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Blockchain is the brain behind cryptocurrency. It has developed from version 1.0 which focused on virtual currency to 2.0 which focused on protocol applications for contracts and now to 3.0 which has expanded blockchain’s applications far beyond the financial sector.
Blockchain is a decentralised ledger, meaning, the records it contains can be verified autonomously without the need to have a central entity. Almost anything could be put on the record, including contracts, supply chains, assets, etc.
The information recorded on a blockchain can take several forms, for example, an agreement between parties, the volume of water pumped, to trace the chronology of land ownership, etc. However, to do so requires confirmation from all devices on the network to ensure accuracy.
Blockchain has its supporters and critics. It has been called “the technology most likely to change the next decade of business” by some and "a haven for criminal activity and a Ponzi scheme" by others.
Amidst this, the United Arab Emirates has declared that blockchain technology will enable the country to become "the world's happiest nation".
Although blockchain promises disruption and revolution, its novel characteristics present serious regulatory and legal challenges. We shall be exploring a few of the regulatory challenges that blockchain technology and its use cases present.
The first challenge is in relation to cryptocurrency and its regulation. In addition to using crypto as legal tender, many entrepreneurs are issuing their own cryptos to raise money for their businesses through Initial Coin Offerings (ICOs) and Security Tokens.
Recently SureRemit a Nigerian start-up company raised about $7 million through a Blockchain ICO.
It is evident that ICOs are similar to Initial Public Offerings and perhaps may be classified as securities. An important debate in the legal community is whether cryptos fall within the definition of securities under Nigeria's Investment and Securities Act (s. 315).
A United States' Court in the Eastern District of Texas ruled that since crypto can be used as money and the investments at issue met the requirements for an investment contract, the U.S. Securities and Exchange Commission could exercise jurisdiction over the crypto in question.
However, the decision was flexible and cautioned courts to decide the nature of cryptos on a case-by-case basis considering the way the currencies were acquired, exchanged, and used. This is a learning curve for our Nigerian Courts and regulators.
Another pertinent area of blockchain that presents legal issues are smart and Ricardian contracts.
Investopedia defines Smart contracts as self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralised blockchain network.
Ricardian contracts are an even more advanced way of contracting presented by blockchain technology. A Ricardian contract is a human-readable legal agreement that once agreed upon by parties gets converted into a machine-readable contract to define the parties' intentions.
Such contracts have the ability to cross jurisdictional boundaries as the nodes on a blockchain can be located anywhere in the world. This poses complex jurisdictional issues involving contract and these issues would require careful consideration.
The principles and laws regulating contracts differ accross jurisdictions. This presents a challenge in identifying the appropriate governing law in a smart or Ricardian contract.
The issue of jurisdiction can be mitigated by the inclusion of an exclusive governing law and jurisdiction clause in the contract. This is essential in determining the rights and obligations of the parties and what court has jurisdiction in the event of a dispute.
Smart contracts are basically computer codes, as a result, their use may present enforceability questions if analysed within the traditional definition of a contract.
It remains uncertain whether the elements of contracts including offer, acceptance, consideration, intention to create legal relations, etc and even the ability to rely on apparent or ostensible authority would apply.
There have been advances in many countries regarding the level of acceptability of electronic contracts. It is our hope that this would be carried over to smart contracts and eventually Ricardian contracts.
Our time is almost up and we have not even addressed all the legal issues🙈. Before we call it a day let us address the unique issue of intellectual property rights that blockchain presents.
A general principle of law is that there is no property right in individual items of information, however, compilations of data such as a database may attract intellectual property (IP) rights.
Blockchain applications by their nature are a huge database of information obtained from different sources. This raises certain questions as to how the vast and oftentimes personal information of individuals may become the intellectual property of others.
Do I still have ownership of my information after uploading same on a blockchain network? can I control its uses? In whom are the IP rights vested; the host application? the users? a third party purchaser? or even me? These are the questions that keep us lawyers up at night😉
Sadly, we have run out of time. Hopefully, we would be able to continue this discussion in due time as it has been quite insightful. We look forward to you joining in for another Kenna Partners social media discussion in a fortnight.
@threadreaderapp Enroll please
