Is Blockchain here to stay?Friday, 24 November 2017
What is Blockchain?
Blockchain technology (“Blockchain”) is one of the most renowned and revolutionary technologies to emerge as part of the financial technology (“FinTech”) ecosystem in recent times. Blockchain was developed as part of the Bitcoin peer-to-peer cryptocurrency. Bitcoin allows an individual to transfer virtual currency to another person without an intermediary such as a bank or broker having to process the transaction. Blockchain has the ability to verify that the person seeking to transfer Bitcoin actually owns the bitcoins and can track every step of the transaction. Bitcoin maintains a digital ledger, a ‘blockchain’, of every single Bitcoin transaction ever completed. The results of these transactions are shared through a peer-to-peer network among users of the database, each of whom verifies their accuracy through automatic algorithms.
Once a ‘block’ is validated, it cannot be changed without changing it across the whole network. Blockchain therefore creates a permanent and immutable public record, since the integrity of data on the ledger is kept up-to-date collectively. While all network participants can examine the data on the blockchain, it can only be amended by general agreement between those participants and according to a strict set of rules.
The potential for Blockchain technology is not merely for cryptocurrencies such as Bitcoin. Blockchain technology provides a means to create cheap, tamper-proof public databases for a variety of purposes (e.g. transaction information, contracts, data files, photos, videos and design documents). It provides transparent peer-to-peer transactions and an irreversible, secure and time-stamped record of those transactions.
Regulation in Ireland
Unlike banks and financial institutions, Blockchain is currently not subject to any specific legislation or regulations in Ireland. Control and regulation of the sector is imperative given the vast values at stake and potential ramifications of mis-use of the technology.
While various European and global organisations have proposed broad principles towards implementing regulation for Blockchain transactions, there have been no substantive proposals offered or implemented in Ireland yet.
The Central Bank of Ireland has not formally commented on the approach that it will take to Blockchain as applied to financial services or adapted for other uses. Similarly, the Law Society of Ireland has made no representation on its official view on Blockchain or the ‘smart contracts’ that incorporate Blockchain.
The Financial Conduct Authority (“FCA”) in the UK also appears to be adopting a wait and see stance and is currently limiting itself to discussing Blockchain with regulators in other jurisdictions. It will be interesting to see what stance the UK takes on Blockchain regulation post-Brexit.
In January 2016, the European Commission (“Commission”) commented that it would adopt the approach of seeking to understand and monitor virtual currencies, Bitcoin and Blockchain, as opposed to directly regulating them. The Commission is taking a cautious attitude, arguing that too little is known at this stage about Blockchain and its derivatives to justify new laws beyond standard anti-money laundering requirements when the technology is used in virtual currencies.
The European Digital Currency and Blockchain Technology Forum was recently set up as a public policy forum to consider virtual currencies and distributed ledger technologies. Its vision is to shape regulatory and policy agenda for virtual currencies and distributed ledger technologies in the EU by engaging with policymakers, legislators and stakeholders.
Blockchain and the GDPR
From 25 May 2018 onwards, all businesses and organisations that handle personal data will have to comply with the General Data Protection Regulation (“GDPR”). Contracts for Blockchain solutions will need to incorporate appropriate data protection provisions if Blockchain is processing transactions involving personal data.
The main areas where Blockchain and GDPR will have difficulty reconciling are in relation to data portability, the right to be forgotten and privacy by design. Article 20 of the GDPR provides data subjects with a right to portability and, as such, Blockchain will have to be customised to support that right to portability. In addition, Article 17 of the GDPR provides for a right to be forgotten, whereas in contrast Blockchain stores the history of all transactions as one of the primary principals of its operation.
The principal of privacy by design requires that processing of personal data is carried out in such a manner that appropriate technical and organisational measures are implemented from the outset to ensure that the rights of the data subjects are protected and compliance with the GDPR is guaranteed. It remains to be seen if Blockchain can be built in a way that can be accepted in the context of privacy by design compliance.
Blockchain and IP
Many organisations and companies are now exploring how Blockchain ledgers and smart contracts can be deployed to manage and share data, create transactional efficiencies, and reduce costs. Blockchain technology is likely to significantly impact existing IP law in the near future – it has many potential uses in the context of intellectual property. For example: (i) smart contracts could be used to establish and enforce IP agreements such as licenses, and (ii) Blockchain could be used to record evidence of IP use and creatorship, assist in the operation of smart IP registries, and allow the transmission of payments in real time to IP owners. In addition, Blockchain used in an IP context could significantly ease the due diligence exercises that are necessary in the context of IP related transactions.
The speed in growth of technologies such as Blockchain suggests that direct regulation of this area is not too far away. It remains to be seen how developers of Blockchain can continue to develop the technology while ensuring compliance with existing and future legislation, for example GDPR. However, because of the obvious usefulness of the technology, it seems clear that Blockchain is indeed here to stay.