Unravelling blockchain

UNRAVELLING BLOCKCHAIN “Highly professional team that continuously exceeds expectations” The Legal 500 WHAT IS BLOCKCHAIN TECHNOLOGY? Blockchain technology is a type of Distributed Ledger Technology (or “DLT”), which allows for the creation of a shared digital ledger. Although initially created for Bitcoin, Blockchain – based ledgers provide a more secure and transparent way of processing all kinds of data and therefore, the various applications and uses of this technology are endless. As a technology, Blockchain-based databases have certain characteristics which make the technology totally unique and different to other existing technologies. BLOCKCHAIN: DISSECTING THE LEGAL ISSUES Blockchain, Bitcoin, ICOs; these are all interrelated terms that have dominated the news and rocked the virtual world as of late - but what do they actually mean? Blockchain first emerged as the technology that underlies the cryptocurrency ‘Bitcoin’. It is a digital, decentralised record of all transactions that have occurred across a network. However, if blockchain is just another technology, why has it generated so much hype? Certain aspects of blockchain raise novel legal questions. These aspects are discussed further below: Jurisdiction and Governing Law Blockchain is a decentralised (or distributed) record of data stored across different nodes. The Blockchain system contrasts greatly with most database systems that are presently available. Currently, most systems require the intervention of an intermediary institution and data that is required to form part of these systems is stored data on a centralised server. Conversely, the nodes involved in storing data on a blockchain ledger could be located all over the world. The legal issue surrounding jurisdiction lies in the fact that, particularly in respect to public and permission-less blockchains where participants in the blockchain are not controlled, it may be the case that one jurisdiction recognises certain laws which other jurisdictions do not, in terms of ownership of property for example. This implies that any transaction that occurs across the blockchain network must conform to an absurd number of laws and regulations, some of which the parties to the transaction would not have even contemplated the transaction would encounter. Clearly if this were to be the case, developing blockchain based technologies would grind to a halt. Moreover, due to the fact that blockchain transactions occur in a pseudonymous manner, locating each and every node involved in the transaction, and then identifying where each node is located geographically may be a near impossible and incredibly onerous task. In order ensure legal certainty with respect to the applicable jurisdiction and governing law, particularly should a dispute arise between the parties, the parties should be sure to include a jurisdiction and governing clause within their agreement. UNRAVELLING BLOCKCHAIN The following articles draw on the weekly series called “Unravelling Blockchain” published by Camilleri Preziosi on Sunday Times of Malta in September, October and November 2017. This series explores Blockchain’s unique features and expands upon the technology’s legal implications across various commercial and corporate sectors. ‘A’ requests a transaction to be made to ‘B’ The transaction is executed in B’s favour The transaction is verified The request is broadcast to other coumputers (or “nodes”) within the network and is represented as a “block” The validated block is added to previous blocks, forming a Blockchain The nodes validate the transaction using cryptographic algorithms Legal Interest In order for a party to form part of a legal proceeding, it must establish that it has the locus standi to do so. The ability to store information on a decentralised network through blockchain has introduced the concept of Decentralised Autonomous Organisations (DAOs). DAOs are operated through rules that are encrypted within smart contracts. DAOs do not have a clear and precise legal status because they are currently not directly regulated. They are not (strictly speaking) companies; they need not have a memorandum of association, for example. Once a DAO is created through the execution of a smart contract, human involvement is limited as the DAO’s management and control is automated under the smart contracts and decisions taken on the operation of the DAO are carried out by collective votes. The uncertainty surrounding the classification of a DAO and the abstract concept of these organisations raises various idiosyncratic legal challenges. These challenges need to be addressed in order to answer basic legal questions such as the question as to whether or not DAOs have legal interest to appear in proceedings of a case, should one be brought forward. Moreover, if it can be established that the DAO does indeed have legal interest to appear as a party, where would liability fall if there are no human and identifiable shareholders? Smart Contracts - Enforceability and Source Codes The term ‘smart contract’ could refer to two distinct definitions. Firstly, a smart contract could refer to a legal electronic document that sets out the parameters of an agreement between two or more parties. In this way, a smart contract is seen to be similar to a traditional contract, whereby the contractual terms agreed to between the parties are governed by law and executed over a digital agreement. If a smart contract is taken to fall under this definition, Maltese law already governs certain aspects of these contracts under the Electronic Commerce Act (Chapter 426 of the Laws of Malta), albeit that these laws may need to be