BLOCKCHAIN: THE LEGAL IMPLICATIONS OF A PROMISING TECHNOLOGY
According to experts, coming decade, blockchain technology can change the world in a manner that is similar to the emergence of the Internet. Both the government and the private sector is fully engaged in examining the (application) possibilities of blockchain technology. Therefore, entrepreneurs, administrators and policy makers would do well to begin now to take a close look into the legal implications of this technology in practice.
What is a blockchain?
Blockchain is a way to organise, store and share data. It is also being compared with a digital ledger. Instead of centrally managing the general ledger, in a blockchain the data are being distributed, stored and decentralised and synchronised by multiple participants in the blockchain network. Via the blockchain, a transparent and chronological overview of the transactions arises to which all participants have access and to which, basically, changes cannot be made unnoticed. Transparency and verifiability are therefore two of the core features of blockchain technology. It makes the application thereof ideal when you exchange information with multiple parties, or use the same set of data. Particularly now the technology is well suited for implementation of smart contracts. Bitcoin is at this stage the best-known application of blockchain technology. But this technology can be used for all kinds of organisations and processes. Meanwhile, numerous implementations of blockchain technology exist and many more forms of application are in development.
Blockchain Team Van Doorne: blockchain in practice
At Van Doorne, blockchain has now become a part of the daily practice. Our Blockchain Team advises clients on the legal challenges in the development and the rollout of blockchain applications. The team consists of lawyers who, among others, are specialised in the field of IT, Privacy and FinTech. A brief explanation of each area follows below.
IT: Smart Contracts
Blockchain technology provides, among other things, the ability to implement 'smart contracts'. The code will then contain a so-called 'consensus protocol'. From this protocol it follows that the parties involved agree to the implementation of subsequent actions, if certain conditions have been met. The subsequent operations are being carried out by a network of computers without there being a risk that any of the parties involved does not comply with the agreements. Because the tasks are being performed automatically rather than manually, the speed of the transaction is increased, and the number of human errors is reduced.
To facilitate these digital agreements, it is relevant that the network of computers is continuously available. The unavailability of one of the computers in the network would otherwise lead to the fact that a transaction does not or not timely take place, with all its consequences. The contractual agreements concerning the operation of this network of computers are therefore of great importance. In addition, a 'smart contract' also raises other legal questions, such as: Does such an automated transaction qualify as a legal agreement? What are the legal consequences if the underlying technology of a smart contract contains errors (for example coding errors) and who is liable in respect hereof?
The application possibilities of blockchain technology are virtually limitless. The technological innovation this entails yields an exponential growth of new financially driven products and services. In the near future, the rise of this form of 'FinTech' will have a large impact on legally regulated services, such as payment services, electronic money, consumer credit (peer-to-peer lending), but also on the insurance sector. The fact that blockchain is getting a lot of attention from investors, startups, regulated parties and regulators, speaks volumes.
The rise of blockchain in the FinTech sector raises many questions. Practice shows that it is often not clear how a particular FinTech company and/or its product(s) must be qualified in the light of (financial) supervision legislation. The use of blockchain technology makes that only more difficult.
Van Doorne has played a pioneering role in the field of legal advice on a practical application of blockchain technology, the Bitcoin, for quite some time now.
In all blockchain applications, one of the common denominators is that a lot of data is being stored. This follows from the distributed storage of the data. When this also concerns personal data, the privacy rules must be observed as well. Data is already personal data when it is merelyindirectly traceable to someone or when someone can be individualised. Therefore, most databases will soon contain personal data.
Privacy compliance is now no longer a choice, with fines that can amount to as much as EUR 820,000 or 10% of the annual turnover of a company. As of 25 May 2018, they may even rise to EUR 20 million or 4% of the global annual turnover of a company. This follows from the European Privacy Law that will be directly applicable within the EU and in certain circumstances also to non-EU organisations from that date. In addition to the even higher fines, this European privacy law also includes more stringent rules for privacy compliance. Something to anticipate.
With a view to the European Privacy Act, it has become even more relevant to immediately introduce safeguards for privacy compliance when implementing new systems. This is more efficient, both in terms of time and costs. This also provides advantages from a PR perspective. Particularly in applications of blockchain technology 'privacy by design' is therefore a must.
From the above it is clear that in the application of blockchain technology, various legal aspects can play a role. For questions or advice, please contact the Van Doorne Blockchain Team.