Top 5 Legal Issues to Look For in Blockchain Technology

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It is the 21st century and technological advancements are rapidly taking over the world. However, with every advent of new technology comes the uncertainty of how the legal and regulatory systems of various jurisdictions will react to it. Until recently, the legal validity and enforceability of electronic contracts were being debated. Blockchain- a digital network where an immense amount of commercial data is stored is now being regularized and formulated to fit into the legal system to support entrepreneurs and business organizations. Legal firms like Fintech Singapore are keen on understanding and solving legal issues that come along with the blockchain technology. In this article, you are going to learn about 10 legal issues that Fintech legal advisors have identified in blockchain companies.


What is Blockchain?

Blockchain is a decentralized public ledger where data can be stored and digitally distributed across various computer networks that are linked in a peer-to-peer network. It is reputed for its immutability, transparency, high security, faster settlements, and decentralized nature. The data stored in blockchain can neither be altered, nor deleted. Many businesses around the world are drawn to these special features of blockchain. However, legal advisors have pointed out certain areas in blockchain that have legal issues.


1. Jurisdictional Issues

As it is a digitized ledger, the nodes of blockchain can spread to numerous locations around the world. It means every transaction that takes place in blockchain has to undergo the legalities, rules, and regulations of every location of the network and the system would have to be compliant with all applicable legal and regulatory regimes. It makes it difficult to pinpoint the location of the transactions if they turn out to be fraudulent or erroneous.


2. Governing Law

The fundamental concepts of contract and legitimate title fluctuate according to the laws and regulations of various jurisdictions. What counts as a binding agreement in one state could be void in another. The law governing the transactions must be predetermined by an internal governance structure in order to prevent this confusion. The users would then be able to assess the legality of the contracts as well as their rights and duties thereunder. A method of dispute settlement that is acceptable to all parties concerned should also be specified.


3. Cyber Security

Although the blockchain is thought to be a very safe and “tamper-proof” technology, this benefit is lost if the data that is being kept on the blockchain is compromised in the first place! Cybercriminals attack the data entry points rather than the ledger itself, which results in the storage of inaccurate or misleading information. The majority of processing in most blockchain systems is done by a small number of nodes. The ledger would be vulnerable if the attacker was able to locate these nodes and target them. Exchanges for cryptocurrencies are also susceptible to denial of service and Eclipse or Sybil attacks.


4. Force Majeure

Typically, this clause in contracts covers situations that are beyond the control of the average person, such as wars, pandemics, natural catastrophes, fires, and the like. However, there might be additional legal considerations in the case of a blockchain-based system, such as a smart contract breaking, problems with cryptocurrency transfers, a party’s access to the blockchain being compromised, etc. Whether such occurrences qualify as force majeure events and whether parties may depend on them to avoid or postpone fulfilling their contractual duties must be made clear in the contract. A clause that states that “parties cannot claim the protection of the force majeure provision for issues resulting from” may also be carved out as an exception to this clause.


5. Intellectual Property

The value and ownership of the intellectual property (“IP”) will inevitably be a significant factor in the ledger. Customers can demand ownership of such intellectual property, license it for the duration of the contract, or accept a perpetual license if it is not proprietary to that specific blockchain network. They can also limit how long, to whom, or how the vendor may use the IP. Cryptocurrency and blockchain initiatives are primarily created under open-source licenses. These licenses often place some limitations on the users and are not commercial or subject to a royalty. Therefore, it is crucial for businesses to comprehend the restrictions of the open-source license that has been provided to them and to protect themselves from any potential liabilities that may result from a violation of the license terms.



The explanation above makes it clear that any organization planning to embrace blockchain technology faces a number of significant risk management challenges. But similar difficulties have been encountered before, during the introduction of e-commerce, electronic records, and the internet. Accurately identifying the dangers and legal difficulties and taking the necessary steps to mitigate them is crucial.


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