Blockchain-powered disruption continues to challenge established business processes compelling the law to catch up.
While cryptocurrencies brought Blockchain technology into the limelight, the potential for disruption extends beyond financial institutions as countless distributed ledger technology (DLT) applications are explored across all sectors.
DLT principles of data immutability, network consensus and removal of intermediaries can unlock innovative solutions to a range of existing problems but raise certain legal issues. DLT-powered digitised tokenisation of both physical assets and contractual rights is now possible but this comes with specific legal, regulatory and commercial risks.
We have seen the Financial Conduct Authority seek to provide some clarity on the use of digital assets by publishing guidance that establishes a three-tiered digital asset characterisation model. However, applying this model to digital assets is not straightforward so clients who wish to harness their phenomenal disruptive potential must take care to ensure regulatory compliance before releasing them to market.
Meanwhile, use of certain DLT applications can lead to the storage of personal data on the ledger. The decentralised nature of a distributed ledger can raise unique compliance issues with respect to the provisions of the European General Data Protection Regulation (GDPR) and other privacy laws.