Chapter 5 Governing the blockchain: how to determine applicable law?

Question 1

What is the distributed nature of blockchain?

Answer 1

Operating via nodes which may be based in different countries.

Question 2

Explain existing legal rules and principles in determining the governing law when this has not been agreed upon in the smart contract.

Answer 2

They will look at the habitual residence of the seller of service provider, this is normally capable to be determined in a smart contract.

Question 3

Based on Maclean’s and FMLC paper, what are possible solutions in deterring the governing law? Name 5

Answer 3

1. Applicable law chosen by the participants to the transaction.
2. Applicable law determined by the location of the participants to the transaction.
3. Applicable law determined by the location of the asset.
4. Applicable law determined by the location of the software.
5. Applicable law determined by the code used to create the original DLT programme.

Question 4

Explain the challenge if the Applicable law was chosen by the participants to the transaction.

Answer 4

One of the potential risks with this approach is the possibility – albeit remote
– that the participants will choose a system of law which is unrelated to the assets and subject to significant undue external or private influence.

Question 5

Explain the challenge if the Applicable law was determined by the location of the participants to the transaction.

Answer 5

This option could generate the unappealing consequence of a blockchain with different laws governing not only each block but, potentially, multiple laws governing the various
transactions comprising a single block.

Question 6

Explain the challenge if the Applicable law was determined by the location of the asset.

Answer 6

The challenge with this approach is determining the type of ‘asset’ and
whether it falls into the category of property or the category of personal right.

Question 7

Explain the challenge if the Applicable law determined by the location of the software.

Answer 7

The difficulty with this option lies in the fact that certain nodes (particularly
in a permissionless environment) may be untraceable or be on mobile/roaming devices.

Question 8

Explain the challenge if the Applicable law was determined by the code used to create the original DLT programme.

Answer 8

A significant disadvantage of this approach is that it is difficult to explain why the original coder should impact the ongoing life of the distributed ledger where he/she is not also the system administrator.