With many arguing blockchain to be second-generation internet, there can be no iota of doubt that blockchain is going to be tomorrow’s new normal. In simplest term it is an electronic record keeping technology. In simple terms blockchain records information in a way that creates trust.[1] It relies on three core elements in order to function: decentralization, proof-of-work consensus, and practical immutability.[2] This note gives an insight of what blockchain technology actually is and what are the features associated with it? The note further dwells into the industrial application of the technology and the legal challenges posed by it.

BLOCKCHAIN TECHNOLOGY

The very reference to the term ‘Block chain technology’, reminds us of Bitcoins but in essence blockchain is the technology upon which bitcoin transactions are built. It’s just a patch on a wider landscape. Blockchain is a distributed ledger (or register) made up of digitally recorded and encrypted (cryptographically hashed) data in the form of blocks, which when connected via the distributed network of computers storing the blocks, form the blockchain.

[3] Aptly, it is an electronic record keeping technology,[4] which distributes and verifies the records across nodes in a network. Every node in a blockchain network possesses a public key, which serves as an address on blockchain network and enable other nodes to communicate with it and a private key, which is akin to a secured password, which only the holder knows and is used to generate ‘digital signature’.

Similarly, there are two types of blockchain networks, first public network, the records stored are visible to anyone participating in the network, with no central oversight and second private network, only finite set of participants, with access are allowed to join the network like an organization, consortium of financial institutions etc. The features behind the attractive force of this technology are its immutability and hack resistance.

Every block of data, created is time stamp and is add to the chain only after being time stamp and verify by the nodes across the network. This prohibits the changing of data retrospectively, thereby offering immutability. Every block of data added to the chain is cryptographically ‘hashed’, creating a short digest of data which is stored on block and transferred in an encrypted form. As no block of data can be decrypted without previous bloc of data, it makes it hack resistant.

INDUSTRIAL APPLICATION:- NEED TO KNOW

The profoundness with which the technology has pierced the market, it has myriad applications. This section attempts to understand applications of the technology in a few prominent sectors in a very brief manner.

Finance

The financial industry has emerged as the biggest potential market for blockchain technology. There dozens of blockchain based Fintech companies offering myriad of products and services. The technology has passed its way in the financial sector banking to investment to payment services etc. It also has other myriad use in the sector including transforming regulatory oversight of transactions by giving regulators constant and real-time access to audit and monitor industry participants.[5]

2. Real Estate

The real estate sector is plague by cumbersome paper work, bureaucratic red tapism which can be well tackle by Blockchain technology. It being a trust less, decentralized system, has the potential to remove the need for middlemen, disrupt existing identity verification processes (through digital IDs), reduce the risk of fraud (by creating incorruptible, digital ownership certificates for each property), and track the regulatory compliance of the property.[6] Many companies like ubiquitous, mid asium blockchain have been making concentrated efforts in developing blockchain driven products for the real estate sector.

2. Smart Contracts

Smart Contracts are self-executing, with the terms being written in code and residing on a decentralized, immutable blockchain.[7] They are programmed to self-execute upon completion of certain conditions. The proposition that smart contracts may replace lawyers is redundant as they are not contracts in legal sense but computer protocols that behave in a manner determined by their programming.

3. Intellectual Property

The inherent feature of block chain technology makes it suitable for IP records and transactions. Works can be transfer and license with the accompanying terms, rights, and prices encode on to them.[8] Blockchain provides a structure uniquely suited to protect IP rights through a secure, immutable, and real-time platform for creation and distribution of creative works, giving IP owners a level of control previously unavailable.[9]

4. Health Care

The block chain can store and control access to electronic medical records and health monitoring data generated by patients.[10] It can also link micropayments and rewards (set for patients under health plans) to this information, so that they are automatically disburse when thresholds/milestones are met.[11]

5. Telecom

The TRAI through TCCPR regulation has mandated the usage of Distributed Ledger Technology by telecom operators to solve the problem of unsolicited commercial communication. [12] It impose obligations on telecom ‘access providers’ to adopt DLT with permissioned and private DLT networks to ensure that all necessary regulatory checks are carried out for sending commercial communications, and to operate smart contracts among entities for effectively controlling the flow of commercial communications.[13]

6. Energy

Certain ventures in energy sector have been attempting to create a peer to peer energy distribution platform using block chain.

There are myriad other sector like assets and wealth management, insurance, education and employment etc. in which blockchain technology have its application.

