The use of blockchain outside of the area of cryptocurrency is being considered more and more often, there is potential for its use for example in contractual obligations. Blockchain can make repeated performance of a large number of items, typically in supply chains, more transparent, secure and thanks to the automation of complex processes even cheaper to operate as a result.
This article is based on the assumption that in private-law contractual obligations, it is best to use the so-called hybrid blockchain, which combines elements of public and private database architecture.
Valid law and the nature of blockchain
At present, most legislations do not contain specific regulation of blockchain and distributed databases. Countries usually perceive blockchain mostly with respect to the banking sector (although there are exceptions1 ). Given the lack of legal regulations, it is necessary to use general provisions and analogical applications of valid law as a starting point. Blockchain, like software, is a movable intangible asset from the point of view of Czech legislation. Although the core of blockchain is a source code, a computer programme, from a legal perspective it is necessary to also take into account other aspects of blockchain solutions2 , such as the database itself, P2P network or any platform for transactions and smart contracts.
Blockchain in contractual obligations and selected problematic aspects
In the future, blockchain could fully replace the necessity for a so-called trustworthy third party by automating a part of its function and transferring the other part to the transaction participants. However, the enforceability of such obligations comes with a question mark, precisely due to the lack of specific regulation. Hybrid blockchain could be a solution, since it offers the possibility of internal self-regulation while maintaining the transparency of public blockchain.
One of the possible options of setting up a hybrid solution is to create a special (administrator) entity3 in a private network that would be regulated by an internal code of conduct in terms of functions and obligations, with respect to itself as well as the public part.
The code should reflect especially the primary economic activity of the blockchain, or the blockchain protocol, and it should also regulate the position and authorisation of this special entity. Individual obligations of ordinary participants towards the network as such could then be regulated by the individual master contracts (smart contracts), where the participant’s primary contractual partner would be the special entity.
This entity would be responsible for the correctness of verified records (it would initiate the record itself or it would have the power of veto), for the operation of the database and for the performance of the obligation contained in the blockchain, but it would not intervene in the transactions in any way. In the event of an obligation arising from a delict, e.g. entering wrong data or recording an incorrect record, the members of this entity providing joint and several guarantee could seek recourse directly against the originator of the error using smart contracts. It should be pointed out that the managing entity should not perform the function of a trustworthy third party but only a technical and functional supervisor of the individual transactions, in which it does not participate.
In more decentralised blockchains, this entity could be replaced by the code of conduct itself, or the system of smart contracts. With slight exaggeration, this would lead to the creation of a de facto “public” private blockchain. In this case, the code would contain a more specific definition of the mutual obligations of the participants, who would conclude them ad hoc directly between themselves and provide guarantees to each other.
Conclusion
Although blockchain keeps developing, it is now technically ready for practical use and in many cases it is already being actually implemented, but there still remain many outstanding legal questions. It will be interesting to observe how the expert public will cope with this new challenge and what approach local legislature will take in this respect.
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1 Certain European countries use blockchain database e.g. for the land registry.
2 In the case of blockchain, it is necessary to distinguish between the blockchain protocol as a computer programme (or source doe) and the actual data in the database (which are affected differently by
additional legal regulation).
3 In this respect, it is necessary to understand the blockchain administrator as a participant (or group of participants) having broader or different rights compared to ordinary participants.
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