People are slowly accepting the usage of the bitcoin i.e. virtual currency, and behind this is the spread of the blockchain technology.
The studies are primarily made to see if these virtual currencies can ultimately replace the main ones. Further inspection, however, is made with more emphasis on the blockchain technology and its wondrous infrastructure.
The Bitcoin system isn’t closely monitored. There’s not a department that monitors, studies or secures transactions performed on the network.
How is everything safe, though? Cryptography.
As previously defined, the blockchain technology is a ledger that everyone can view. This ledger records every transaction, and every user obtains a copy of this ledger.
How Secure is Blockchain?
There are a lot of transactions and information stored online. In relation to that, various reminders have always been given out to tell people on how to keep their information safe and secure.
The blockchain technology is all about storing your details and securing them through cryptography. How is this a reliable method of keeping your data?
There have been reports of digital currencies being attacked by hackers. It’s almost expected for every new technology – hackers are always trying to see if they can break through the codes and infiltrate the system.
The blockchain is currently secure and believed that will be more secure with time. With its cryptographic information – using RSA encryption regarding key exchanges – it has become unbreakable even with numerous hack attacks.
How is Fraud Avoided?
Blockchain’s process includes funds only being transacted if the value is confirmed being within the wallet of the sender. An algorithmic process is also done to cross-check the entire blockchain history to make sure that the bitcoins the user is sending are indeed assigned to their address.
If it’s about other information other than bitcoin, then other verification methods are being held and are conducted by reliable third-party operators if necessary. Reputable nodes with officially distributed ledgers keep this information so as to assure the owner of the data of its security.
What areas are being affected by Blockchain?
There are different areas where the blockchain technology is being implemented. For each area, there are various legal issues that have to be addressed to ensure a smooth transaction.
- Storage and Data Transfer
The blockchain technology is not only limited to storing financial information. Other data such as identity details can be stored and confirmed using blockchain ledgers.
Having these details on hand can indeed lead to concerns about privacy, especially if someone does indeed own the right to have such information.
- Financial Transfers
Aside from using the blockchain technology for digital currencies, the technology is also being used for transferring currencies in a fast and efficient manner.
Applications, where these can be used, include settlement, clearing, global remittances, interbank transfers and currency exchanges.
- Colored Coins / Merchant-issued Digital Currencies
Colored coins are those tags that represent the assets overlaid on digital currencies. The digital products that come out of it can be given as discount coupons, vouchers or gift cards. Merchants, for example, can tag bitcoin transactions in a way that they represent a gift card that already represents $1000 worth of merchandise.
Even though used as such, the bitcoin still has its own value; the product resulting out of it ends up a combination of asset vouchers and digital currency.
These advances end up in a gray area and blur regulatory lines; case in point being the Financial Services’ law of the New York State Department exempts gift cards, however, digital currencies such as the bitcoin operate similarly as gift cards.
- Multi-signature Transactions
Multi-signature transactions involve funds being deposited into a virtual currency address. This starts a transaction among three parties: a third-party ‘escrow’ and two contracting parties. To complete or refund the transaction, the transaction must be signed by at least two of the three parties.
Escrow agents that assume control over assets do not have laws regulating them with regard to accommodating these types of transaction. In effect, conflicts may arise when there is nothing delivered physically or held in escrow.
- Property Registers and Intellectual Property
Ownership recordation systems can also be replaced or supplemented by the blockchain technology. Blockchains can verify and store property titles; title transfers, on the other hand, can already be verified without having a third party present.
Ownership regarding intellectual property can also be recorded using decentralized ledgers, and tokens that represent individual property rights can also be transferred. Regulators may hesitate to decentralize official registries, but if features such as reduced chances of fraud, higher security, and fewer transfer costs will be implemented, then new technology can have better chances of being implemented.
This field involves both legislative and doctrinal shifts. The current licensing law for intellectual properties focus on contractual relationships; blockchains could influence the IP law that governs digital products, for example, the first sale doctrine. With blockchain, digital copies will be identified; sellers can verify and transfer copies completely.
- Decentralized Organizations
Blockchains can distribute rights that are similar to those of the usual organizations, examples being divided rights or voting. Any actions of the company can be taken automatically through smart contracts such as dividend distributions once approved by the company members.
