Regulation by Blockchain: the Emerging Battle for Supremacy between the Code of Law and Code as Law
| Author | Karen Yeung |
| DOI | http://doi.org/10.1111/1468-2230.12399 |
| Published date | 01 March 2019 |
| Date | 01 March 2019 |
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THE
MODERN LAW REVIEW
Volume 82 March 2019 No. 2
Regulation by Blockchain: the Emerging Battle for
Supremacy between the Code of Law and Code as Law
Karen Yeung∗
This paper critically examines the intersection and interactions between conventional law
produced and enforced by national legal systems (ie the ‘code of law’) and the internal rules
of blockchain systems, which take the form of executable software code and cryptographic
algorithms operating across a distributed computing network (‘code as law’). In so doing, it
seeks to identify whether, and to what extent, ‘regulation by blockchain’ will successfully avoid
governance by conventional law. It identifies three different ways in which the code of law
is likely to interact with code as law, based primar ily on the intended motives and purposes
of those engaged in activities in developing, maintaining or undertaking transactions upon the
network. It argues that these different classes of case are likely to generate different kinds of
dynamic interaction between the blockchain code and conventionallegal systems, and cr itically
examines the normative foundations of these emerging and anticipated interactions.
INTRODUCTION
The current hype concerning distributed ledger technologies, commonly
referred to as ‘blockchain’,1is rooted in their capacity to enable transactions
between strangers through reliance on cryptographic software algorithms
run across a distributed computing network, establishing secure peer-to-peer
interactions through which an immutable,2tamper-proof shared ledger can
be reconciled in real time. By obviating the need for trusted third-party
intermediaries to guarantee the validity of transactions, which have, in
∗Interdisciplinary Professorial Fellow in Law, Ethics and Informatics, Law School & School of
Computer Science, the University of Birmingham. I am indebted to two anonymous reviewers
for their helpful comments on an earlier draft. Earlier versions of this paper were presented at UCL
workshop,Blockchain and the Constitution of a New Financial Order Legal and Political Challenges,
UCL Faculty of Laws, London 19 June 2017; Centre for Media & CommunicationsLaw/ Centre for
Corporate and Securities Regulation & Transactional Law Research Group, Melbourne Law School,
Melbourne, Australia, 13 April 2018 and ‘Law and Big Data’ Workshop, Bar-Illan University, Faculty
of Law & Data Science Institute, Tel Aviv, Israel 14-15 May 2018.
1 Although not all distributed ledger technologies take the blockchain form, this article uses the
term ‘blockchain’ to refer to distributed ledger technologies whether or not in the form of a
blockchain. See discussion at section 2.1 below.
2 On blockchain immutability, see n 11 below.
C2019 The Author.The Moder n Law Review C2019 The Modern Law Review Limited. (2019) 82(2) MLR 207–239
Published by JohnWiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 101 Station Landing, Medford, MA 02155, USA
Code of Law and Code as Law
contemporary society, taken the for m of powerful institutions such as nation
states or multi-national financial institutions, blockchain could radically alter
the existing distribution of social and economic power.3It is in the developing
world, where reliable, trustworthy and effective legal institutions are often ab-
sent, that blockchain may deliver the most significant transformational change.
For example, the new Honduran government has star ted creating a secure
record of land title on the blockchain to address the inaccuracy and inadequacy
of existing land and business records which corrupt public officials have
tampered with to acquire title to property illegitimately.4Yet those in advanced
industrialised economies are also excited by blockchain’s potential, particularly
in the financial services and commercial sector, where it could facilitate
swift, secure and reliable transactions without the operational costs, delays
and inefficiencies associated with conventional legal mechanisms.5Yet , a s a
general purpose technology,6blockchain’s potential applications reach beyond
the realm of commerce and finance. For example, the UK’s Chief Scientific
Officer refers to blockchain’s potential to help governments to collect taxes,
deliver social security benefits, issue passports, record land registries, assure the
supply chain of goods and ensure the integrity of government records7in a
more transparent and accountable form.8By enabling new forms of social and
community co-operation without a central authority, blockchain offers the
promise of decentralising and democratising collective decision-making.
But will blockchain technology operate without the need for the state as a
central authority,thus operating outside the realm of conventional law? Although
this question cannot be answered definitively given that blockchain applications
are in their infancy, this paper offers a hypothesis concerning how these two
quite different systems for governing interactions between strangers are likely
3 Many blockchain enthusiasts (sometimes known as ‘blockchainiacs’) believe that these
technologies will fundamentally revolutionise economic and social organisation. See, for
example, J. Smith, ‘There Is More to Blockchain Than Moving Money. It Has the
Potential to Transfor m Our Lives - Here’s How’ World Economic Forum 9Novem-
ber 2016 at https://www.weforum.org/agenda/2016/11/there-is-more-to-blockchain-than-
moving-money/ (last accessed 29 November 2017); ‘The Long Arm of the List’ The Economist
15 July 2017 at https://www.economist.com/news/world-if/21724906-trust-business-little-
noticed-huge-startups-deploying-blockchain-technology-threaten (last accessed 4 December
2017); P. Boucher, How Blockchain Technology Could Change Our Lives European Parliament,
European Parliamentary Research Service, February 2017 at http://www.europarl.europa.
eu/RegData/etudes/IDAN/2017/581948/EPRS_IDA(2017)581948_EN.pdf (last accessed 29
November 2017).
