Building Blocks for the Future: A Forward-thinking Approach to Blockchain Regulation

@LawAhead

As technology advances, law and governments have been playing a game of catch-up in order to regulate the role these advances have on society. As it transcends political and legal borders, technology has become more and more of a challenge as we move into the future.

Author: Cristina Carrascosa, Director of the IE Law School´s Blockchain Programco-author of Blockchain: The industrial revolution of the Internet

Thomas Lee and Tinie Cosby were two farmers—poultry growers to be exact—who lived on a farm where planes used to fly over daily.  After realizing that their chickens were trying to follow the aircrafts’ paths and constantly running into the farm’s fences, the two farmers demanded that the State recognize the property as a plane-free zone to stop air traffic from wiping out their flock.

Judge Douglas denied such recognition, claiming that the regulation of the sky above had no place in the modern world. In his opinion, it would result in the collapse of almost every airline due to the countless demands for trespassing that could arise.

The moral of this (true) story is that a basic cornerstone of law (and its interpretation) should be common sense, especially when it comes to the introduction of new technology. Otherwise, we run the risk of stifling innovation, as Lawrence Lessig, a renowned lawyer, has often said.

In this case, we’ll take a look at a new type of architecture, a technology: Blockchain. To begin, it is important to remember that the birth of the Internet—and the proliferation of its use—made way for many of the debates that seem to be resurfacing today: How much sovereignty should citizens have? Are some of the Blockchain developments not regulatable?  Should these developments, when appropriate, be subject to some sort of law? Can a single government locally regulate a global technology that transcends borders?

These are questions that we’re still trying to resolve on an intellectual level. And sometimes, both regulators and developers are forced to weigh the interests at stake without having clear and obvious answers to these issues (something that humans have become used to).

If we define regulability as the ability to control behavior on the Internet, we must recognize that Blockchain technology is regulable, and indeed, already regulated. Thus, a company that launches an ICO and does not meet the necessary commitments will be susceptible to be sued using the legal framework of private international law and contractual liability. Prediction markets, such as Augur, in which so-called “assassination markets” are promoted (bets on the date on which a particular individual will be murdered), can be equally pursued not only with the Law of the Information Society Services (Ley de Servicios de la Sociedad de Información), but also for attacking fundamental rights. Consequently, these boundaries are clearer than ever. In fact, it’s to the point where most companies working with Blockchain technology have a legal team that advises them in developing business models that are legally viable by design.

A separate issue is whether the law should adapt to new situations. And why shouldn’t it? At the end of the day, the legislative bodies are (or should be) dynamic systems, with slow, yet evolving modification processes that are not rushed but rather, carried out properly. It’s not unlike what was done in ancient Rome with the Lex Pretonia, which was enacted to prevent a man from throwing a slave to the lions without first bringing the case before a court. Today, partial adaptations of specific aspects of this law can be seen in the overall regulation of technology.

In fact, we’ve already started seeing it: the French regulation system has already proposed equating the deletion or elimination of private keys with the right to the elimination of personal data found within a Blockchain. Understanding the value this technology brings to multiple sectors, such as the economy or security, the adaption of one of the basic pillars of data protection needs to be proposed, not to stifle innovation, but rather to protect individuals’ rights. In China, the Supreme Court has already approved an unprecedented case, which came to the conclusion that the Blockchain used in support of recording data, which can be used in a court as evidence, is legally binding, thus legitimizing the network as a valid support method for this type of data.

However, in light of all of this, none of it will be possible without providing the necessary training and information to the general public regarding the operation and use of any technology, not just Blockchain. If we don’t understand technology, it’s impossible to advance. It is essential to make its use and knowledge accessible to everyone, which is why I’ve developed the Blockchain program that promotes a hybrid educational experience with the hopes of gaining more and more users who have the ability to use and evaluate Blockchain’s various applications.

Cristina Carrascosa is a lawyer specialized in taxation and tax law. After starting in international firms, for the past six years, she has developed her career working with decentralized business models based on blockchain technology, as well as advising large estates with investments in crypto-actives. Academic Director of the Blockchain Program at IE Law School, and co-author of the book Blockchain: the industrial revolution of the Internet, she’s the only Spanish woman appointed as permanent member of the Working Group “Blockchain Observatory Forum”, set up by the European Commission for regulatory purposes and has been appointed as global lead for the blockchain practice at Pinsent Masons. 

Note: The views expressed by the author of this paper are completely personal and do not represent the position of any affiliated institution.