The legal uncertainties of Blockchains and Smartcontracts

The Digital Age is brilliant with novel phenomena: Cryptic stimuli, smart contracts and a generation of financial resources by means of pure computing capacities are no longer simply mere utopian approaches. However, digitization always requires a parallel development of corresponding legal regulations. As far as blockchain is concerned, the legislature is still far from having a concrete legal position. 

The still-developing blockchain technology is characterized by a very wide range of applications: it has the potential to be used in almost all areas of law. This at the same time embodies blessing as well as the curse – the latter due to the fact that the almost unlimited scope of use excludes a concrete blockchain law. Instead, the analysis of the extent to which the right to the respective options of the use of the respective technology is applied is required. The most popular crypt diet, Bitcoin, has been marked as a means of payment, which is why the KWG – the Act on Credit Law – applies in this context.


Blockchain: The question of liability

Blockchain is by no means free of defects. Incorrectness can result in application programming mistakes; and hither to unobserved, open construction sites can hide in the system. This is also not surprising: A system is only as good as its programmer. If such deficits occur, this can be costly for users. This is where the problem of liability arises.

The person who implemented the application is relevant in this regard. If this is a person who merely acted for fun on his free time and thus did not record any monetary profit, liability is only to be answered in the event of gross negligence or misappropriation of known programming errors. If, however, it is a profit-oriented programmer, liability under the Product Liability Act (ProdHaftG) is considered. Damaged users may then be entitled to compensation from the supplier. It should be noted, however, that the current legal situation does not yet have such a prejudice – a validity can’t be determined yet.


Financial transactions using blockchain: A risky venture?

In the area of cryptic investigations, a deposit guarantee is not yet available. Instead, the accumulated funds are lost in the bankruptcy case of the respective transshipment station because an obligation to stand the operator does not yet exist at the present time. In order to prevent this, many  key owners  keep their immaterial currencies in wallets. These embody non-tangible storage areas, whereby the offered security nuance varies according to the wallet provider. However, there is a continuation of the financial resources, even if the marketplace where the bitcoins were acquired is bankrupt. All in all, the chain of legal problems does not end there, but leads to a series of consequential challenges: How is the legal situation when the wallet has been incorrectly coded? Does the product liability take effect?


Smart Contracts

The so-called Smart Contracts also find their foundation in the Blockchain method. The term “smart contracts” is used to summarize such applications, which are intended to replace all contractual agreements. Their core property is their own power of action: If a party breaches the treaty, the underlying program initiates the necessary measures. However, the extent to which information technology applications can sign obligatory agreements still remains controversial.

The freedom to contract in the FRG includes the fundamental free choice of the form and content of the contractual arrangement, as long as the legal restrictions are observed. In the light of these regulations, it is, therefore, quite conceivable that contracts should be set up in the programming format. Nevertheless, a conclusion of the contract, which is affected by the mutual submission of declarations of intent, presupposes a corresponding draft in an objective language. This is exactly the problem. The average IT layperson usually has no understanding of coding or programming. On this basis, the assumption is obvious that the future determination of the Smart Contracts will be in the implementation of the contractual agreements, and not in their conclusion. It is still unanswered whether to what extent the rights of the contractual parties – such as the right of revocation – remain unaffected in this way. Can information technology be encoded according to these rules?

Any contract must be complied with. If a party does not comply with its contractual obligations, liability for the own-cause injuries arises. On the other hand, if the programmer is indebted for incorrectness within the application, the liability situation has not yet been established. In analogy to the above, within the framework of liability in Blockchains, the liability here also depends on any economic motivation and depends on intentional or negligent behavior.


Attention: Privacy Policy!

The compliance with the Blockchain principle is well established and offers a high standard of data protection compared to other applications, even though all the transactions carried out in this way are basically held in bits for an indefinite period of time. All processes are subject to an anonymisation as well as an encipherment, although it is the responsibility of the user to conceal the connection between his identity and his publicly made keys. If he neglects this and his key can be directly attributed to him, the presumed job’s message will soon follow: The entire transaction history of the previous years will then be verifiable for each user.


~Written by happy_c0der from The V Server

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