Blockchain is an emerging technology with the potential for improvement, expansion, growth and innovation. This evolving aspect of blockchain technology warrants excitement, with a tinge of caution thrown in for good measure. For this reason, consulting with a blockchain lawyer or cryptocurrency lawyer may prove reassuring.
What Is Blockchain?
To many, blockchain technology is the tech supporting digital bitcoin currency. Blockchain technology is emerging as a digital method of transaction verification that companies can make instantaneously on a network without going through a central authority.
Blockchain is a digital, publicly accessible ledger that tracks all cryptocurrency transactions. The newest transactions form “blocks,” with the recorded information becoming part of the chain upon completion of a block. This provides a way for those participating in the market to keep track of digital currency transactions without going through a central recordkeeping repository.
Each computer connected to the network is a node in the network and automatically gets a downloaded copy of the blockchain ledger. Blockchains use distributed ledger technology, allowing verification of transactions, as well as the digitization and insertion of any document into the blockchain.
The result is an unchangeable, permanent record. The authenticity of the record is verifiable by each node using the blockchain network, alleviating the need for a single centralized authority for authentication.
No private party or governmental entity controls public blockchains, meaning there is no designated “record keeper” or accountant. With no definitive regulations in place, the U.S. states are free to implement their own regulations and rules.
In June 2015, New York became the first U.S. state to initiate rulemaking measures to regulate virtual currency companies. By 2017, eight U.S. states have developed bills promoting or accepting the use of blockchain technology and Bitcoin.
Federal regulators are beginning to take notice, however. In December 2017, Forbes reported the Internal Revenue Service and the Securities and Exchange Commission, among others, are beginning the groundwork toward regulation of blockchain technology.
The U.S. Commodity Futures Trading Commission (CFTC) ruled in 2015 that cryptocurrencies are commodities and can be regulated. In March 2018, a U.S. District judge upheld the ruling, giving the CFTC standing to regulate virtual currencies as commodities. Subsequently, the Securities and Exchange Commission ( SEC) is advising registration of platforms dealing in cryptocurrencies as a condition of doing business in the United States.
Potential Regulatory Challenges
Before the U.S. accepts blockchain technology as a legitimate legal tool in financial services circles, it may face some of the following regulatory challenges.
- Legal nature. Issues such as jurisdiction, applicable law, liability and territoriality should something go wrong are being raised. The legal nature of blockchains and shared distributed ledgers are potential points of question since these have no specific location, since each network node may fall under different local legal requirements.
- Recognizing blockchains as immutable, tamper–proof nodes. There needs to be a legal framework to identify the veracity of information contained in blockchains. This is necessary for blockchains to qualify as unique, trusted sources for data protection and authentication of legal persons.
- Acceptance in court. Inclusion of a document in a blockchain implies the document stands as proof of existence or ownership. There is currently no legal precedent on which to base this claim.
- Liability in smart contracts. Because the distributed ledger of a blockchain doesn’t have a specific location, questions of which party to the contract is liable should the smart contract fail are rightfully raised. Liability could fall to any or all the parties involved with the contract, generating potential jurisdictional issues.
A Work in Progress
Blockchain technology is being implemented across the globe. Anywhere there is internet access, a node in blockchain technology may exist. The advantages of this rapidly evolving technology are steadily expanding and changing. While its final form isn’t yet known, it is here to stay.