a legal and regulatory framework for blockchain is that of jurisdiction. Legal jurisdiction defines which court of law has the power to rule over a matter. Every county has its own jurisdiction and different laws that operate within that country. The difficulty with determining the jurisdiction of blockchain is deciding which country the blockchain falls within, what laws are therefore applicable and which court has the authority to rule on the matter. As blockchain ledgers do not have a specific or clearly identified location for each transaction, with each node potentially being located in a different part of the world, determining jurisdiction is major hurdle for legislatures when creating the legal and regulatory framework for blockchain.
Legislatures will have to be cautious of this issue when creating the legal and regulatory framework for blockchain so as to avoid creating complex, duplicative and possibly conflicting regulatory and compliance demands for entities wishing to implement blockchain solutions.
Legal Validity and Accountability
The law with regard to the formation and recognition of smart contracts will also have to evolve to reflect technological developments. The legal framework will have to extend the current legal basis for contract formation so that smart contracts created by blockchain may be identified and recognized as contracts in law. When deciding a legal dispute around blockchain, the legal framework will have to be amended so that there can be no doubt as to what constitutes a smart agreement and when such agreements are deemed to be valid and enforceable.
Legal systems and regulatory frameworks will also need to clarify accountability when it comes to blockchain technology and its use. Legislation will have to ascribe accountability based on the nature of the blockchain’s use, who is running it and how it functions, which in itself is a challenge due to the nature of blockchain technology. A further issue that will need to be decided is how to attribute accountability to decentralized autonomous organizations or DAOs.
The Right to Privacy and Data Protection
Public blockchain systems also present challenges to law-makers in terms of balancing an individual’s right to privacy within the concept of an open network. For example, organizations storing personal data via blockchain where the network is a public one may have virtually no control as to where data is transferred to and who has access to it. The use of blockchain to handle personal data will, therefore, have to be carefully considered in the light of privacy and data protection laws.
The legal and regulatory frameworks that need to be developed in relation to blockchain technology will have to tackle the abovementioned challenges and more before the use of blockchain can be proliferated. Such challenges will have to be determined on an international level owing to the cross-border functionality of blockchain before the mainstream adoption of blockchain can take place.
What other legal challenges are you concerned about? Let us know in the comments below.
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