With the blockchain technology, decentralized organizations can bring up liability issues – to whom the actual responsibility falls may be difficult to define. Since the company is managed automatically, it’ll be the legal systems that will be deciding who is to blame if laws are broken.
- Smart Contracts
Legal issues can arise from smart contracts. As documents with an automatically enforcing nature, they can obscure applications of the usual contract doctrines. Even if they are coerced, they can still be not cancellable or voidable. Smart contracts can also be written in ways that they are impossible to breach.
There are privacy concerns as well. The contracts that both parties have agreed to can be publicly viewable, and if someone wishes to track someone else’s contracts, then he or she can do so.
- Securities and Financial Products
Companies such as Overstock.com start to work on their own blockchain platforms for issuing public securities. In relation to that, the Securities and Exchange Commission has already given the company the power to issue blockchain shares through a public offering.
There are companies that have come up with funding through selling their own native tokens; according to them, these are not securities but rather, sell pre-sales of access to technology. Tokens may or may not be securities; it will only be determined by checking different uses of identical technology.
These areas are believed to be affected by the blockchain technology and have their own legal implications for implementation. More research is being conducted to ensure their compliance with the laws once the blockchain is finally in place.
The Effects of Blockchain on the Economy
After the bitcoin and the blockchain were invented, enthusiasts proclaimed that the financial world will now be penetrated by cryptocurrencies. The traditional transaction methods involved a third party, but the blockchain technology in place somehow states that in the future, these third parties will no longer be required.
After more than six years, the interest in the bitcoin has subsided. There are a few merchants that accept bitcoins, but it’s not often acknowledged as a common method of payment. The opposite can be said regarding the underlying technology – blockchain. The blockchain’s capabilities continue to amaze major personalities, thinking that there’s so much that can be done.
Banks and Blockchains
Right now, what countries have in place are the banks. These central banks somewhat have an effect on the economy because of managing three aspects: monetary policy, interest rates, and money supply.
What happens if these three aspects were controlled by the blockchain?
Here’s what will happen. If the country’s currency – for example, the US Dollar – was represented on the blockchain, you’d understand better if cutting interest rates will affect the economy.
Let’s say you proceeded on cutting the rates. You go on and increase spending, increase customer confidence, spur lending and achieve bigger investments on assets such as stocks. After taking the necessary steps, you just have to address other lagging indicators and check out retailers’ random samples to see if you indeed took the right direction.
Another advantage of representing your currency on the blockchain network is seeing the value move in the system in real time. You can’t see who’s spending, but you’ll see how they’re spending. Hence, you’d manage your policy effectively and efficiently.
Better Financial Options
There are a lot of financial services out there, but not everyone can gain access to them. Around 2 billion people can’t maximize the services of banks or financial institutions because they either don’t have enough documents to prove their identity or not have enough money in their existing accounts.
With further research, blockchains could create new means of verifying one’s identity and make the services more accessible to those who need it. Through this innovation, more people will gain access to financial means, improving first their lives and then the economy.
Credit Scores vs Blockchain
Another improvement that blockchain could lead to is all about your personal information. Right now, to receive services such as getting loans, you need to have a good credit or FICO score to make yourself worthy of receiving a loan. The thing is, FICO scores are not always reliable. You can’t control them, and sometimes there are errors.
With the blockchain, you can gather all your previous experience regarding payments. You can even use your information on Facebook or other social pages provided you give your consent to prove that you’re capable of the investment. By doing so, you can possibly gain access to a loan with lower interest rates.
The Heart of the Finance Industry
The blockchain won’t stay on the sidelines and will instead be the finance industry’s beating heart. More innovative solutions will result from it and be integrated with the financial services’ structures.
This technology can allow customers to pay for different financial activities with fewer costs, such as stocks and bonds trading or international payments. Regulators can have new capabilities and even keep track of impending financial crises.
Before it gets to this point, there are a lot of issues and risks to be addressed, such as potential security gaps, malicious autonomous behavior or errors in design. A formal legal framework, certain regulatory requirements, and enough standardization efforts must be established as well. Once all these challenges are addressed, then the social and economic benefits of blockchain can soon be achieved.