The very topical distributed ledger technology has become a common discussion subject in not only technology circles but within financial services and legal circles.
What is Blockchain?
Blockchain is a shared immutable ledger for recording the history of transactions. It is a peer-to-peer network, which facilitates a value exchange. It is hailed as a secure means of transferring value, which in theory could remove the need for banks. Blockchain is designed to be resistant to modification of the data. Once the data is recorded any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority.
The most common form of blockchain known is Bitcoin, that being the world’s very first cryptocurrency. A cryptocurrency is a digital asset designed to work as an exchange medium that uses strong code writing in order to secure financial transactions and verify the transfer of assets.
Blockchain currently, though widely discussed is still something that has not been regulated which brings uncertainty into the application of this technology into day-to-day life. It is, however, being widely considered beneficial for this technology to be adopted in the financial sector, legal sector and potentially other sectors such as migration programmes.
It has been noted that regulation of this technology will be required in order for it to become a mainstream piece of technology to be used by society. The Irish Department of Finance published a discussion paper on digital currencies and blockchain technology in March 2018. This discussion paper highlights some of the key issues that arises in respect of this technology and proposes that a Working Group be established within the Department of Finance which would be tasked with monitoring further developments in the field of cryptocurrencies.
The European Commission also in March 2018 announced a Fintech Action Plan to explore opportunities in respect of creating more innovations within the financial sector in Europe. This action plan sets out a number of proposals in respect of cryptocurrencies, specifically in respect of Initial Coin Offerings (“ICOs”).
Currently ICOs have been flagged by a number bodies such as the European Securities and Markets Authority and the Central Bank of Ireland as high risk for consumers due to their speculative nature. ICOs by explanation are where a company raises funds from the public by issuing “tokens” or “coins” which can then be exchanged for a currency, normally being digital currency.
This technology raises many considerations legally speaking when considering its application. Certain areas of law to be aware of going forward and which will need to be considered from a regulatory aspect includes company law in respect of ICOs and its application, data protection in respect of security in the technology, securities and anti-money laundering and taxation issues. These are just some of the areas of law that will need to be explored with regard to this technology when considering its regulation.