The University of Oxford has shared analysis of the relationship between blockchain developers and the rule of law. It claims the blockchain industry is on a “silent collision course” with lawmakers, and a major overhaul is sorely needed.
Anastasios A. Antoniou, member of the EU Blockchain Observatory and Forum, argues blockchain evangelists open ‘Pandora’s box’ by suggesting complicated smart contract systems create “order without law.”
“The primary source of friction between blockchain and law can be traced to the implied proposition that code-driven frameworks running on blockchains can and should operate outside our jurisdictional legal orders,” writes Antoniou. “This is most clearly illustrated when considering the deployment of blockchain-based organisations running entirely on autonomous code, without human consensus.”
Already, the world’s major blockchains aren’t exactly compatible with the law. Take, for example, Europe’s new GDPR guidelines. Among other things, the new rules stipulate data stored on the internet must be deletable upon request.
For immutable blockchains like Bitcoin, such control goes against the very ethos on which they’ve been built.
Other challenges include defining “assetised tokens” as securities, and deciding liability when blockchain-driven organisations (DAOs) malfunction.
Can governments control blockchains?
Antoniou posits that blockchains are not immune to the influence of nation states, despite the ever-present rhetoric saying otherwise.
He proves his point by arguing nation states are actively regulating blockchains indirectly. World governments have made Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) procedures a frustrating standard for cryptocurrency exchanges, services, and regular investors.
Indeed, the makers of the Paxos Standard stablecoin recently confirmed to Hard Fork that government regulators would only approve the coin if they included backdoors for the freezing and seizing of cryptocurrency by law enforcement.
Antoniou believes it is better to lean into this working relationship with the law, rather than push against it.
[…] If distributed ledger technology seeks to attain its full potential, it should not attempt to evade or circumvent law,” he suggests. “Code should rather embrace the law and engage in an interaction which advances them both.”
Not all blockchains are the same
The struggle between law and blockchain innovation could be actually be endless, Antoniou warns. As developers do not create all blockchains equally, each blockchain could require personalized treatment from lawmakers.
It is precisely this diversity rendering existing frameworks obsolete, and only new, adaptable rules can provide legal certainty to cryptocurrency markets.
Reassuringly, Antoniou does clarify that any new legislation “should serve to recognize and uphold the effects of transacting on blockchains.”
But still, states are not likely to legislate blockchains in identical ways. Some jurisdictions may foster the blockchain industry, making them a more attractive choice for new projects, while others may reject the technology altogether.
This can actually drive innovation – but only if blockchain developers work with legislators and regulators to create rules that work for the benefit of everyone involved. If there’s no engagement, old laws may end up suffocating new projects before they can get off the ground.
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