Roadblocks in Blockchain adoption?

Blockchain is hailed as a boon for technology due to its ability to reduce risk, stamp out fraud due to its decentralized nature and bring about transparency in a scalable way for several industries from healthcare to hospitality, finances to films, supply and distribution amongst other industries. In addition to securing transactions between people who don’t share the trust factor, blockchain importantly enables sharing of data in an ecosystem where no single entity is exclusively incharge.

But ironically some of blockchain’s biggest assets can be its biggest liabilities as well.

So what are the barriers to using blockchain and what are the challenges in regulating what is a relatively new sphere for many.

1.Legal and regulatory compliance

If you are still wrapping your head around blockchain technology, well it turns out that many governments and financial regulators are also doing the same. Till they have more clarity on how blockchain works exactly and its implications, many governments are waiting and watching about if and how they should proceed with blockchain. This lack of regulatory certainty is definitely challenging for those who are in the blockchain technology sphere as they have to not just comply with existing regulations but also be prepared for ever evolving regulations in what is still seen as a nascent sphere by many government and financial regulatory bodies. In India as well, the Securities and Exchange Bureau of India (SEBI) which regulates the securities and commodities market said to Parliament that regulation of crypto assets will be challenging.

SEBI told the Parliamentary Standing Committee Finance, “As crypto assets are maintained in decentralized distributed ledgers, which are nested in computer nodes spread all across the globe, there is a great likelihood of execution of unauthorized trades not in consonance with any regulatory framework.”

However, there are some attempts to encourage the adoption of blockchain technology with some regulations that take into concern the decentralized nature of blockchain such as the European Union’s GDPR.

2. Data Privacy issues

One of the strongest points of blockchain technology is that once data is stored, it cannot be easily changed. However, this can sometimes be seen as detrimental. This quality of blockchain can interfere with other rights such as the right to be forgotten, recognised by governments and other regulators to allow citizens the right to delete or update any information they have stored on electronic databases.

3.Intellectual property issues

One of the biggest benefits of blockchain technology is that it enables the sharing of data in an ecosystem where no single entity is exclusively incharge. However how this data is shared is based on several factors such as the relationship between blockchain participants, the nature of data etc. Developers have to proceed with caution and formulate strategies with great care on matters of ownership and how to protect themselves at all levels. The points to consider while using blockchain are very different from traditional IP agreements, and especially on public blockchains it can be difficult to create systems that determine ownership.

4.Smart Contracts

Blockchain technology helps many companies to function more efficiently with blockchain-based smart contracts, where the details of an agreement between parties are recorded on a blockchain, and both parties are allowed to review their contracts at any point. These contracts are not only time saving and are cost efficient but also reduce the risk of all kinds of infiltrations, loss of data, need of intermediaries and manual errors. They are used in a variety of fields such as Government voting systems, financial services, healthcare industry, supply chains and many others.

However, while the word contract exists in the term smart contract, a smart contract is not exactly a contract in the legal sense and not that smart either.

Any minute change in the terms and conditions will require a humongous amount of coding and that will shoot up the cost. Developers and coders need to understand the legal terms and develop the code accordingly and that sometimes can be quite an uphill task. Since contracts include terms which are not always understood, hence, smart contracts end up handling those terms and conditions a tad bit loosely.

There needs to be sufficient clarity in this sphere to understand that smart contracts are not necessarily legal and therefore one has to be fully aware of how these contracts can be construed in case of a dispute.

5.Questions around Liability

Due to the points mentioned above, lack of clear cut government regulations etc it’s not surprising then that liability and where it can lie also comes into question with blockchain technology. Attribution of risk and liability with regards to the transactions on a blockchain network therefore need to be conducted with caution.

Also due to the decentralized nature of blockchain liability also represents a concern, as there may be no party ultimately responsible for the functioning of distributed ledgers and the information they contain.

6.Jurisdiction

The beauty of blockchain is its decentralized nature as the blocks on a blockchain can be located anywhere across the world. This advantage however can pose potential challenges when it comes to jurisdictional boundaries. Since each block may be located in a different jurisdiction it can be subject to different legal requirements. Since blockchain is decentralized there is no central authority responsible for all the blocks or nodes as they are also called. This means an increasing number of legal and regulatory practices have to be put into effect to address potential issues.

7.Veracity of blockchain technology

A legal framework is required for instilling confidence in using a blockchain as a trusted source of identity. This legal recognition is also required with regards to ownership of an asset on a blockchain.

Even with regards to financial instruments such as bonds and derivatives on a blockchain, legal recognition is required to define these financial instruments and how valid they are. If this is done, this could have far reaching effects on macroeconomic policies.

However, in spite of the challenges, if governments and regulatory bodies make the necessary efforts to increase the adaptability of blockchain and minimize the risks, the adoption of blockchain technology can provide far reaching benefits to business and society as a whole. In fact, Blockchain technology can truly bring about a revolution of sorts and a whole set of new financial and social systems for the world.