reviewed in order to reflect the unique issues brought about by blockchain. However, the term ‘smart contract’ may also be used to describe the underlying source code that was prewritten in order for the contract to come into existence in the first place. In terms of intellectual property, the original source code that was initially written is owned by its programmer. But what happens should the contract be rewritten, to include a jurisdiction and governing law clause for example? Current intellectual property laws stipulate that a licence must be granted to utilise intellectual property that belongs to another in order to avoid infringing the programmer’s rights. This implies that every time a smart contract is required to be updated or renewed, a new licensing agreement would have to be agreed to between the parties, slowing down the transaction processes which Blockchain seeks to speed up. THE DIFFERENCE BETWEEN BLOCKCHAIN AND BITCOIN It is easy to understand why the terms ‘Blockchain’ and ‘Bitcoin’ often get confused – Blockchain does indeed serve as a platform for cryptocurrencies; without Blockchain there would be no Bitcoin. However, it must be emphasized that the scope and potential of Blockchain extends far beyond the world of cryptocurrencies. Although initially created for Bitcoin, Blockchain provides a more secure and transparent way of processing all kinds of data and therefore, the various applications and uses of this technology are endless. This ingenious technology has created a new form of online platform, and comparably, just like the Internet gave us the ability to send emails, shop online and so much more, blockchain can be applied to voting procedures, record keeping, financial instruments and that’s just the tip of the iceberg. The distinction between the two is crucial, as whilst digital currencies have been met with certain aversion and scepticism on account of their volatility, Blockchain has demonstrated its undeniable potential for revolutionising the way we can manage data and do business. Other inherent features of this cryptographic database are that it is peer-to-peer and consequently, it does not require an intermediary to overlook transactions. The digital database is itself distributed and decentralised, meaning that it can run on a number of computers and be updated in real-time. As it is not stored in one computer or on one network it is also much more resilient to cyber-attacks, reducing certain risks such as bank system failures. To put it quite simply, Bitcoin just like any other cryptocurrency is a digital coin, which one can transact through the Internet and this has been made possible through the use of Blockchain technology. Bitcoin is undoubtedly the most widely known cryptocurrency, though others do exist. Ethereum, for example, is both a digital platform as well as a currency (called ‘Ether’). Modern society is currently experiencing a ‘cryptocurrency boom’ and Bitcoin and Ether are just two of the many cryptocurrencies out there. However despite their increasing popularity, a number of questions as to the nature and treatment of cryptocurrencies remain unanswered – are these digital coins a type of commodity or a currency? And more importantly, how will they impact the global market? Several jurisdictions have already promulgated laws regulating cryptocurrencies and the varied regulation has significant repercussions. By way of example, Japan classified cryptocurrencies as a payment method, while the US classified them as commodities. The European Union on the other hand has elected to take on an ‘innovation first’ stance and is yet to pass any specific legislation as to the status of cryptocurrencies. However in Skatteverket v David Hedqvist (Case C-264/14), the Court of Justice of the European Union held that the purchase and sale of Bitcoins were exempt from VAT since the exchange of Bitcoin for traditional currency was considered to be a supply of services. By means of this conclusion, the Court is giving this cryptocurrency the status of a means of ‘payment’ rather than a form of ‘property’ and thus accordingly, the legal tender exemption should apply (Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax, Article 135(1)(e)). The resulting discrepancy may severely hinder the way that Bitcoin and other cryptocurrencies could be traded and exchanged, thereby obstructing their global uptake and in turn, their intended benefits. If Bitcoin and other cryptocurrencies are being used in an array of transactions such as the payment of fee tuitions and meals in restaurants, why are regulators all over the world finding it so difficult to classify cryptocurrencies? One possible answer is that unlike other fiat currencies, Bitcoin has more than one function. In that way, cryptocurrencies can be used as an alternative to ordinary fiat currency, and they have also been compared to a speculative asset and thus should be regulated like a security. Whilst Bitcoin shares a number of intrinsic qualities associated with ‘money’, it lacks the fundamental attribute of general acceptance and widespread use. It is impossible to regulate something without first understanding the role it plays and thus why and how it can be ‘controlled’. This inconsistency has made it very difficult for regulators worldwide to keep pace and come up with one generic piece of legislation to regulate cryptocurrencies of all kinds. Moreover, regulators may find it difficult to legalise cryptocurrencies as the creation of Bitcoin was intended to be a method of bypassing regulation and all forms of centralised authority following the disastrous effects of the financial crisis of 2008 leading to severe