A FEW HURDLES

With such lucrative features, there are certain legal challenges associate with the technology:-

Jurisdiction–

The nodes in a blockchain network may spread all over the world, thereby giving rise to complex jurisdictional issues. This can be tackle by inclusion of exclusive jurisdiction and governing clause or adopting an internal governance framework specifying the governing law (this can be applied only in a private blockchain network).

Privacy and Data Protection–

Many practitioners and academic commentators have claimed that blockchain technology is incompatible with privacy laws such as the EU General Data Protection Regulation, or GDPR. [14]In a public blockchain network, no single party is responsible for security of data on the network, and every member on the network has access to the data on the network. This directly conflicts with privacy laws which obligate the party holding private data of individual to safeguard it. Despites the high level security accorded to data on the network there are certain cyber security issue with it. Due the number of nodes especially in public blockchain network, data can be form any nodes, hence can be tampered at any node.

Immutability and Irreversibility–

Once recorded a transaction remains in universal ledger and cannot be edited. This immutability on one hand preserves the integrity of transaction but on the other hand becomes problematic like if someone manages to conceal a fraud.

Pseudo anonymity-

Like in a bitcoin network, the participant on a blockchain are anonymous or pseudo anonymous with no link as to their real identity. Thereby regulators and counter parties are grappling with imposing accountability, legal, taxation and contractual obligation.

Accountability-

In a private blcokchain network one can argue, there is a clear ownership and the concerned person can be accountable but in a public blockchain network with no ownership of any kind no one can be accountable as such.

Enforceability of smart contracts-

A promising feature of blockchain is smart contracts, but there recognition as a legal contract still remains a grey area.

Since blockchain only create a medium or infrastructure for variety of application, it hasn’t stirred regulatory debates as such nevertheless certain jurisdictions have implemented on are exploring to implement regulatory sandboxes around blockchain innovations.

CONCLUSION

No doubt blockchain technologies have the potential of revolutionizing many businesses. With minimal capital and operational cost but like any other technology there are inherent risks. Associated with it which need to be carefully considered before the businesses realise its full potential.

But it also has to be remembered that blockchain transformation is set to affect most aspects of day to day business life, including smart contracts, corporate filings, criminal cases, dispute resolution, document notarizations, industry organizations, intellectual property, law firm operations etc[15]. And lawyer being involve in all these areas it becomes pertinent for them. To learn as much about the technology as possible.

Reference

[1] Deloitte, Blockchain, Legal Implications, questions, opportunities and risk, DELOITTE, (Jan 6, 11:46 p.m.) https://www2.deloitte.com/content/dam/Deloitte/za/Documents/legal/za_legal_implications_of_blockchain_14052019.pdf

[2] Elizabeth S. Ross, Nobody Puts BlockehainIn A Corner: The Disruptive Role of Blockchain Technology In The Financial Services Industry And Current Regulatory Issues, 25 CATH. U.J.L. & TECH. 353, 360-61 (2017).

[3]Caitlin Moon, Blockchain for Lawyers101: Part1, LEGAL ALIGNMENT, ( Jan 06, 2021, 3:00 p.m.) http://www.legalalignment.com/blog/blockchain-for-lawyers-101-part-i

[4] Marco lansiti&Karim R. Lakhani, The Truth AboutBlockchain, 95 HARV. Bus. REv. 118 (2017).

[5]Caitlin Moon, Blockchain for Lawyers101: Part2, LAW TECHNOLOGY TODAY, (Jan 6, 2021, 4:36 p.m.) https://www.lawtechnologytoday.org/2017/01/blockchain-lawyers-101-part-2/

[6]Nisith Desai Associates, The Blockchain, Industry Applications and Legal Perspectives, NDA, ( Jan 6, 2021, 6:21 p.m.) http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/The_Blockchain.pdf

[7]Jaliz Maldonado, 10 Ways Blockchain technology will change the Legal Industry,6Nat.L.Rev 11(2021).

[8] Desai Supra Note 4 at 13.

[9]Supra Note 3.

[10]RjKrawiec& Mark White, Blockchain: Opportunities for healthcare, DELOITTE, (Jan 6,2021, 7:02 p.m.) https://www2.deloitte.com/us/en/pages/public-sector/articles/blockchain-opportunities-for-health-care.html

[11]Id.

[12]Telecom Commercial Communication Customer Preference Regulation, 2018, https://www.trai.gov.in/notifications/press-release/traireleases-telecom-commercial-communication-customerpreference (last visited November 15, 2018)

[13]IdSee also Desai, Supra Note 4 at 11.

[14] The General Data Protection Regulation (EU) 2016/678.

[15] MaldonadoSupra Note 5.

get.infohttp://learn.lawdocs.in/blockchain-technology-from-a-legal-lens/