4 B. Schiller, ‘How the Technology Behind Bitcoin Is Going to Change the Lives of the Bot-
tom Billion’ Fast Company 3 May 2016. Sweden and Georgia are also experimenting with
blockchain for land title registry, although at the time of writing, the Honduran project
appears to have stalled. See M. Plaster, ‘Can Blockchain Title Registry Make Property
Rights More Secure?’ at https://www.globalrealestateexperts.com/2016/11/can-blockchain-
title-registry-make-property-rights-more-sec (last accessed 29 November 2017).
5 K. Yeung, ‘Blockchain, Transactional Security and the Promise of Automated Law Enforcement:
The Withering of Freedom under Law?’ in P. Otto and E. Graf (eds), 3TH1CS – A Reinvention
of Ethics in a Digital Age (Berlin: iRights.Media, 2017) 132.
6 UK Government Chief Scientific Adviser, Distributed Ledger Technology: Beyond Block Chain
(London: Government Office for Science, 2016) (Blackett Review).
7ibid,6.
8ibid, 30.
208 C2019 The Author. The Modern Law Review C2019 The Modern Law Review Limited.
(2019) 82(2) MLR 207–239
Karen Yeung
to interact. It seeks to identify and critically examine the underlying norma-
tive values and tensions that conventional law-makers and enforcement officials
must confront in determining whether legal intervention into blockchain sys-
tems is necessary and justified. My analysis begins from the premise popularised
by cyber-scholar Lawrence Lessig who claimed that, within cyberspace, ‘code
is law,’ in that the internet’s technical infrastructure and software code regulates,
constrains and enables on-line behaviour and interaction.9By examining the
extent to which, ‘governance by blockchain’ may avoid the reach of conven-
tional law, this paper interrogates the intersection and interactions between two
quite different modalities of governance: conventional law (the code of law),
on the one hand, and the internal rules of blockchain systems which take the
form of executable software code and technical protocols (code as law),10 on
the other. It offers a schematic map of the different kinds of interaction that are
emerging, and are likely to emerge, between these two forms of social order ing
as the technology develops and matures.
I will argue that the belief that blockchain systems will operate outside of,
and independently from, conventional law, rests on two assumptions: firstly, that
the conventional state legal system is rendered redundant because blockchain
provides guarantees of security of equal (or greater) effectiveness and efficiency
compared to those currently provided by conventional law, and secondly, that
the state will refrain from intervening in blockchain networks - either be-
cause its interests are not threatened by particular blockchain networks or
applications, or, even if they are, the state nevertheless lacks the practical capac-
ity to take effective action to forestall or mitigate these threats. My argument is
that these assumptions are highly implausible: not only are legitimate state in-
terests threatened by blockchain systems consisting of threats to the universality
of the rule of law, but also because the security offered by blockchain systems is
narrow and limited to ‘transactional security’. Even if blockchain systems can
successfully provide reliable and efficient transactional security, they are un-
likely to deliver other critical security guarantees (including protection against
interference with rights of property, threats to health and safety, and unfair ex-
ploitation) that are currently (albeit imperfectly) provided by conventional law.
The remainder of this paper proceeds in four parts. First, I explain the ba-
sic technological mechanisms through which blockchain operates, noting how
their decentralised nature is likely to create difficulties for conventional law-
makers and enforcement officials in responding appropriately and effectively.
Secondly, I identify three different ways in which the code of law may interact
with code as law, based primar ily on the intended motives and purposes of
network participants when engaging in transactions within the network vis a
vis the conventional law, and secondly, on the nature, scope and magnitude of
potential harms arising from particular blockchain applications. The pur poses
that I identify as likely to motivate participants to utilise blockchain systems are
concerned to (a) deliberately evade the substantive constraints of conventional
9 L. Lessig, Code and Other Laws of Cyberspace (New York: Basic Books, 1999).
10 In this paper, I adopt the approach taken bythe Blackett Review, referring to the technical code
of distributed ledger systems as including both the software (computer code) and protocols, since
both are required for distributed ledgers to function: Blackett Review, n 6 above, 41.
C2019 The Author. The Modern Law Review C2019 The Modern Law Review Limited.
(2019) 82(2) MLR 207–239 209
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