Excitement about blockchain and related technologies is rising to new heights. The value of the two major cryptocurrencies, Bitcoin and Ethereum, has proved volatile with the price rising over the years. Organizations ranging from banks to charities have publicly expressed their interest in using blockchain technology. This wave of activity has prompted responses from lawmakers and regulators, including securities regulators in the United States and the European Union. With such excitement, it is important to study the legal aspects of blockchain networks.
For blockchain networks to operate in a manner compliant with the law, they will need to take various laws into consideration, including contractual law, data protection right, securities right, property right, property intellectual property law and, finally, corporate law. This ends up becoming a major challenge for broad commercial and public adherence to the blockchain sector, becoming even more evident when the use of smart contracts occurs, since there is no structure that provides smart contracts with legal validity.
The term "smart contract" is legal and captive, but in reality it is a little more complex, as it is not a legal contract (in many jurisdictions), but rather an automated code of self-execution, capable of obtaining information, processing it and taking the proper actions provided for in accordance with the rules of the contract.
Some say that a smart contract is not a legally executable promise, but an automated mechanical process. The creator of an intelligent contract will need to explain his offer to human counterparts in an intelligible human language. This explanation may form the basis of the agreement between the parties and thus determine the terms of the contract.
Privacy and data protection laws are also a major challenge for blockchain technology: blockchain networks may contain sensitive information, such as personal data, that should not be shared with third parties. In public blockchain networks, it is difficult to prevent the public from seeing all the data contained in the blockchain.
Analyzing the European Union's General Data Protection Law (GDPR), which advocates "the processing of personal data that falls within the territorial scope of the government," it can be said that public data on blockchain, such as wallet addresses on the bitcoin blockchain, can enter into the scope of regulation as it is personal data. This could affect all portfolio providers and brokers that provide services to European clients.
While it is difficult to know how privacy laws will be interpreted and put into practice, it is unlikely that large global blockchain networks such as Bitcoin or Ethereum will be affected by European Union data protection law. However, centralized blockchain networks, created for specific purposes, will need to adhere to these laws.
Since the explosion of ICOs (initial coin offerings) in 2017, it has been discussed whether ICO tokens would be considered as securities. While many startups have used the utility tokens approach to stay exempt from securities laws, the reality is that investors look for these tokens in the expectation of receiving a return or investment in the future, rather than using, of in fact, the token to interact with the platform at its launch.
The way intellectual property and property rights relate to cryptoassets and blockchain databases are also legal challenges.
In the UK, regulatory sandboxes have also been created, as a form of experimentalism and cooperation between regulators and markets, to oversee blockchain activity. The idea is that this relationship between industry and regulators is fruitful, both by reducing legal uncertainty, stimulating innovation, and by experimenting with new legal frameworks. This approach enables the creation of a channel of dialogue and cooperation to navigate uncertainties about the potential of a new technology, producing regulatory solutions in a more participatory environment.