The European Parliament has released a report, “How blockchain technology could change our lives,” summarizing the capabilities and challenges of blockchain technology as well as its possible impact on social values. The report, presented by the European Parliamentary Research Service, noted that among all the potential applications, self-executing contracts are creating ways for companies to operate automatically.
The report noted that blockchains are especially helpful for situations where it is important to know ownership histories, such as managing supply chains.
Despite the capabilities, however, the technology will not likely result in a revolution.
Some of the broader issues to consider include protecting sensitive data. While some blockchains offer anonymity, certain types of information should not be distributed on blockchains.
Digital Property Rights
In the area of digital property rights, blockchain technology can assist in identifying copyrighted works and settling disputes. It could lead to multi-territorial licensing policies and improved legal certainty for both creators and purchasers of content.
In the realm of protecting patents, blockchain technology could balance protection of innovators against that of competitors. Blockchain “hashing” and “proof of existence” make the technology helpful in improving the patent system. There is currently no unified EU patent system.
Hashing is a process by which a document transforms into a fixed length code – a “hash” – a unique identity. Proof of existence is a process of recording the hashes on the blockchain and creating a record of the hash’s existence which anyone can verify. This makes it possible to publicly record a document’s existence without revealing any of its content.
By deploying blockchain technology in the patent system, it will be possible to reduce inefficiencies in recoding. The problems of patent trolls and costs associated with transactions could require a different type of response, however.
Blockchain technology could make patent systems more efficient and provide more economical proof of existence services.
Electronic Voting
In regard to electronic voting, blockchain technology can offer a more bottom-up and participatory social structure by providing a cost effective and secure e-voting system. Coercion remains a threat for any voting system offering remote participation (including postal votes). For both paper voting and blockchain e-voting, private polling stations are the only protection against coercion.
Smart Contracts
Smart contracts provide one of blockchain technology’s most promising benefits, the report noted. Such contracts can improve efficiencies in contract enforcement.
It could be necessary to find new ways to assert the primacy of traditional law should the automation involved in a smart contract make the law difficult to enforce. There could be new government responsibilities needed to apply traditional judicial processes to smart contracts, including arbitration in the event there are bugs in contract code.
Traditional contract law, especially evidentiary rules and record keeping requirements, may have to be modified to consider the deterministic nature of smart contracts and enforceability issues.
Supply Chain Management
As for supply chains, blockchain technology can improve supply chains by offering infrastructure for certifying, registering and tracking goods and services as they move along the supply chain. Tokens can uniquely identify goods on the blockchain, with each transaction time stamped in a transparent manner.
There are regulatory challenges for applying blockchain technology to supply chain management. The absence of an intermediary in the chain can cause uncertainty for the parties involved.
Public Administration
In the area of administering public services, numerous “eGovernment” services are being developed. Possible applications include identity management, tax collection, land registry, distribution of benefits, digital currencies and any type of government record.
Blockchain technology could allow records to be verified and created with greater speed, transparency and security.
The most immediate applications are in record keeping.
There are risks that have to be considered in introducing blockchain technology to public administration. In establishing a digital records system, there are startup costs and potential technical issues during the transition phase.
While blockchain ledgers record the details and time of a transaction, they cannot verify accurately all of the content. There is still need at present for the gatekeeping role of civil servants.
Public administrations will likely retain central control over their blockchain deployments and could also require “backdoors” to blockchain systems for law enforcement purposes.
Decentralized Autonomous Organizations
Decentralized autonomous organizations (DAOs), bundled smart contracts that are automatically enforced and executed through blockchains, could provide a more autonomous organization. The level of autonomy DAOs will reach remains to be seen.
DAOs currently exist in a regulatory gray zone in which liability, protection and accountability guarantees are not necessarily provided.
Also read: European Commission to establish EU blockchain observatory
Jurisdictional Responsibility
While blockchain applications assume a self-regulatory approach operating in parallel with traditional law, a mix of traditional and novel legal issues arise that need to be considered. Blockchain’s decentralized character raises jurisdictional issues as it erodes institutional accountability and legal responsibility in an “unprecedented manner.”
Decentralized blockchain based systems could be open to co-option by external powers and without sufficient institutional protection, they could evolve into oligarchies.
Blockchain will not make people better, but it could make some precautions necessary in peoples’ daily lives cheaper, faster, more transparent and more secure.
Blockchain technology’s most profound impact could be its impact on social values, the report noted. All technologies have politics and values that usually represent their creators’ interests.
Featured image from Shutterstock.
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