Blockchain players and legal eagles are on a silent collision course that must be addressed. In bridging the divide between code and law in blockchain, a radical rethink of regulation is imperative. That’s the view of Anastasios A. Antoniou, a Partner at Antoniou McCollum & Co, and a Member of the EU Blockchain Observatory & Forum, Policy and Framework Working Group.
In a post published in the Oxford Business Law blog, he writes: “The self-executing nature of blockchains, which enables them to operate autonomously of centralised architectures and intermediaries, inevitably entails an element of detachment from current regulatory architectures. This detachment will only widen as blockchains evolve. This is most clearly illustrated when considering the deployment of blockchain-based organisations running entirely on autonomous code, without human consensus.”
He adds: “There is a recurring theme in the struggle of code to displace law, which has a number of intersecting parameters. Applying these parameters to blockchain, the primary question becomes whether blockchain can indeed be self-regulated in a manner entirely divorced from jurisdictional orders, while attaining the requisite stability and predictability for it to thrive. Where that is answered in the negative, which it must be for the reasons explained below, the question becomes one of whether blockchain should be subject to general principles of law or attract specific regulatory intervention.”
Brave new world
Blockchain presents an ambitious, yet not unattainable prospect, of being the first technological development since the advent of the internet that could give rise to entirely new ecosystems of economic activity, Antoniou argues. This is where the code purports to displace law, the latter not being ready to address all aspects of blockchain implementations. Examples of this include the apparent misalignment between blockchains and the GDPR, the challenges in classifying assetised tokens as securities and the questions of attributing liability for harm suffered by the operation of blockchain-driven organisations.
Therefore, if distributed ledger technology seeks to attain its full potential, it should not attempt to evade or circumvent law but rather find its place within a well-structured, relevant and versatile regulatory framework that will allow it to be exploited to its profound potential. Code should rather embrace the law and engage in an interaction which advances them both.
Which raises the question of whether existing frameworks are sufficiently flexible to accommodate its immense capabilities, whilst providing the necessary degree of legal certainty as to its economic effects. “Different blockchains will require different treatment in law,” Antoniou writes.
“Whether blockchains deployed to create new financial instruments or contractual rights or formulate entirely new constructs can be regulated under existing legal frameworks will be determined by their functional and proprietary characteristics. The diversity of blockchain implementations means that, as the technology becomes more sophisticated, existing frameworks will prove insufficiently scalable to accommodate the novel characteristics that blockchains bring to the table.”
He concludes that the adoption of new rules is crucial in order to provide legal certainty to the markets and avoid impeding emerging ecosystems and stifling technological development. Nevertheless, any new rules should serve to recognise and uphold the effects of transacting on blockchains. As already seen by certain legislative initiatives, states are unlikely to share identical statutory traditions in recognising blockchains.
“It is inevitable that some jurisdictions will accommodate blockchains and their effects in a more efficient and attractive manner than others. This antagonism between jurisdictions is an enduring feature of our Westphalian world and can facilitate blockchain development. It is for this reason that blockchain developers should inform the law’s response to code by engaging with legislators and regulators,” he comments.