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Blockchain: Legal Implications

Linkilaw Internet Security

If you’re interested in banking and investing, over the last few years, you probably have heard about “blockchain” technology and be familiar with it. But even if this is not your case, you may have heard this concept which has been said will be the next biggest revolution after the Internet creation.

However, as this technology is relatively young, its not clear what the legal implications are – so what are they ? Keep reading to learn more.

What “Blockchain” is and how it works – simply explained

A blockchain is a time-stamped series of immutable record of data that is managed by cluster of computers not owned by any single entity. Each of these blocks of data (i.e. a block) are secured and bound to each other using cryptographic principles (i.e. a chain). This means that once stored on the blockchain, the data cannot be manipulated or changed, it is immutable.

Another characteristic is that it is not owned by a single entity, so it is decentralised. Trust is created because all the computers or servers in the network control, check and consent to any additions or changes to what is recorded.

In addition, the blockchain is considered disruptive because it is transparent, everyone can have access to the information, and it eliminates the need for intermediaries and other third parties while being safe and cost efficient.

So what are its applications? Blockchain can be used for record keeping, transferring value (via cryptocurrencies or otherwise) and smart contracts to automatically execute a transaction when one or more preconditions is met, which is of greatest interest to lawyers, therefore to us.

Blockchain - how it worksLegal implications

Blockchain rests on three pillars: decentralization, transparency and immutability. However, each of these characteristics is open to challenge.

Until law and regulation catches up, the involvement of a third party is necessary for validating or perfecting some transactions.

In this sense, blockchain is not perfect. The safety of a blockchain may be compromised if there are coding flaws and it’s important to consider that excluded intermediaries (such as lawyers) may have performed valuable functions. These functions go beyond simply recording a transaction because they protect the interests of the parties to the transaction and third parties. Importantly, these functions fulfill the regulatory tasks without which the transactions are invalid or illegal.

Regarding data protection, another aspect to consider is that natural persons have the right to be forgotten, to have personal data deleted or corrected. But it’s not clear how this can be done in the Blockchain if data controllers use pseudonyms and the information is immutable?

Lastly, blockchain participants need to be aware of the wider legal ramifications of the resolution they are using, including public law, private law, criminal law and financial and regulatory law and this can be quite an overwhelming task.


According to Deloitte Legal, in order to tackle these issues, a number of solutions are being explored:

  • To combine permissioned and permissionless blockchains where components of the proposed transactions require some intervention by a responsible party. Moreover, all participants in and users of blockchains and smart contracts in which personal data is exchanged are data controllers and must comply independently with all data protection requirements.
  • To decide what goes on the chain or in the smart contract and what is taken care of off-chain. While it is possible to include provisions as to liability, jurisdiction and other legal aspects in the smart contract, this allows no room for manoeuvre or interpretation because it is based on conditions.
  •  A better solution may be to have a “real” contract stored off the chain, but linked to it with a hash secure value so that the parties can have confidence that the agreed version is the one being relied on by taking advantage of blockchain’s time-stamping capability.

In the meantime, in Linkilaw we can inform you about the opportunities that the blockchain technology offers your business and how the law will catch up to adapt.

If you have any legal query regarding Blockchain or need legal advice for your business, book a call with our legal team and we’ll guide you through every stage of your legal needs.

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