distrust in the current banking system. Even if one country or continent is successful in finalising a piece of comprehensive legislation, there is no guarantee that others will employ a parallel view. A global, uniform view is crucial for the successful utilisation of cryptocurrencies. As things stand, it seems that this is nowhere close to happening as whilst some countries have reacted aggressively by imposing cryptocurrency and ICO bans, other countries like Malta have welcomed the development of cryptocurrency and blockchain technology with somewhat open arms. Needless to say, various attempts have been made as governments from all around the world have tried their best to challenge and/or facilitate the integration of both cryptocurrencies and blockchain technology. Regardless of any conflicting views, a standpoint must be taken in order to facilitate of the continuous development of cryptocurrencies and blockchain technology. HOW WILL BLOCKCHAIN IMPACT CAPITAL MARKETS? The use of alternative finance instruments and channels has increased since the last financial crisis. One of the reasons for this is that credit institutions have become more vigilant in granting facilities and in turn, it has become harder for companies to raise finance. Companies have consequently, been forced to seek alternative means of financing, specifically by tapping into the capital markets and raising capital through the offering of equity and the issuing of debt instruments on these markets. However, over the years this industry has shown signs of inefficiencies. Blockchain technology, with its innovative and seemingly more effective data storage solutions, could become a viable way forward if introduced into the capital markets on a large scale. Blockchain has the potential to dramatically reshape the capital markets industry, with significant impact on business models, reductions in risk and savings of cost and capital. Blockchain’s potential benefits to Capital Markets The underlying distributed ledger technology is likely to deliver a wave of benefits to the major players in the capital markets value chain; such as clearing houses, exchanges, investment firms and credit institutions. One major benefit that Blockchain could introduce is a more efficient and faster clearing and settlement practice – whereby once a transaction is finalised and inputted to the digital log of transactions (which would make up the digital ledger), the underlying security would be automatically settled in the investor’s virtual wallet, with minimal middle and back-office support. This would lead to the mitigation of counterparty settlement risk and fraud since major players involved in the issue of securities would have access to the same data through their connection with the ledger and any updates thereof would be instantaneous. In this respect, in the area of post-trade and custody of securities servicing in the capital markets, Blockchain technology has the potential to create a ledger whereby the securities (either equity or debt) offered by the issuing company would be directly issued to the investors, as opposed to having a central securities depository. Access to the ledger and the distribution of the securities in issue found therein, could be managed by virtue of smart contracts, self - executed between the issuing company and the investors, once certain conditions are fulfilled. This would efficiently allow the investor to have direct access to his/her portfolio of securities, doing away with the need of investors holding custody accounts with financial intermediaries. The above begs the question, amongst others, as to whether Blockchain has the capacity to alter the role of, or even substitute, certain key players in the capital markets, and if so how can the market participants embrace the benefits of Blockchain technology whilst preserving their role in the capital markets industry? It is still too early to determine the answer to this question. However, market participants who fail or refuse to invest in developing next generation technology and to embrace Blockchain education in order to increase their familiarity with the concept, are likely to be in for a rough ride. A collective effort amongst the major participants of the industry to collaborate with regulators and amongst themselves to adopt the technology in the industry is called for. In the absence thereof, market participants will be left lagging behind if, or rather when, these developments start to leave a real impact on the market place. Whilst this is not to say that the human component is destined for oblivion, it is expected that those who will be at the forefront of the industry when Blockchain does make its mark will be those who acknowledge, sooner rather than later, that there will be changes and that the time to adjust is upon us. Blockchain – the enabler of Initial Coin Offerings as an alternative means of raising finance In recent years we have witnessed the onset of crowdfunding and angel investment models as alternative methods of raising finance. Initial Coin Offerings (“ICOs”) rode on the wave of enthusiasm generated by these innovative and technology-driven means of raising finance. ICOs are a new and alternative source of funding which allow direct customer approach, without the need of involvement of an intermediary or regulated institution. ICOs use Blockchain technology to receive funding through cryptocurrency invested by ‘backers’. In exchange for investment, backers receive digital tokens which provide a form of benefit to the backer. The type of benefit is determined at the discretion of the ICO-issuer. Unlike investments generated through crowdfunding, ICO