New guidance has been published this week by the Tech London Advocates (TLA) Blockchain Legal & Regulatory Group and The Law Society.
TLA, founded in 2013, is a network of over 10,000 tech leaders, entrepreneurs, lawyers and experts in London, across the UK and in over 50 countries worldwide. I founded their Blockchain Legal & Regulatory Group in 2019, which through hosting seminars and meetings with industry experts and creating publications like this report, aims to i) assist legal practitioners in advising clients on matters relating to DLT; and ii) identify areas in which further guidance is required from regulatory authorities or other bodies.
The first of its kind, this report draws on the expertise of leading lawyers, academics and technologists to set out suggested best practice for legal practitioners working on matters involving blockchain, smart legal contracts, and cryptoassets, as well as much needed guidance on the key issues that may arise when working on such matters.
The report covers a number of key areas, including:
- The commercial application of blockchain technologies. In setting out an example of a use case for blockchain technology to track and trace goods in the retail sector, the report looks at how a blockchain might be set up, and the advantages and disadvantages of the use of private and public blockchains.
- Smart contracts and data governance. The report offers an in-depth analysis of the advantages and disadvantages of smart legal contracts, the role of data and data governance in smart contracts, and key considerations relating to data governance in the context of digitisation projects. The report also looks at real-world examples of successful digitisation projects, and the impact of DAOs on the legal profession.
- Blockchain consortia. Blockchain consortia can be hugely effective in promoting, developing, enhancing, and integrating blockchain technology – however serious thought must be given to the way a consortium is set up, and the report provides guidance on the effective governance and project management required to ensure the longevity of a consortium. The report also provides guidance on common legal frameworks for consortia, and the legal risks and issues to be considered when setting up or joining a consortium.
- Data protection and security. In an already complex legislative area, the use and continuing development of blockchain gives rise to a number of specific tensions with the GDPR. The report looks closely at a number of these tensions, including those in relation pseudonymisation and anonymisation, and the definition of 'personal data'. The report also looks at zero knowledge proofs, providing an explanation of how these work to increase data privacy, and demonstrating their centrality to the development of DLT technologies.
- Intellectual property. The report explores intellectual property rights in the context of blockchain, looking at the current legal framework with reference to UK and EU case law. While DLT has the potential to revolutionise the way intellectual property rights are recorded, protected and enforced, the report also highlights the implications of the features of DLT technologies on the potential infringement of these rights, and looks at whether certain DLT applications, such as cryptoassets and smart contracts, attract any rights at all.
- Dispute resolution. The use of DLT technologies raises new legal, procedural and practical questions about how disputes arise and how they are best resolved. As well as looking at the impact generally of technology on dispute resolution, the report provides a detailed overview and analysis of the on-chain and off-chain dispute resolution mechanisms currently available, as well as the fundamental legal questions to be considered by practitioners in relation to jurisdiction, applicable laws, and money laundering.
- Regulation of cryptoassets. The report sets out a detailed overview of the regulatory treatment of cryptoassets both in the UK and globally including, importantly, the FCA's treatment of security tokens, e-money tokens and unregulated tokens.
- Tax. The report acknowledges the potential for widespread disruption in this area of law, and sets out the potential of DLT technologies to transform the tax system in the UK. It also provides much-needed guidance on the taxation of cryptoassets, the impact of blockchain on the in-house function, and the impact of blockchain on tax authorities.
The regulation of emerging technologies is a vitally important area; clarity and certainty are fundamental to ensuring that we have frameworks in which innovation and consumer protection go hand in hand. In recognition of this, the report also identifies areas of concern where there is a need for clarity or further regulatory or legislative guidance and, in collaboration with The Law Society, sets out key recommendations and industry activities to be considered in relation to each of the above areas.
The legal profession is embracing DLT and other emerging technologies at a faster rate than ever before, as much incentivised by greater reliance on technology during the Covid-19 pandemic as by the increasing mainstream acceptance and development of DLT-related technologies. It is well established that blockchain and cryptoassets have the ability to affect every facet of our society and revolutionise the way we live and conduct business, and lawyers must be alive to this fact and ensure that they understand these technologies, and the legal issues they bring with them.
We believe that this report represents a shift in the way lawyers see these emerging technologies; from theoretical discussions about far-off concepts, to functional, everyday knowledge and practice. As noted by Sir Geoffrey Vos, Chancellor of the High Court, during the panel event on Monday 7th September to launch this report, "Every lawyer in any field will need to be familiar with blockchain, smart contracts and cryptoassets, because their clients will be dealing with them day to day, in every imaginable context."
Anne Rose, Co-Lead of the Blockchain Group and Commercial Associate at Mishcon de Reya
Sian Harding, Corporate Associate at Mishcon de Reya