The Three Biggest (Non-IP) Legal Issues Faced by Blockchain-Based Platform Technology Providers

For all the excitement and promise of blockchain-based technology, it’s vital to remember that the very “newness” of a technology can lead to issues of basic legal compatibility. Few if any technologies magically create their own regulatory framework whole cloth, after all. For this reason, technology providers wishing to use the blockchain—or related distributed ledger technology (DLT)—in their own offerings necessarily must pay careful attention to how their particular blockchain-based technology will interact with the established (and evolving) contracts, laws and customer expectations encountered in the marketplace. Here are three of the biggest issues that await providers:

  1. Proper contracting. Due to the nature of blockchain technology, many of the “standard” commercial terms addressing security audits and data breaches will not be correct when applied to the blockchain technology because the technology is so much more secure and transparent than other platforms that exist today. As such, these standard provisions need to be right-sized to blockchain technology. Along those lines, the allocation of liabilities for data inaccuracies, transmission errors and reporting problems should be adjusted to properly reflect the technology.
  2. Compliance with record-keeping laws. While some state legislatures have addressed the issue of updating standard commercial laws (including the Uniform Commercial Code) to allow for a decentralized, but distributed ledger as a medium for keeping records, many states have not yet updated their laws. This does not necessarily mean that using blockchain-based technologies in a jurisdiction that has not yet updated laws would be constrained, but it does introduce some additional risk that should be mitigated through proactive discussions and understandings among all relevant parties involved with the blockchain solution.
  3. Not overpromising what blockchain can offer. Due to the improved security, transparency and speed that can come with blockchain solutions, there can be a tendency for vendors of blockchain solutions to promise too much to companies looking to use those solutions. While it is important to talk about the benefits of a blockchain solution in a way that encourages companies to make the investment, vendors can overstate the difference a solution can make, which is turn can result in losing the deal.

These days, no one doubts the potential value of blockchain-based solutions. Now, it’s just a matter of successfully applying those solutions within the already existing framework of laws and expectations.