backers have a vested interest in the tokens’ success as they expect to receive a form of return on their investment. Therefore, there is a higher incentive for backers to increase their returns. It is important to note that although to date no jurisdiction has directly regulated ICOs, regulators globally are increasingly focusing thereon. Whilst ICOs feature various parallels with initial public offerings and similar activities, digital tokens are currently unregulated under Maltese law. It is argued, however, that ICOs may fall within the perimeter of the Listing Rules, depending on how they are structured. The uncertainty surrounding ICO classification gives rise to a number of legal issues. Unlike the issuance of shares in traditional capital raising activities, the issuance of digital tokens permits the backer to invest without actually owning a security issued by the issuer. The ICO-issuer and backer have no fiduciary relationship and, therefore, the backer is able to withdraw from the ICO at any time. Presently, there are no rules which regulate the sanctions that could be imposed for premature termination. Notwithstanding such uncertainty, ICOs are generating increasing interest amongst both prospective issuers (particularly start-ups) and willing investors. Carried out correctly, ICOs have the potential to raise significant funds in short periods of time while enabling issuers to maintain full ownership of the company. It is yet to be seen whether regulators will choose to promote ICOs, subject to appropriate checks and balances, rather than stifle the potential growth of this novel means of raising capital. BLOCKCHAIN’S APPLICABILITY TO INTELLECTUAL PROPERTY MANAGEMENT Successful management of intellectual property (“IP”) assets such as trademarks, copyrights and patents involves much more than simply securing their protection in order to attain their full value. Considerable effort is required to implement an effective IP strategy – one which is even greater in respect of non-registrable IP rights such as copyright and (unregistered) designs, since their lack of registration against which to reconcile transactions often results in issues concerning even the basic legal considerations of ownership, creation, jurisdiction and use. The fluidity of the internet and relative ease of infringement complicates matters even further. Blockchain technology, with its immutable characteristics and peer-to-peer review, might well be the solution to these issues. This article will explore the potential IP management use cases of the Blockchain technology. IP Registries With the exception of European Trademarks and Registered Community Designs, IP rights remain mostly unharmonized. Notwithstanding that an increasing level of integration of information between national and supranational IP offices is in place, ultimately each nation has its own IP systems and registration offices. Furthermore, transactions involving IP rights do not require registration for effectiveness between the parties – registration in terms of publication is only required in order to give effect against third parties. This implies that it may well be the case that the registered owner of a particular IP right, as officially indicated in the IP office database, is not necessarily the current owner. Likewise, when conducting a due diligence procedure on an IP holding company, the IP may have been burdened with security which has not necessarily been registered thus rendering it difficult to trace. IP rights that are not registrable do not even provide a database to start with. A lack of certainty in this context may be said to exist in the status quo. The Blockchain’s characteristics clearly make it very well suited to be the underlying technology for the creation of a database that can address these issues. A Blockchain database is capable of storing a tamper-proof and immutable record, enabling the creation of an unalterable “digital certificate of authenticity” to become possible. This digital certificate may address a multitude of issues including ownership, evidence, publication and first and genuine use. Using trademarks as an example, an ideal Blockchain based database would enable a user to access the product’s digital certificate of authenticity and this would demonstrate where the trademarked product came from (its origin) and who owns the rights to that trademark (its ownership). However, issues do arise under current laws in terms of actual proof of ownership and origin in law and in fact. If a user is able to access the digital certificate of authenticity of a certain product, does the owner of that product as recorded on the Blockchain indicate the actual ownership of the product’s intellectual property? Extant legislation would need to be amended in order to address whether this digital certificate denotes actual legal ownership, and if this is the case. Also Blockchain based registries would need to be recognised as an acceptable form of evidence in a court of law. Transactions Since the Blockchain creates an immutable yet traceable chain of entry logs, Blockchain-based IP registries could be a viable method for owners of IP to exert more control over their creations. Moreover, transaction issues and in particular internet licensing, could be facilitated through the use of “smart contracts which are embedded within the Blockchain. These contracts can be pre-programmed into the Blockchain to self-execute at pre-determined instances. Smart contracts are able to self-monitor the terms of agreements, automate contract performance, certify transactions and facilitate or evidence payment transfers. A clear example of the