Competition Commission paper on blockchain tech spells regulatory risk
In case of permission-less blockchains, network participants may be anonymous or pseudonymous - their identities are not known fully - the CCI discussion paper notes
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As major applications of blockchain will likely be in the finance domain, CCI is focused on the legal structures of such entities.
Major financial bodies are looking more seriously at blockchain, the underlying technology of cryptocurrencies like bitcoin. The Competition Commission of India (CCI), in collaboration with EY, recently came out with a discussion paper on blockchain and its legal ramifications. The 50-page document, which has been reviewed by Business Standard, retains the government’s stand to allow innovation in blockchain but points to regulatory risks as this technology proliferates.
“Given the decentralised nature of blockchains, there may not be any identifiable host, or an operator and the nodes may be spread across the globe with transactions occurring between the nodes located in different jurisdictions. Therefore, in case of any legal, policy or regulatory issue, it is difficult to understand which jurisdiction’s policies and regulations may apply,” the paper notes.
“In the case of permission-less blockchains, network participants may be anonymous or pseudonymous, ie, their identities are not known fully. In such a scenario, policymakers and regulators are likely to face enforcement challenges in terms of identifying liable entities and penalising them for wrongful conduct.”
As major applications of blockchain will likely be in the finance domain, CCI is focused on the legal structures of such entities. The paper says that under the Indian law a blockchain can be potentially understood to be an “association of persons” for legal and tax classification, or may be treated as a partnership where “each partner would be held jointly responsible for all liabilities of the business and all personal assets of each partner are subject to seizure or lien by creditors”.
It, however, says that there is little possibility to hold someone accountable for data breach as data in blockchain is immutable, not erasable and held by multiple participants.
“Given the decentralised nature of blockchains, there may not be any identifiable host, or an operator and the nodes may be spread across the globe with transactions occurring between the nodes located in different jurisdictions. Therefore, in case of any legal, policy or regulatory issue, it is difficult to understand which jurisdiction’s policies and regulations may apply,” the paper notes.
“In the case of permission-less blockchains, network participants may be anonymous or pseudonymous, ie, their identities are not known fully. In such a scenario, policymakers and regulators are likely to face enforcement challenges in terms of identifying liable entities and penalising them for wrongful conduct.”
As major applications of blockchain will likely be in the finance domain, CCI is focused on the legal structures of such entities. The paper says that under the Indian law a blockchain can be potentially understood to be an “association of persons” for legal and tax classification, or may be treated as a partnership where “each partner would be held jointly responsible for all liabilities of the business and all personal assets of each partner are subject to seizure or lien by creditors”.
It, however, says that there is little possibility to hold someone accountable for data breach as data in blockchain is immutable, not erasable and held by multiple participants.