Blockchain and its applications
Due to the emergence of new technologies, which tend to enter into all areas of life and consequently law, the Law Firm SAJIC has decided to publish a series of texts on Blockchain technology, Initial Coin Offering, Bitcoin, as well as on all other related modern aspects. In this way, we would like unifying, in one place, all aspects of new technologies, from its first appearance and statutory regulations up to their development, but also their expected future applications. Therefore, every Thursday on our website as well as on our social networks you will be able to read everything related to this interesting topic and keep up with new technologies and their applications in the area of law.
We consider that for proper understanding of a complex phenomenon, such as a Blockchain Technology, it is necessary to start from its very beginning, especially considering that the first thought related to the word of Blockchain Technology is Bitcoin, where this technology was first applied.
The Blockchain or a Digital Ledger, as it is also called, represents a decentralized digital database, which uses cryptography algorithms for logging and validating online flow of information, and in general, it serves as a database, but the same is not subject to subsequent changes or updates. Therefore, all data entered into a blockchain are no longer subject to any changes. The name itself was created due to the fact that this technology contains certain transaction records grouped into blocks, and the same creates a kind of a chain. In order to create each of these blocks it is necessary to obtain consent of all participants in a transaction, where the consent can be expressed in different ways depending on the type of Blockchain Technology.
The easiest way to explain Blockchain Technology is through so-called “smart contracts”, which are a basis for creating the rights and obligations of participants in a transaction based on this technology. There are different definitions of “smart contracts”, but we have decided on the one that defines the same as part of a program code that allows writing and reading of transactions and which is stored in a blockchain database. If in this definition we also include the legal aspect, then we come to the definition, which says the content of smart contracts is proof of their conclusion expressed in the programming language, and the same is stored in a blockchain database where the consent of will is expressed in an electronic form. A significant feature and advantage of these kinds of contracts are their automatic effect on the rights and obligations of the contracting parties in blockchain, and its implementation is carried out exactly by the program code, and no other confirmation is required in sense that one of the contracting parties has fulfilled its obligation, for example a confirmation from the bank about the paid sale price is not required. Thus, the role of the software is to hold commitments of one party until the fulfilment of the contractual obligation of the other, in fact, the software has solved the problem of lack of trust between the contracting parties residing in distanced territories or even in case they do not know each other.
It is interesting that smart contracts were also present before blockchain technology and the best example is the stock market, which has been automated for a long time, and the software itself executes orders from customers and sellers. However, we believe that the initial potential in the application of blockchain technology lies in real estate, for example, the owner can transfer the real estate without any interaction with the register, notary, and in that case each new transfer of real estate would be part of the registered chain and it would be impossible to transfer certain real estate two or more times. In addition to the real estate cadastre, in the same way, technology can also be used for keeping registers of births, deaths, weddings, registry of economic subjects, etc. At the moment, the most significant obstacle to further development of blockchain technology represents the lack of regulation, both at international and national levels. However, one of the reasons for this passive attitude of regulators is the underdevelopment of the technology itself, the vulnerability of influences, and especially when it comes to the crypto-currencies. Bearing in mind that there is a constant improvement in the area of technologies on a daily basis, the adoption of each regulation bears the risk that the same might rapidly become overvalued, unusable and subject to modifications. The regulation of this area currently remains in the domain of instructions, communications and opinions of state bodies, and the regulatory framework for the technology itself practically does not exist.