Author: Adv. Rtn. Bhumesh Verma
Managing Partner at Corp Comm Legal
Today, Blockchain and Artificial Intelligence are the two buzzwords in any discussion. For the uninitiated, let’s discuss Blockchain.
Blockchain is a growing list of records called blocks, which are linked to each other using a unique encrypting technique known as cryptography. All such blocks are connected in line to form one blockchain. Each block contains a cryptographic hash of the previous block, that is the value of that block, a timestamp, and transparent transaction data.1
Blockchain was invented by an unknown person or group of people operating under the name ‘Satoshi Nakamoto’ in 2008 to serve as a public transaction platform for the cryptocurrency ‘Bitcoin’.
A blockchain is a decentralized, distributed and transparent data record used in transactions across a network of computers in which any record is transparent/invisible to the public and is yet so much hidden that the data cannot be stolen or altered. The database is managed by a peer-to-peer network and a distributed timestamping server which means that bits of such information are spread across the network disabling hackers from gathering the information in one place. Not only that, a blockchain transaction ensures single-transactions, i.e. data is not transferred twice over the same network which curtails ‘double spending’. With the aid of such features, blockchain has so far managed to disrupt the markets of major economies of the world.
HOW IT WORKS
A blockchain carries ‘no transaction costs’. While processing a transaction, a person creates a ‘block’ which is then verified by millions of computers across the peer-to-peer net. The verified block is added to a chain creating a unique record with a unique history in the network.
Let’s assume the data/record of a ‘block’ is corrupted or falsified by a malware, then it must pass through verification of the entire blockchain system, thus disapproving the entire arrangement which is virtually impossible since the data of the block at the end will still prevail. Thus, blockchain is both safe and secure information transfer structure, as compared to the conventional technology and data safety measures.
USES OF BLOCKCHAIN
This cost-effective model is no longer restricted only for ‘cryptocurrency’ use, instead it can be applied in other ways as well.
This technology can be best utilized in areas wherever there are transactions. The advantages are multifold including:
- no transaction costs; and
- increased security with transparency for all.
Let’s take an example of a purchase, where the seller can sell without going through banking charges on credit cards or other costs. The money will directly move from the buyer to the seller.
Thus, it not only a new method of effecting monetary transactions, it can as well get rid of business middlemen and market intermediaries, who bring little value add but charge a lot as their share in the transaction cost.
Therefore, companies like Uber, Lyft, Trivago and even food delivery apps like Zomato are threatened by such revolutionary technology.2 Let’s assume an open-source platform that connects cab drivers, hotel-owners and restaurant-owners, registered on the respective apps, directly to customers via this technology thus replacing the need of the business owners to pay some royalty for every sale to such companies and keep the full profit to themselves. Even Amazon is included in such a scenario mainly for manufactured and prepacked items like smartphones, books etc.
Although, there would still be some operating costs, i.e. mainly for the maintenance and running of servers for such system to exist, but they are still minimal as compared to the capital costs of the present ecosystem.
BLOCKCHAIN AND LAW
Blockchain has seen a boom in recent years with the increasing popularity of Bitcoin whose engine is built on it. Seven countries of Southern Europe signed a declaration in which they commit themselves to promote blockchain. These countries are Cyprus, France, Greece, Italy, Malta, Portugal and Spain.
A group of countries, including USA, have openly admitted to the need for proper blockchain regulations. Although there is no formal law, such countries have been operating under precedents of lawsuits so far.
In 2017, Belarus was the first country in the world to create an official regulatory framework for the blockchain environment in the nation.3
However, it is to be noted that the size of these countries is much smaller and insignificant than other large economies such as the USA, China, India etc. Thus, it is easier for them to adapt to blockchain since the adoption has a direct influence on the incomes of intermediary businessmen and smaller size – it could result in an expeditious development of the blockchain systems.
However, such challenges to the economy has raised alarming concerns in India. The Reserve Bank of India, though, has banned virtual cryptocurrencies in the nation, has also expressed a strong will to put the Indian Rupee on this technology.
A need for blockchain laws and regulations is required.
USE IN LEGAL PROFESSION
Surprisingly, Blockchain can even revolutionize the legal world by changing the way information is stored.
‘Smart Contracts’ are one such utility.4 They are the conditions and the commands of a contract that are stored in an executable form inside blocks and can be used to auto-execute contracts. These commands execute a command when triggered without the need of human intervention.
‘Profit-Sharing’ is one such example where the ratio of profits to be shared among the beneficiaries or the partners can be stored and distributed on time automatically.
This automation by ‘Smart Contracts’ not only saves time but also prevents illegal activities such as fraud.
Therefore, since ‘Smart Contracts’ replacing the traditional contracts remains a distant but not too far a possibility, very soon lawyers may also have to equip themselves with blockchain technology knowledge.
BLOCKCHAIN IN INDIA
The most popular digital asset of blockchain is the decentralized cryptocurrency ‘Bitcoin’. However, the RBI had banned all sorts of cryptocurrencies in the nation. The major reason for this ban is due to ‘illegal tasks’ it assists in.
The ‘dark web’ is that part of the internet which is off the major search engines like Google, Bing etc. and requires a special software to access it. It mostly contains illegal websites, confidential files and other disturbing material.
Therefore, allowing ‘decentralized’ payments network in the country will invite unlawful activities like ‘hiring hitmen, child pornography, drugs and other frauds’.
Also, India has a population of 1.36 billion and Bitcoin’s popularity lead to people blindly buying the currency, thus raising its price. Since an economical asset has its life like a product life cycle graph i.e. rises and falls after a certain time, to save the citizens from such bubble, the RBI had to do it.
That, in fact, justifies the banning of such payment method.
To sum up, Blockchain Technology has proven to be groundbreaking and its adoption in India demands strict regulation and new laws, including suitable amendments in IT Act, 2000.
Positive legal utilities such as smart contracts have emerged out of this technology and focus on utilities instead of business models can be helpful in preventing intermediary businessmen unemployment condition in the nation.
Companies and Startups have shown their interest and have started developing new and innovative ways to use blockchain efficiently apart from financial services.
Research inputs by Prince Malik, student of IP University and a Student Researcher with Corp Comm Legal
1. Rosic, A. (2019, March 1). What is Blockchain Technology? A Step-by-Step Guide For Beginners. Retrieved from https://blockgeeks.com/guides/what-is-blockchain-technology/
2. Rosic, A. (2019, March 1). What is Blockchain Technology? A Step-by-Step Guide For Beginners. Retrieved from https://blockgeeks.com/guides/what-is-blockchain-technology/
3. Karatkevich, D. (2019, January 17). Blockchain And The Law: Regulations Around the World. Retrieved from https://openledger.info/insights/blockchain-law-regulations/
4. Marvin, R. (2016, December 13). Blockchain in 2017: The Year of Smart Contracts. Retrieved from https://in.pcmag.com/feature/110586/blockchain-in-2017-the-year-of-smart-contracts