Blockchain

Competition Law and Blockchain

Introduction

Technology is a dynamic field – It is ever-evolving. It changes all the time which makes it more difficult to remain abreast of its development. Blockchains were imagined not so long ago, and today we witness a plethora of industries that are banking on the prowess of blockchain. It is even said to be the next big thing that happened after the coming of the internet and it has also to deal with similar legal issues that the internet was challenged in the past and continues to be challenged in the present. Questions as to the efficiency and validity of blockchain technology have become outdated and now we see more serious questions as to the functioning of blockchains coming up. Competition law is one such arena where this technology is yet to give promising answers as to the ethical use and anti-trust issues. In the recent past, many articles have been published, which tried to answer this question. An instrumental piece on the issue was published by the Organization for Economic Co-operation and Development (OECD) titled “Blockchain Technology and Competition Law Policy-Issues” which comprehensively tried to shed light on the competition law issues that blockchain technology was muddled in.[1] Therefore, this article tends to move a scale ahead of and aims to understand whether the blockchain technology is actually competitive or anti-competitive by presenting a hypothetical case to make the point clear. Before dwelling into that, a brief understanding of blockchain technology is herewith provided. 

What is Blockchain?

Earlier, the journey of any product, service, or money used to take place in cycles and reverse cycles which were quite cumbersome to track, keep record and maintain authenticity throughout the cycle of the item.[2] To make this process easy and quick, blockchain technology was invented. Blockchains are distributed ledgers that are connected to each other in a chain format which helps to trace and identify the various units involved in the life cycle of a product. This series of informative blocks are open to the public, unless they are private, so as to ensure an increased level of transparency. This system also provides multi-level authenticity checks which ensure that the transaction taking place is genuine and minimizes the risk of counterfeiting. The authenticity of each block is ensured by the use of consensus checks. Census checks are the permissions that need to be obtained from every participant in a particular blockchain to make amendments to the blocks or ledgers. This technology is deemed to be a one-stop solution to the hacking crisis which arises mostly because the data or information is centrally stored. 

The use of blockchain technology today has become a norm in the top institutions of many industries which have assessed the benefits that could accrue from the use of this technology. This technology also could help save costs spent on hiring third parties to do all the informatics work. But every day we see some drawbacks arising as to the use of this technology and it would be interesting to look at its interaction with different areas of law in the coming times. 

Sample to Example:

The year 2019 was groundbreaking in the world of luxury fashion brands as many brands embraced revolutionary blockchain technology. One such luxury brand was ‘Brilliant Earth’ which integrated blockchains into diamonds.[3] So, let us hypothetically try to understand the competition law that would go into the making of blockchain the desired force in this case. Firstly, the network of private participants created by Brilliant Earth would in a way lead to the creation of cartels dominated by private players. This cartel could be both welcoming and restricting; if it is the latter it would not be competitive enough. Secondly, blockchains allow for greater levels of transparency and they tend to promote it at every level of the chain. So, it is for Brilliant Earth to decide what it wants to share and what it wants to hide. Thirdly, the edge obtained by Brilliant Earth over other institutions that deal with diamonds might invite some level of scrutiny by competition law agencies. Fourthly, the boundless benefits conferred by blockchain are not guided by any standard form of law which opens the door for extra intervention by competition law agencies. 

These issues for consideration which have risen in this hypothetical case explain the need to understand blockchain technology through the lens of competition law. In the next segment, an effort has been made to understand the murky waters in which competition law stands to deal with blockchain technology. 

Doldrums of Dilemma

In order to fully understand the contours of blockchains in the competition law realm, we need to closely examine the above issues, which will help us determine whether they are competitive or anti-competitive. 

  1. Sharing of Information: Blockchains have proved to be a better way of sharing information in a transparent way which was earlier done with greater human intervention by the aid of some agencies. The information herein consideration is the nature of contracts which institutions enter into and the pricing policies of these institutions. These two elements help us determine the competitive worth of a company with regard to the criterion of sharing of information. By the coming of blockchain technology, the efficiency of these elements has enhanced because of the introduction of smart contracts and the pricing policy which is shared over to every ledger in the chain.[4] Smart contracts help identify the nature of clauses and also determine whether they were competitive enough or not. But this sways to complicacy in the case of pricing policies. As enhanced transparency in the pricing policy would turn fatal if used by rival institutions that could alter the prices in their favor.  
  2. Creating Cartels: In the realms of blockchain technology cartels exist in two forms: private and public. Public cartels are an open-source of freely accessible information that tends to overshadow the anti-competitive nature of cartels. A public blockchain, thereby becoming more transparent and allows ease of ensuring fair dealing. But these blockchains are owned and operated by the owners of the network. The public network facilitates cartels slipping from oligopolistic to pure monopolies. The stands in stark opposition to the concept of private blockchains which are more closed and restrictive to let in competitive practices. 
  3. Access to blockchain: It is an undeniable fact that blockchain is relatively new, is complicated, and is highly expensive to set up. This can be corroborated by the fact that even after ten years of coming into existence there have not been many corporations that have embraced this technology.[6] This reluctance to embrace also emancipates from the fact that blockchain is still an evolving technology and its true potential is still mostly untapped. Some famous brands like Louis Vuitton, a leader in the fashion industry, is currently one of the few brands in the world which have initiated the incorporation of blockchain technology. There are many institutions in the world that also do not trust the whole system of blockchain and intend to operate in the traditional way as they have been doing in the past. It is critical to understand that the ‘risk’ element involved in blockchain technology is of vital concern for many institutions that are unwilling to tread on the path of technology. The affordability factor also plays an important role. Therefore, the accessibility factor tends to create a divide between institutions that can afford to accept blockchain technology and those who cannot. The institutions that can afford blockchains have an extra edge over the institutions that cannot afford it. Efficiency through smart contracts, transparency, consumer trust, verification at every stage is some of the few advantages which institutions with blockchain technology have.   
  4. Absence of Blockchain Laws: Just like the laws of the internet which evolved as a result of conflict and chaos over time, blockchain law seems a reality in the near future. The urgency to formulate laws and policies is imminent but the development of blockchain technology is still at a very nascent stage and is evolving at a very fast pace. The difficulty seems eminent in the formulation of laws also due to the absence of any international regulatory authority with countries as significant as signatories. Competition law agencies across the world are currently trying to fill the void and are taking steps to ensure that the blockchains abide by competition law practices. With emerging changes in blockchain technology, it will increasingly become difficult to regulate this technology in the absence of a set legal framework. 

