Like most states, Michigan has no laws specifically regulating
blockchains or cryptocurrencies. Several regulators around the world, such as
the U.S. Commodity
Futures Trading Commission, are considering whether to police digital currencies.
The U.S. Securities and Exchange Commission is also examining whether
to treat initial coin offerings as regulated securities transactions.
Although the Michigan proposal sounds like an admirable
legal principle for safeguarding the integrity of blockchain data, aren’t blockchains
supposed to be immutable by their very nature? Technically, new regulations on
data changes could be overkill.
In his post, Vidrih noted what VanderWall seeks to ban “is
hardly possible anyway.”
“To change a blockchain,”
Vidrih wrote, “all the nodes on which it is stored would have to make a change
together. However, basically anyone can set up a node so that the likelihood of
manipulation is extremely low.”
In theory, a public
blockchain has a number of firewalls that prevent data manipulation. It would
take a considerable amount of computing power to change one node, since all
nodes would need to be changed as well. That’s why what’s inside a public
blockchain is said to be “immutable.”
cryptocurrency exchanges, though, are a different matter. A handful have been
hacked, resulting in significant losses. Digital coins may be stored in
unsecured digital wallets or trading platforms. That’s often a separate concern
from the blockchain’s integrity.
Lawmakers across the
country are concerned that data and coins could be counterfeited or stolen, no
doubt influenced by numerous thefts of cryptocurrencies by hackers. For
instance, the South Korea-based exchange Coinrail
was recently hacked, resulting in the theft of some $40 million in digital
coins. In December, bitcoin exchange NiceHash
suffered a loss of some $78 million in coins.
But are trading platform thefts due to flaws in the blockchains
themselves? Another argument against stiff criminal penalties is that
blockchains have embedded features that would stem any alterations. Safeguards
may be already in place on distributed ledgers through cryptography.
“In general, if the transactions
are gathered together in blocks, and it is blocks that are secured on the chain
using cryptography, and it is designed to be tamper-resistant and produce
immutable records, the system qualifies as a blockchain,” noted Victoria Lemieux, an associate
professor and head of the blockchain research cluster at the University of
British Columbia, as quoted in The Verge.
A less draconian approach to
blockchain regulation is being eyed in California, where legislation would give
simple legal recognition to blockchain data. That would give legal standing to
smart contracts, one of the most heralded blockchain applications.
As self-executing pieces of code,
smart contracts can direct information to specified parties or automatically
trigger payments. Assigning blockchain and smart contract data legal status is
also being legislated in Arizona and Florida.
While the wording in blockchain
laws can be subtle, it’s an important first step: If electronic signatures and
contracts aren’t seen as legal documents, they will have little commercial
Still, the debate
rages around what a blockchain is and what it can and can’t do. Distributed
databases have been around for decades, and definitions can get fuzzy. The
confusion will persist until a set of international standards are proposed,
discussed and agreed upon – a process that could take years.