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Digital Law: Neolith 2.0


Oleg Koldayev

"Blockchain will kill the notarial system!" Or: "Blockchain will make long and tedious procedures for property registration unnecessary!" How many such statements can be heard at various forums and in backstage conversations with representatives of the digital economy? You might think that the blockchain is a real killer of the norms and rules that we are familiar with. But let's try to answer the question, if it is true or not?

"From the legal point of view, I cannot comment on the blockchain," - the French notary told Bitnewstoday.com. And the question was simple: will new technologies be able to change the legal reality?

Nobody will argue with the fact that law studies are distrustful, conservative and even boring. Before getting into the system of legal regulation, an item, technology or phenomenon must go through a certain life path to prove the relevance for the society, popularity, vitality, and determinateness. Only after this, the law will be able to operate with categories of use or harm and, accordingly, promotion or prohibition. But that was before the digital age, when the formations that were not defined from the point of view of the modern law appeared.

So, DLT and blockchain. They both can be defined as a technology that allows you to record a chain of transactions, ensuring its consistency and reliability. But we will immediately warn that DLT (distributed ledger technology) and blockchain are different phenomena. A distributed ledger is a technology for storing and distributing information, and the blockchain is a public, publicly accessible registry where anyone, not just a qualified user (specialist), can participate in the confirmation of transactions on the basis of consensus and receive a certain fee in the cryptocurrency for this. In other words, DLT is a technology; blockchain and smart contracts would be more correct defined as a law.

The peculiarity of the legal description is that it is necessary to start with boring common truths. The legal sequence is created this way: without the simplest, the most difficult will not be clear.

Then it's more interesting. About 78% of the land in the Republic of Ghana (Western Africa) does not have an owner. Not because anybody owns them. Just the state registration authorities in this country are so weak that they cannot provide cadastral registration of land and rights. However, the Bitnet organization invited individual residents and tribal communities to assess the estate in land themselves and include it into the blockchain on the basis of the achieved democratic consensus. Anybody willing could become a member of the blockchain.

Another example is Estonia. In this Baltic country a distributed ledger of medical histories began to operate, which will allow verifying the authenticity of data without reliance on a centralized authority. This means that this platform does not have a single holder in the person of, for example, the Ministry of Health, but there is a community of qualified doctors who enter medical data into it. And no one, except for doctors, has access to the ledger. Only a qualified specialist will be able to create a patient’s card in it and, if necessary, provide information on the change in the initial data. The rights and qualifications of users of this ledger are confirmed by a state medical license.

In the first case, we see the blockchain as a legal construction, in the second - as a limited distributed ledger (DLT) or purely a technology. And now we can distinguish one from another.

Let us try to answer the question: why is there still no unified legal regulation in the overwhelming majority of states, where both the distributed ledgers and the blockchain have already been operating for a long time? And most importantly, why has this technology not killed the notary and bodies of state registration of rights and civil status?

If we deal with a closed distributed public ledger everything is simple. This technology simply does not need special legal regulation. Decentralized digital platforms operate in the same legal field as ordinary public registers or unified information systems, in which several registers are represented.

For example, the majority of notaries of the world own such registers. Notaries of France call this "Real". It is named after the lawyer, the adviser to Napoleon the master Real, the Civil Code of the future republic creator.

In this case, we do not need to invent anything, the entire regulatory framework for their functioning already exists. It only needs small changes.

However, notarial communities of different countries that have already tried to implement such a technology in their activities faced the same drawback of the distributed ledger, that is  the inability to make changes if a mistake has crept in the data or the conditions has changed drastically. All adjustments and additions have to be legalized in a separate transaction and then re-enter the transaction. DLT, of course, is better protected from hacking and penetration, but the efforts and time costs for its management are also great.

The blockchain is a different story. It acts on the basis of a consensus of disinterested users. But there is no clear legal definition of a consensus as a procedure that determines the law in any legal system of the world, in contrast to voting. This concept, of course, is widely used. In the civil legislation of most countries, there are consensual agreements. In the WTO, the NATO Council, the UN Security Council decisions are also made on the basis of a consensus. But in the first case, a consensus is a method of an agreement the terms of a transaction and the right arises from legislation. In the second one this is not a consensus itself, but a rating vote with the right of veto. Therefore, the contractual nature of the blockchain, from the standpoint of classical law, is undefined. All attempts to regulate this sphere in some way (Malta, Gibraltar, Bermuda Islands, and Belarus) result in the adoption of framework laws that are difficult to apply in judicial practice.

In addition, the blockchain as a law has three drawbacks in terms of modern legal science and law enforcement practice.

The first one is the absence of personification.

In virtual space, there are methods and devices that allow everyone to determine a person's identity, for example, an electronic signature. In many cases, it is equivalent to the citizen's  handwritten signature, although the ES has many disadvantages, including the relative simplicity of the forgery. But it is rarely used in the blockchain. The whole system is built on trust. How can one determine what kind of person is sitting at the computer on one of the branches of the chain? Is it a human being? And if a person, is he legally capable then? There are no answers to these questions.

The second drawback is trust.

Trust can be legally recorded only by issuing a document (power of attorney) of one individual or legal body to another. There is no and cannot be any a priori trust of all and everything. No one sees or knows those thousands of people that confirm the chain of transactions. But the blockchain works exactly this way.

And the third drawback is the absence of the will fixation.

At the moment, the basis of all transactions is the will of the parties. Any chain has a beginning. This beginning is a concrete person. The blockchain is not an exception. It cannot in any way determine the voluntariness and independence of the transaction since the latter is anonymous. Nobody knows the conditions under which the transaction is being made, and the restrictions that can be imposed on it.

These three problems make the blockchain unregulated in terms of the modern law. For example, according to the civil law of most countries, a real estate sale transaction recorded by a smart contract can be recognized as insignificant in the case of a court trial, unless there is other evidence of its legal validity, voluntariness, and reliability of information about the parties.

Regrettably for crypto-enthusiasts, any deal must have an independent intermediary. It can be a notary, a lawyer, a state official or mediator, anyone. The only condition is that he must take part in the legal process. The blockchain rejects the institution of intermediaries in fact.

But why does it exist? And, most importantly, is working? Ghana is a good example.

The most interesting feature of this phenomenon lies in the fact that it this African country the blockchain was well placed on tribal relations, which still exist there. After all, decisions in the tribe were adopted and are still adopted by a consensus, a contract with everybody. And the property does not belong to a specific person, but to the family there. So the blockchain worked 100%.

History repeats itself. The newest legal technology is, on the one hand, an original explication of the legal relationship of the Stone Age to the modern world; on the other hand, it is a promising direction for the law development. A new legal reality that has not come yet, but, perhaps, will come soon.

Yes, one can make the boldest claims here. The blockchain as an instrument of law will work only in a society where there is no individual private property or, more precisely, an individual center of will and order. Everything in our world is going in this direction. An example is car-sharing. A car used by a person does not belong to him; he cannot dispose of it as an object, but can completely operate with the time of being in the vehicle. He can use it for his intended purpose under his own responsibility, which means that he must go, transfer, give and even theoretically leave it as a legacy. But not the car itself, which is owned by the joint-stock company with a distributed capital.

The number of such phenomena as car-sharing or time-sharing increases in our daily use every year. One has to agree that private property is not only an exclusive right but also a burden, an unreasonable complicating of life. But the world is heading for a simplification.

Probably, the time will come when private property will fall into oblivion. Many philosophers of the previous century said this. Now we see examples of a new economic and social reality. By historical standards, it won’t be long now to wait for this reality.




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