beneficial use of these registries is the streaming of music and micropayments. An artist could release a single onto a Blockchain based registry where the register would enable the artist to note how many times the single was streamed. Moreover, the artist’s e-wallet could be linked to the song for payments to be executed in exchange for streaming of the song. Smart contracts could be in place so that, once the song is played by a user, funds are automatically transferred to the songwriter’s account through the self-execution of the smart contract. The songwriter would be instantly notified of the use of the material and any royalties owed would be instantly debited from the user’s digital wallet. Blockchain would enable the artist to be in direct contact with the audience enabling them to potentially reap larger rewards for their original creations and have a more precise indication of the number of times that a song has been played. Smart contracts would also enable the artist to create various contracts which would selfexecute depending on the intended use of the song. For example, if the song is intended to be used in a commercial context, such as part of a musical score in a film or on the radio, a different smart contract would execute as opposed to if the song were to be used for private purposes by an individual user. Proof of Authenticity Applying Blockchain technology to management and distribution of goods would permit goods to be indelibly stamped and capable of “telling their own story”. A consumer would be capable of tracing the good back to its origin and certificate of authenticity and thereby be able to distinguish authentic from counterfeit products in market circulation. A consumer would also be able to ascertain that a particular good has been produced in the country indicated on its label – a crucial consideration for certain goods, such as wines, cheeses and meats. In addition, Blockchain would certainly find its way into the high-value or collectible market, including items such as jewellery, art or rare memorabilia, where owners would be eager to confirm provenance and have an in-depth understanding of that item’s history and legitimacy before purchasing. Undoubtedly, the Blockchain guarantees a higher degree of certainty, one which is simply unable to match under extant practices. Likewise, Blockchain technology could enable more accessible, efficient and cheaper enforcement procedures by rights-holders against counterfeit goods. The record in a Blockchain database could represent definitive proof as to the owner and origin of the product, allowing proprietors and users to trace the product back to its genesis block and confirm its authenticity. Parallel Importation & Grey Markets The ability to add unalterable blocks of data to a Blockchain database would be of particular relevance to many sectors where territorial management of rights is crucial, such as the manufacture, distribution and franchising industries. A Blockchain database could reveal the location and distribution of goods at all times, tracing them from manufacture to delivery and finally sale to a consumer. Traceability on the Blockchain database could enable manufacturers to monitor and control leaks from their distribution networks. Products could be embedded with unalterable tags and the absence of such tag would easily get caught out in checks. This concept would also apply to tags bearing incorrect information on the authenticity of the product. Undoubtedly, these characteristics would be most useful for right-holders intent on curbing abuse in grey markets, where illegal parallel importation of products may impinge on right-holders’ profits and goodwill. Without a doubt, Blockchain presents a welcome opportunity to make IP rights management more certain, stream-lined, transparent and less expensive. Indeed, Blockchain use cases for intellectual property clearly cannot be underestimated by businesses, authorities and governmental agencies. RECONCILING BLOCKCHAIN AND DATA PROTECTION At first glance, the features which make up Blockchain technology may be difficult to reconcile with certain data protection aspects and, in particular, with the framework established under the upcoming General Data Protection Regulation (“GDPR”). Typical Blockchain and distributed ledger technologies, whether permissioned or public, tend to have the same three characteristics, namely the fact that the system is decentralised, immutable and more transparent than current centralised systems. On the surface, these aspects may seem incompatible with data protection considerations, particularly given that extant data protection laws focus on personal data processing by identifiable entities. However, the technology may also arguably facilitate the protection of personal data in that it is embedded with characteristics which inherently increase the protection of data, such as encryption, pseudonymisation and low risk of cyberattack. Identification of Entities Current data protection legislation (including the GDPR) focuses on centralised systems where identifiable entities are responsible for processing personal data. In the context of the Blockchain’s decentralised environment, the way in which Blockchain participants are classified from a data protection perspective is debatable. Accurate classification of participants as data controllers or otherwise is crucial, as different implications arise depending on said classification. In principle, it is also unclear who assumes the role of a controller (the entity that determines the purposes and means of the processing) within the Blockchain system. Since blockchain databases are located in a distributed