Blockchain is more than Bitcoin. Blockchain applications can be used not only for the settlement of cryptocurrency payments but also for transfers of other assets (e.g. as a register for the settlement of securities transactions). It has the potential to reduce transaction costs and it provides numerous benefits for the parties of a financial transaction, such as:
- a transparent transaction register that informs all participants who hold a specific asset at a given point in time;
- a tamperproof register because it is stored in a decentralized manner and any entries require the consensus of the network;
- smart contract features that are useful for the implementation of a simultaneous exchange of performances and, therefore, reduce the risk of insolvency for each counterparty; and
- an elimination of intermediary functions since the exchange of performances may take place directly between peers without requiring the use of an intermediary.
However, the use of blockchain applications for asset transfers will only become generally accepted in the long term if these applications can provide sufficient legal certainty to the transaction parties. The benefits of Blockchain can only be realised if adding a transaction to the blockchain has a constitutive (and not merely a declaratory) effect for the acquisition of the right underlying the transaction. Without a legally binding effect, the ownership in a recorded asset could be called into question. Due to the size of the traded amounts, a sufficient legal certainty is indispensable.
A conceivable solution could be a contractually self-designed legal environment created by the participants of a blockchain network. The civil law requirements for an acquisition would be modified for all types of assets and for all rights in such manner that the registration of a transaction and of the new owner of rights in the blockchain is constitutive for the acquisition of the relevant rights.
However, an application of blockchain features may be made more difficult or even prevented by various mandatory provisions of civil law (e.g. formal notarial or land register requirements, the restitution of performance after withdrawal or invalidity, amendment agreements, prohibitions on assignment, acquisition of property in good faith and the legal provisions relating to the protection of minors and incapacitated persons). Such provisions have to be taken reasonably into account by making adjustments to the blockchain applications.
For such adjustments, interfaces would need to be created which would help to reflect reality as precisely as possible in the blockchains. These interfaces would need to provide data relating to circumstances that provide evidence for (positive or negative) conditions of an acquisition of rights (e.g. links to residents’ registration offices in order to register the birth dates of the transaction parties). Even practices that are contrary to public policy can often be based on objective digital parameters to provide evidence for a specific conclusion (e.g. price in the case of usury). It seems to be just a matter of time that such interfaces will be created and blockchain applications will widely be used for transfers of assets other than cryptocurrencies.
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"Blockchain applications for asset transfers will only become generally accepted in the long term if they can provide sufficient legal certainty to the transaction parties."