We live in the information age where technologies, such as the internet, help
businesses to create innovative digital services and products for consumers’ wants and needs. Recently, one of the technologies being championed as a solution to many of
society's issues is blockchain technology.
Through the utilisation of its features (transparent distributed ledgers, cryptography, and
smart contracts), blockchain has the possibility to digitally create legal contracts and even
transfer ownership of property. As explained by tech guru Chris Skinner "It is a revolution
because blockchains can record identities, financial transactions, and all kinds of legal
operations”. However, there are some legal issues that should be addressed before society confidently embraces its benefits.
1. Legal framework regarding the legal identity of blockchain and shared distributed
Blockchain is a distributed ledger technology. Copies of the ledger (or database) can be
downloaded from anywhere, by anyone, in the world. This opens questions of territoriality
and liability, especially in cases where blockchain networks are not operated by a controlling
entity. Furthermore, the pseudonymity provided to users of blockchain networks through the
use of cryptography, makes it very difficult to identify and hold individuals legally
2. Legal framework for confirming that blockchain ledgers are tamper-proof sources of
information that can be used as evidence of possession or existence
Blockchain ledgers secure information using cryptography and smart contracts to ensure
that once information has been verified and saved onto the ledger, it is near impossible to
change it. The validity of this immutability must be acknowledged under the law.
Additionally, there must also be a legal acknowledgement that inclusion in a blockchain of a
deed declaring ownership or the existence of an asset represents genuine proof of
ownership or the real existence of the said asset.
3. Legal enforceability of smart contracts
Smart contracts are self-executing agreements coded into technology that does not need
human intervention. In the Bitcoin blockchain-based protocol, smart contracts are used to
securely allow users to create and send digital assets of Bitcoin from one user to another,
without the need of an intermediary. In general, as these digital assets and agreements are
transacted in a decentralised manner, it must be confirmed whether smart contracts fall
under the traditional legal framework of contract and property law, or if they need an entirely
4. Data protection issues on the identification of individuals and the right to be
As blockchain technology allows the users of the network to interact pseudonymously, there
are data protection issues that must be addressed. Regulators and prosecutors such as the Securities and Exchange Commission (SEC) are investigating the potential to possibly identify users using network effects, which would negatively affect individuals’ right to privacy.
Additionally, as information that has been verified and stored on a blockchain ledger cannot
be deleted, it raises concerns with the users’ right to be forgotten, found in the General Data
Protection Regulation. There are already some solutions being developed in
both law and technology including;
(i) saving only anonymous and pseudonymous data on
(ii) and further legal clarification on whether encrypted data saved on
blockchains constitute pseudonymous data (Spanish Data Protection Authority Paper:
Introduction to the hash function as a personal data pseudonymisation technique).
5. Legal framework for the financial instruments stored on blockchains
Blockchain can be used to create immutable information that can potentially have legal
ownership rights, these have been widely coined cryptoassets. They have been categorised
as financial instruments due to their ability to act as a store, transfer of value, and act as a
unit of account (CP19/3: Guidance on Cryptoassets by Financial Conduct Authority).
There has been no consensus on how to categorise these crypto assets which
makes their adoption very difficult, especially with blockchains’ decentralised nature. This
means that different individuals and organisations from different jurisdictions will often be
regulated at varying degrees.
6. Intellectual property
One of the main strengths of blockchain is that it can be very transparent, all participants
can view the source code of the technology and can view the transactions that occur on the
network. However, open-source technology often holds issues relating to intellectual
property. Depending on the usage of the blockchain and the business model built on top of
it, patent rights or copyrights may have to be identified.
Many different industries will be able to benefit from blockchain
technology’s quicker settlement of legal agreements, audible trails, and higher levels of
security and privacy. As we move towards embracing the Internet of Things, having
the digital identities of individuals and machines secured by blockchain technology could
help ensure that we can safely interact with each other.
That being said, there are many legal issues such as the regulation of crypto assets that lack
clarification or international uniformity which makes their adoption very difficult (especially
considering blockchain’s decentralised nature). It is necessary to bring more legal certainty
with blockchain’s growing adoption to protect consumers, ensure that bad actors can be
held accountable and provide the necessary confidence for businesses to grow.