manner and no centralised entity is responsible, one questions how controllers can be identified, both in terms of the processing of personal data and any liabilities and, or obligations that result therefrom. The Right to be Forgotten vs. Immutability Data subjects are granted a number of rights which appear to be in tension with Blockchain’s immutable characteristics, most notably the right to be forgotten. Broadly, this right enables an individual to request deletion of his personal data, which request must be entertained unless there is a justifiable reason for continued processing. A fundamental principle unde rpinning Blockchain technology is the tamper-proof linking system, whereby once a new block is added to the Blockchain, it cannot be altered without disrupting the rest of the chain. This feature of the technology is purported to increase transparency and trust in transacting systems which utilise Blockchain technology – yet is challenging in light of the right to be forgotten. It is pertinent to note, in this respect, that it is possible to develop a Blockchain which is decentralised yet permits the editing of blocks. However, a major obstacle ensues: the possibility to edit data, while maintaining its authenticity, requires the nomination of trustworthy administrators to effect the changes. Traceability & Pseudonymisation Blockchain systems enable data to be transferred in a pseudonymous manner between parties. In this respect, the GDPR does indicate that pseudonymisation could be used as an appropriate tool in protecting personal data, so long as the contributor cannot be singled out and identified through that pseudonymisation. In a utopian Blockchain environment, Blockchain participants would have their data totally disguised or even anonymised in order to ensure that the system is truly trustworthy. In practice, however, this is not always feasible for all uses of Blockchain, in particular for such use cases that cannot be employed unless personal data is inputted into the Blockchain. Data Protection by Design & Default The GDPR introduces the notion of data protection by design and by default, a concept that requires adequate security throughout the entire lifecycle of the data and the application of the strictest privacy settings. The encryption and pseudonymisation characteristics of Blockchain may be said to champion data protection by design considerations, in that they result in higher security whilst also ensuring that minimum personal data is processed throughout any operation. However, data protection by default requires that the data is not made accessible to an indefinite number of individuals or stored indefinitely. This may be difficult to implement given the Blockchain’s immutable and participation characteristics, and might possibly result in the creation of Blockchain databases that drift away from the decentralised nature of the Blockchain as originally contemplated by its pseudonymous creator. This remains one of the most pertinent questions in the context of Blockchain’s co-existence with data protection legislation particularly post-implementation of the GDPR. Blockchain is a technology which enables the creation of distributed digital ledgers Decentralised Database Immutable Encrypted Pseudonymous Each block created and verified on the ledger is added to an existing chain, forming the blockchain All transactions and data stored on a blockchain are encrypted with complex cryptographic algorithms Transactions are carried out pseudonymously allowing for parties to be traceable but not directly identifiable Ultimately, the technology depends on Trust between the parties privy to the ledger in order to verify and authenticate transactions BLOCKCHAIN AND CRYPTOCURRENCIES IN ONLINE GAMING The online gaming industry thrives on innovation and thus it is only natural that this industry is most receptive towards the novelties of Blockchain technology and cryptocurrencies. The Malta Gaming Authority (MGA) is leading by example in establishing Malta as a frontrunner in this regard, and, in the White Paper published in July 2017 setting out a first draft for a new gaming regulatory framework (Framework), paved the way for acceptance of cryptocurrencies for the placement of bets. The Framework attributes a very broad scope to the definition of “money and money’s worth”, which includes virtual currencies, units of value and any form of property which may be traded, sold, converted into, or otherwise exchanged for money, goods or services. Effectively this means that under the Framework, online gaming operators that are licensed by the MGA will be capable of allowing players to use cryptocurrencies for the placements of bets. However, outside of the world of cryptocurrencies, there is a wide spectrum of other Blockchain uses for the online gaming industry. Transparency Blockchain technology may be used to increase the transparency and fairness of an online gaming operation. This may be achieved via the Blockchain since it may enable the players to verify themselves the fairness of the random number generator (RNG) that powers the games. The RNG is the software application which randomly determines winning combinations and is used in games that require repetitive random selection, such as lotteries and casino games. In turn, the RNG also determines the average return to player ratio (RTP), namely the average which is paid out to players out of all moneys wagered. Under current Maltese law, this is set at an average of 92% or more (article 46A of the Remote Gaming Regulations, SL438.04 of the Laws of Malta). Furthermore, in order to ensure that the RNG truly pays out the required