Cloud Crypto Land
| Published date | 01 September 2021 |
| Author | Edmund Schuster |
| Date | 01 September 2021 |
| DOI | http://doi.org/10.1111/1468-2230.12603 |
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Modern Law Review
DOI:10.1111/1468-2230.12603
Cloud Crypto Land
Edmund Schuster∗
The supposed disruptive and transformational potential of blockchain technology has received
widespread attention in the media, from legislator s, and from academics across disciplines.While
much of this attention has revolved around cryptocurrencies such as Bitcoin, many see the true
promise of blockchain technology in its potential use for transactions in traditional assets,as well
as for facilitating self-executing ‘smart contracts’, which replace vague and imprecise natural
language with unambiguous computer code.This article presents a simple legal argument against
the feasibility of a meaningful blockchain-based economic system. Blockchain-based systems
are shown to be unsuitable for transactions in traditional assets,unless design choices are made
which render the use of the technology pointless. The same argument is shown to apply to
smart contracts. Legal and practical obstacles therefore mean that,outside its or iginal realm of
cryptocurrencies, blockchain technology is highly unlikely to transform economic interactions
in the real world.
INTRODUCTION
Blockchain or, more broadly,distributed ledger technology (DLT) has received
widespread attention in the past few years. Blockchain technology was rst
suggested and popularised in the context of the cryptocurrency Bitcoin,but its
use has since spread to many other cryptocur rencies and, importantly for this
paper,it has been and continues to be suggested as a potential technical solution
for many areas beyond currencies and payments.In fact, many blockchain and
DLT enthusiasts see the real promise of the technology in its potential use for
creating tradeable ‘tokens’representing real assets,such as shares, other securities,
or indeed any other physical or intangible asset. Related to this, the use of
blockchain technology has also been discussed in the context of so-called ‘smart
contracts’, which replace the vague and imprecise natural language typically
used in recording legal agreements with precise and unambiguous computer
∗Associate Professor of Law, London School of Economics; Research Associate, UCL Centre for
Blockchain Technologies. I am indebted to Lawrence Akka, John Armour,Daniel Awrey, Jo Braith-
waite,Ross Cranston, TatianaCutts, Preston Byrne, Anca Bunda, Ir is Chiu, Jon Danielsson, Luca En-
riques, Michele Finck, David Fox, David Gerard, Carsten Gerner-Beuerle, Georey Goodell, Stef an
Loesch,Kelvin F.K.Low,Aurelio Gurrea-Martinez, Raina Haque, Werner Haslehner, David Kershaw,
Eva Micheler, Ciaran Mur ray, Stephen Palley, Wolf-Georg Ringe, Mathias Siems, Joseph Spooner,
Tim Swanson, Angela Walch,Martin Walker,Jens Wiechers, participants at the ‘Cr yptoassets and the
Law’seminar at the LSE, the CryptoEconSys conference at the Massachusetts Institute of Technology,
the LSE/UCL BARAC workshop, the conferenceon the ‘Future of Money’ hosted by the Systemic
Risk Centre, and the Digital Assets Project conference at Harris Manchester College, Oxford, for
helpful comments, discussions, and criticism. All er rors and misconceptions are, of course, my own.
All URLs were last accessed on 22 September 2020.
© 2020 The Author.The Modern Law Review © 2020 The Modern Law Review Limited. (2021)84(5) MLR 974–1004
Edmund Schuster
code, running in a transparent and decentralised manner, potentially enabling
automatic execution and updating of legal agreements.
So mystical and near-unlimited are the powers ascribed to blockchain tech-
nology that the former UK Chancellor of the Exchequer suggested that
blockchain technology could help solve the Brexit-related problems with cus-
toms checks on the border between Northern Ireland and Ireland.1Equally
unfounded statements about the technology by government institutions and in
the media abound,2suggesting that enthusiasm for, and understanding of, this
technology are, at best, orthogonal features.
This paper will look at non-currency applications of blockchain technol-
ogy. It presents a simple legal argument for why meaningful implementations of
blockchain-based systems for transacting in real assets are not feasible. I argue
that mandator y legal pr inciples, present across all major jur isdictions, mean that
blockchain-based tokenisation – representing real assets, including at curren-
cies,by digital blockchain ‘token’ – cannot work,even in principle,unless design
choices are made which,necessarily,remove the only real advantage blockchain
technology oers, and leave us with a wasteful and slow database. A similar
argument is shown to apply to so-called ‘smart contracts’. Although it is pos-
sible to minimise or even eradicate the waste and computational overhead of
blockchain solutions by, essentially, re-centralising the ledger, resulting systems
so closely resemble traditional, widely available databases that there is little rea-
son to expect signicant benets from their adoption compared to the status
quo. Instead, it will be shown that the apparent benets of blockchain solu-
tions typically stem from inter- and intra-organisational standardisation of data
structures and ows, and ignore or underestimate the well-known diculties
of eecting technological change and abandoning legacy solutions in the real
world – and perhaps particularly so in the nancial sector.
The paper further argues that there is no reason to expect legislators to
change current legal principles in suciently dramatic fashion so as to carve
1 See Philip Hammond, Speech at the Conservative Party conference,1 October 2018; see BBC
News,‘Could Blockchain solve Irish border issue?’ 2 October 2018 at https://www.bbc.co.uk/
news/technology-45725572. It has also been suggested that Brexit constitutes a ‘golden oppor-
tunity for the City of London to … take the lead in the new digital revolution of blockchain;
see D. Blake,Brexit and the City 2018 at SSRN at https://ssr n.com/abstract=3183017.
2 See for example European Parliament, Odometer manipulation in motor vehicles: revision of the EU
legal framework 2017/2064(INL), suggesting the exploration of using a blockchain-based sys-
tem for ghting odometer fraud, which would require every car in Europe to be equipped
with an always-on internet connection, and once this is achieved, would then involve choos-
ing a ludicrously inecient system for solving the problem. See also HM Land Registry,
‘HM Land Registry to explore the benets of blockchain’ 1 October 2018 at https://www.
gov.uk/government/news/hm-land-registry- to-explore-the-benets- of-blockchain. Similarly,
the Swedish land registry has also been testing the use of blockchain technology; see
S. Anand, ‘A Pioneer in Real Estate Blockchain Emerges in Europe’ Wall Street Jour-
nal 6 March 2018 at https://www.wsj.com/articles/a-pioneer-in- real-estate-blockchain-
emerges-in-europe-1520337601. The Executive Director of the European Union Intel-
lectual Property Oce (EUIPO) has recently highlighted the perceived ‘great poten-
tial’ of blockchain technologies ‘in the ght against intellectual property rights infringe-
ment’; see EUIPO, ‘EU Blockathon 2018 winners announced’ Press Release 25 June 2018
at https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/
documents/Blockathon/press/BLOCKATHON_PRESS_RELEASE_25jun2018_en.pdf.
© 2020 The Author.The Modern Law Review © 2020 The Modern Law Review Limited.
(2021) 84(5) MLR 974–1004 975
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