Conclusion: Competitively anti-competitive

Completion law is critical to maintaining the health of markets and the economy. It maintains the sanctity of the global trading system while also ensuring that the participants have a just, reasonable, and fair opportunity to flourish and thrive. The competitive tendencies of blockchain are at an infant stage and it would be very early to determine the scope and extent of regulation that it might require. But from the above discussion on dilemmas that we currently face, it is difficult to compartmentalize blockchain technology as strictly competitive or anti-competitive. Firstly, the transparency conferred by blockchain can be used as a tool against the institutions themselves because open or public blockchains store information regarding prices and other confidential information. Sensitive information needs extra protection and so many institutions store confidential information off the blockchain. In doing they safeguard their own interest and also, they can only let out the information which is in the interest of the public. But the real question from the competition law perspective is how much confidential information is actually accepted in a blockchain setup? 

Secondly, the creation of cartels leads to better working in an industry where the rules and regulations are pre-determined which helps to reduce the risk of not abiding by something which is agreed on consensus. But the same cartels can get anti-competitive at times and can make the system inhabitable to flourish for outside participants and also indirectly for inside participants too. This system of cartels can be found in the case of blockchain too. The cartels created by blockchain can be beneficial for any industry but given the fact that the industry has to be accepted to incorporate the outside participants who are willing to become a part of the cartel. This can be achieved by not imposing heaving entry charges and following set standards for entry. Thus, keeping competition law practices into consideration. 

Thirdly, the issue of accessibility of blockchain technology is the most debated one. It has been witnessed that the industries which have a huge capital share in the market are the ones capable of embracing and implementing blockchain technology. Emerging companies, especially start-ups have no means to implement blockchain technology. This divide can invite some serious competition law agencies’ attention. 

Fourthly, the absence of laws to check upon the use of blockchain technology can be really helpful to people who intend to misuse the technology and pass off easily through the eyes of competition law agencies. Anti-competitive elements could be introduced and exercised without any agency noticing it. The floodgates that could open in the absence of any checks could create havoc in the market and can even disrupt some industries. 

Therefore, blockchain is both competitive and anti-competitive at the same time. At a nascent stage, the mixed competitive nature of blockchain technology is bearable with a pinch of obviousness. The potential that blockchain technology holds for the world market would be a test for the future. But this does not in any way mean that it should be kept outside the purview of regulations and laws. Rather than slowly building up regulations and laws which help govern the use and practice of blockchain, running parallel to the growth and development of blockchain technology would be a better alternative. The role of governments stands central in this case, especially in facilitating the accessibility of blockchain technology because many industries and institutions cannot afford this expensive technology. the government can also create controlled setups to understand the functioning of this technology so that it can easily be implemented to a larger scale in the near future. The true test of successful implementation of blockchain technology would be the mutual incorporation of competition law practices. Until then it would continue to be both competitive and anti-competitive.  

This Article Can Be Cited As

Kalpesh Bhagat, Competition Law and Blockchain, Metacept- InfoTech and IPR, accessible at https://metacept.com/competition-law-and-blockchain/

References

[1] Blockchain Technology & Competition Law Issues, Organization for Economic Co-operation and Development DAF/COMP/WD(2018)47.  https://one.oecd.org/document/DAF/COMP/WD(2018)47/en/pdf.  

[2]  MIT Technology Review Editors, Explainer: What is a blockchain? MIT Technology Review, 23 April 2018. https://www.technologyreview.com/2018/04/23/143477/explainer-what-is-a-blockchain/

[3] Brilliant Earth, Announcing Blockchain Partnership with Everledger, 26 Jan 2018. https://www.brilliantearth.com/news/announcing-blockchain-partnership-everledger/

[4] Renato Nazzini, The Blockchain (R)evolution and the role of Antirust, King’s College London, Research Paper Series-2019-2020, accessible at https://www.ey.com/Publication/vwLUAssets/ey-blockchain-and-competition-law/$FILE/ey-blockchain-and-competition-law.pdf

[5] Swasti Gupta, Blockchain and Competition Law: New Technology, Old Challenges, IndiaCorpLaw, 3 Oct 2018, accessible at https://ndlsjet.com/wp-content/uploads/2020/04/Block-Chain-The-Fallacy-of-Blockchain-Immutability-and-Cartel-Governance.pdf.  

[6] Michael Ristaniemi & Klaudia Majcher, Blockchains in Competition Law: Friend or Foe?, Kluwer Competition Law Blog, 21 July 2018, accessible at http://competitionlawblog.kluwercompetitionlaw.com/2018/07/21/bloc

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