Blockchain and Financial Technology -By Adedoyin Florence Adeniran

Fintech as a concept is a technology-enabled financial innovation that gives rise to several new business models such as applications, processes, or products with an associated effect on the financial market. The major intent of fin-tech is to disrupt the financial market and the traditional way of doing financial business.

Fintech majorly makes use of Cryptocurrency which has the source from blockchain technology to its actions. A cryptocurrency is a decentralized digital currency that uses encryption. Encryption is the process of converting the normal data used by commercial banks and financial institutions in the traditional system of banking into codes to generate units of currency and validate transactions independent of a central bank or government.

The blockchain technology is the foundational system that gives rise to other virtual currencies such as crypto and bitcoin. Therefore, blockchain is like electricity which produces light in the bulb and cryptocurrency is the light in the bulb. We all know that electricity performs other functions aside from the production of light so also blockchain performs functions beyond just cryptocurrency.

Blockchain is a form of Distributed Ledger Technology (DLT) which maintains records of all cryptocurrency transactions on a distributed network of computers but has no central ledger. Blockchain secures data through encrypted blocks and this ensures transparency in the financial industry as against the major problem of the traditional banking system.

In the operation of blockchain technology, which is the core of fin-tech, there are several legal issues that can erupt from the same and this has necessitated the involvement of lawyers to ensure the operations sit well with the existing legal system. The lawyers function in the blockchain technology for its operations in diverse ways such as (i) Law Applications (ii) Law Occupations (iii) Law Combinations and (iv) Law Considerations.

Considering the uses of Blockchain Application in the legal profession which comprises securing records of public documents. Blockchain has been helpful in curbing forgery by creating automation and self-executing contracts, digital rights management / digital IP rights, notaries, decentralized justice/ online dispute resolution, chain of custody for evidence, etc. All these have open finTech to regulations and lawyers as ministers in the temple of justice are also players.

The blockchain law occupation which can be in form of legal consulting, policy formulation, legislative tracking, legal compliance, legal researcher, smart contracts programming, smart contracts audit/review is other forms of regulation bringing law and legal practitioners to the limelight in finTech operations.

The law combination is another aspect of finTech that requires the service of lawyers because it deals regulation and licensing structure. Be it a start-up, an established business, a non-profit organization, or just an enthusiast looking to deploy blockchain-based solutions in the real world, they will need someone with legal knowledge to help them sail through the regulatory environment.

Please note that these combinations include corporate law, capital markets and securities, investments, contract law, banking which will bring our focus to some relationship and effect blockchain on Cybersecurity, Privacy & Data Protection, General Data Protection Regulation (GDPR), Tax, Capital Markets (securities), Tokenization (digital assets management) etc. because blockchain cuts across every works of life and businesses.

Considering a blockchain developer who builds a decentralised application using blockchain technology[1], it is obvious that such an individual is saddled with several legal responsibilities that span privacy, data security and cybersecurity. The developer ensures the design of blockchain protocols that relate to security patterns smart contracts and supervision of the entire network which gives him leverage to have access to several data of people the breach of which is punishable under privacy laws or any negligence that may lead to cybersecurity issues.

Naturally, blockchain is designed to ensure data and privacy protection, standing on a mission statement of trust and removal of third party in contract formation and implementation[2].

While blockchain applications may provide for an appropriate means of implementing the principle of “privacy”, the extent to which such technology may be deployed will be limited by the rights granted to individuals under the European General Data Protection Regulation (EU GDPR) and whether the protection under the Blockchain technology does not have loopholes which conflict with GDPR is another question.

It is a general understanding that identities on a blockchain are associated with an individual’s public and private keys, this may fall under the category of personal data because public and private keys enable pseudo recognition and are not necessarily connected to an identity but the key part of the GDPR lies in a citizen’s right to be forgotten or data erasure.[3] laying emphasis on the nature of blockchain which is immutability there may be a potential breach of data protection where an individual who made transactions on the blockchain requests their data to be deleted (a form of protection under GDPR) since the moment a block is verified on the blockchain, it is impossible to delete it.

I understand that the Nigeria Data Protection Regulation (NDPR) released by the National Information Technology Department Agency follows the General Data Protection Regulation (GDPR).

This write up seeks to open the eyes of regulators in the financial sector to the things to be considered in regulating these blockchain and financial technology industry and as well put into consideration privacy, data security and other cyber issues that may affect the output in our economy.

Footnotes and References

[1] Based on our understanding of blockchain technology which is a publicly accessible ledger that allows a secure transfer of ownership of units of value using public-key encryption

[2] Blockchain may, therefore, be described as an electronic database particularly secured against data manipulation

[3] Article 17 GDPR allows individuals to request that data associated with them to be erased if it is no longer relevant i.e. the right to be forgotten.