RTP, under current practices the MGA requires that the RNG is certified for true randomness by third parties. In view of the Blockchain’s peer-to-peer accessibility, a player with sufficient technical skill is able verify himself the fairness of an RNG rolled-out on the Blockchain by going through its variables (even the actual hashes) and thereby confirming whether the RNG actually pays out the stated RTP. In turn, this level of transparency enables players to scout the operators that offer the most favourable RTPs and likewise, operators may advertise favourable (and verifiable) RTPs in order to acquire and retain players. Furthermore, the Blockchain may also be embedded with a “consensus methodology”, which means that a change would be rejected unless accepted by all peers. As a result, this might effectively mean that the current third party RNG certification practice is no longer required. Parties may verify the fairness of the RNG themselves and at the same time, a change to the RNG would be rejected by peers, thereby rendering the RNG tamper-proof. Reduced Costs The Blockchain renders possible the novel concept of “smart contracts”, namely programs that may be pre-programmed into the Blockchain to self-execute at pre-determined instances and to self-monitor the terms and performance of agreements. As a result, costs may be decreased in virtue of smart contracts as they enable operators to achieve a higher level of automation, by for example, automating transactions to and from players. Furthermore, involvement of banks and payment providers for player transactions may no longer be necessary as through the Blockchain, payments may be sent directly from the players to the operators and vice-versa. Possibly, this would also provide alternative solutions to banking-related challenges currently faced by online gaming operators given that banks are becoming increasingly more cautious towards online gaming. Next Steps The MGA clearly indicated that it is receptive to this new technology and will be amenable towards its uptake by licensed operators. What remains to be seen, however, is how the MGA will reconcile certain practices with the novelties of the Blockchain. For example, under current practices, an MGA licensed operator must have his servers in Malta, or in another EU/EEA country (provided that the servers are mirrored in real-time to a server located in Malta). This is imposed by the MGA in order to have oversight over the servers and gaming data therein. The decentralized ecosystem implicit in the Blockchain is clearly in tension with said practice. Furthermore, it remains to be seen whether the MGA will interpret “gaming revenue” to include cryptocurrencies. This point is crucial given that under the Framework gaming revenue serves as the basis for calculation of the monthly gaming tax and annual license fees due. Accordingly, if the MGA interprets gaming revenue to include cryptocurrencies, it will be most interesting and challenging for the MGA to reconcile a basis for calculation with the cryptocurrencies’ inherent price fluctuation. That said, it appears that cryptocurrencies are not being considered by the MGA as part of “gaming revenue” under the proposed Framework. Anticipation of next steps in this area is rife, and position papers on Blockchain and cryptocurrencies due to be published by the MGA in the coming year are eagerly awaited. BLOCKCHAIN IN THE PHARMA AND HEALTHCARE SECTORS Blockchain has the potential to reinforce a broad range of pharmaceutical and healthcare industry functions, both within and outside of the drug supply chain. Its ability to create a decentralised and distributed database is ideally suited to these sectors, which have been under a global spotlight recently. Blockchain enables the sharing of information on a secure, tamper-proof and indelible database. In a utopian blockchain environment, a blockchain database could facilitate the sharing of information between pharmaceutical and healthcare institutions, such as the Malta Medicines Authority (the “MMA”), as well as manufacturers and distributors. Blockchain could also be a useful facilitator for electronic health records that are shareable between different health organisations but with improved data security. Management of Pharmaceutical Supply Chains Today, different players within the pharmaceutical industry use various processes and software to manage supplies. In fact, supply chain costs are one of the largest expenses incurred. Blockchain provides an opportunity for industry players to stream-line these costs. For example, the efficiency of the supply chain could be facilitated by tagging pharmaceuticals with a unique barcode, which is then scanned and entered onto the decentralised database. Whenever these products are transferred from one organisation to another, the product is re-scanned, creating a new block which is then added onto the existing chain. This technology allows organisations to track the movement of pharmaceutical supplies and any movement recorded onto the ledger is updated in real-time, creating a realistic picture of the true whereabouts of the product. Improved Interoperability Better data sharing practices both between healthcare providers and between pharmaceutical companies on a European and/or global scale, would result in a higher probability of accurate diagnoses, more effective treatments and the overall increased ability of the healthcare sector to deliver cost-effective healthcare. These results arise because data inputted and stored on a Blockchain database is stored in a decentralised manner. This means that healthcare providers and pharmaceutical companies are able to access the