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Block by block: the ups and downs of blockchain
Much has been said about blockchain over the years, but fundamentally, blockchain enables users to transact with each other in a direct and secure way and provides an immutable, unchangeable record of such transactions. Blockchain transacting cuts out the “middle man”. In traditional transactions, intermediaries such as banks and governmental institutions are used to protect and validate transactions.
For these reasons, blockchain is seen as a viable and even innovative way to do business.
Blockchain lends itself to many other uses besides transacting, including: record-keeping and time-stamping made possible by the immutable, unchangeable nature of blockchain technology; tokenisation to protect data; and even verifying identity and legal status in commercial transactions.
The attraction for businesses is that they are able to use the blockchain to either:
- increase efficiency in their current processes by replacing existing components; or
- provide an entirely new service with blockchain underpinning the foundation of such service.
All that being said, blockchain comes with its challenges: its celebrations can also be its pitfalls. Businesses should therefore bear these issues in mind when they consider implementing blockchain technology in their operations. These include:
- Technical requirements: The immutability of blockchain means that the technical requirements must be established upfront. Where we see immutability is, for example, when a transaction is accepted into a block. Once that block is fixed to the ledger, this cannot be reversed. The benefit of immutability is guaranteed performance and transaction finality. However, a failure to implement the correct technical requirements may lead to coding flaws which can compromise the safety of the blockchain and ultimately its immutability.
- Legal requirements: Although blockchain technology makes it possible to transact, businesses must take a further step to ensure that their transactions and related activities on the blockchain are compliant with applicable laws. For example, although it is technically possible to conclude a sale of land “smart contract” using blockchain technology, some jurisdictions might require such a contract to be in manuscript writing.
- Data privacy: The privacy of information recorded in a blockchain might present a challenge from a data privacy compliance perspective. Businesses might not be able to immediately identify whether they or another party is responsible for personal information recorded in a blockchain. In addition, data subjects might not be able to easily exercise their rights in respect of personal information recorded in a blockchain, for example, how will they practically be able to request their information to be removed from a record in a blockchain?
Businesses that wish to revolutionise their business models must be aware of and prepared for the technical and legal issues inherent in implementing blockchain technology.
Corporate Commercial | Associate