database at any point in time, without needing to outsource their storage of data to multiple third parties. The information stored on the distributed database is updated in real-time and time stamped, allowing a doctor, for example, to retrieve accurate information on a patient as soon as it is needed. Moreover, the implementation of a national, private Blockchain, whereby each participant within the network has authorised permission to view the ledger, could facilitate in the creation of unified patient identifiers. This would hopefully result in the creation of a longitudinal type of health record which a patient or healthcare provider could access no matter in what hospital, pharmacy or clinic he or she walks into. Clinical Trials Clinical trials are experiments or observations performed during clinical research. A clinical trial begins with researching a large pool of various drugs in order to establish which of those drugs demonstrates the most promising results. Once that is established, the drug (or drugs) moves into the next stage where it is administered to various groups of patients in order to determine its efficacy and efficiency. The underlying architecture of Blockchain, with its tamper-proof method of function, could prove to be an ideal type of database that pharmaceutical companies could utilise to collect data at any point during a clinical trial, but particularly during phase IV. This phase is also known as the post-market surveillance phase and requires that the drug be monitored after it has been given permission to be placed onto the market. Creating a Blockchain ledger which permits patients or their healthcare service providers to upload the patient’s progress after starting the course of the drug would drastically facilitate this phase of the clinical trial. Medical Records In Malta, certain electronic records, like x-ray and blood results for example, already exist within the healthcare system. These records are held in a centralised manner and each record has a unique identifier. Using a Blockchain-based database, medical records would be operated on a decentralised network. This could result in a decreased risk of unauthorised access if the Blockchain developed included protocols that would govern when and how medical records could be accessed. If this type of network were ever to be implemented, regulators would need to determine whether the medical records inputted into a Blockchain are legally considered to be conclusive evidence of the records’ validity and existence; or whether those Blockchain-based records are merely indicative of the existence of such records as a matter of fact, especially in cases of medical negligence and insurance claims. Counterfeit Products Applying Blockchain technology to management and distribution of pharmaceutical products would permit the products to be indelibly inserted on the Blockchain. In this way, a patient or healthcare provider would be capable of tracing the product back to its origin, and thereby be able to distinguish between counterfeit products in market circulation. A patient or healthcare provider would also be able to ascertain that a particular product has been produced in the country or by the manufacturer indicated on its label, for example. The ability to add unalterable blocks of data to a Blockchain database would be of particular relevance to many sectors where territorial management of rights is crucial, such as the manufacturing and distribution of pharmaceutical products. A Blockchain database could reveal the location and distribution of pharmaceutical products at all times, tracing them from manufacture, delivery and finally to the patient. Traceability on the Blockchain database could enable manufacturers to monitor and control leaks from their distribution networks. Products could be embedded with unalterable tags and the absence of such tag would easily get caught out in checks. Undoubtedly, these characteristics would be most useful for the products’ right-holders’ in order to control grey markets, where illegal parallel importation of products may tarnish the right-holders’ profits and goodwill. What about Data Protection? Whenever the storage or transfer of medical or health data is discussed, alarm bells surrounding data protection begin to ring. At first glance, the features which make up Blockchain technology may be difficult to reconcile with certain data protection aspects and, in particular, with the framework established under the forthcoming General Data Protection Regulation (“GDPR”). However, these data protection barriers are more evident in regard to public Blockchains, rather than private ones. In a private Blockchain, an administrator may be employed which might provide the solution to most Blockchain data protection related difficulties. It is important for companies to note the principle of data protection by design and by default, which implies that companies developing Blockchain technologies must develop such technologies in a way that are embedded with data protection compliance. For more information, please contact : The information provided herein is not intended to constitute advice of any nature whatsoever. Many factors unknown to us may affect the applicability of any statement or comment made herein to your particular circumstances. Although we have researched all the sources to ensure accuracy and completeness of the information contained in this paper, we assume no responsibility for errors, inaccuracies, omissions or any other inconsistencies herein. January 2018 Level 3, Valletta Buildings, South Street, Valletta VLT 1103, Malta. 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