Governance and Legal Framework of Blockchain Technology as a Digital Economic Finance

Governance and Legal Framework of Blockchain Technology as a Digital Economic Finance

Yousef Alabbasi (The University of New England, Australia)
Copyright: © 2020 |Pages: 11
DOI: 10.4018/IJIDE.2020100104
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Blockchain (BC) provides an encrypted echo system to the users where they can securely mark their transactional entries in a distributed ledger. The ledger comprises of distributed and shared network of nodes that validate the authenticity of each transaction and keeps its authentic record for perusal. Keeping view of the enormous potential of this technology, numerous public and private entities are embarking the bandwagon of blockchain and integrating this technology for ensuring a transitioning in their digital finance operations. Apart from the financial realm, healthcare, agriculture, and education sectors are also benefiting from the security and reliability of BC. Incorporation of BC in the public sector at increased scale requires a review of existing governance and legislative structures and a recalibration of regulatory regimes. This paper presents a literature review on blockchain technology, its current usage trends, and its governance.
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1. Introduction

Blockchain – digital, decentralized, and public ledger – refers to the systematic structure of data which embodies the record of a financial or informational transaction between two peer-to-peer connected transacting parties (Ali, Barrdear, Clews, & Southgate, 2014). Each transaction carries a specifically coded digital signatures from the confirming channels which ascertain the authenticity and viability of the transaction before its completion. Given the fact the digital signatures ensure that no third party can temper with the nature and contents of the transaction, blockchain transactions are often regarded as of high integrity (Feld, Schnfeld, & Werner, 2014). Despite that public financial institutions and governmental authorities raise a number of concerns against the potential subversion of traditional finance structure, blockchain, cryptocurrencies, and shared economy offers plausible alternative for traditional transactional channels which not only slow down the pace of transaction but also have higher transaction costs, let alone other procedural and coda formalities which prove cumbersome for transacting parties.

Given that modern economic models are transitioning towards shared economy, as is the case with Uber, Airbnb, and Omni, this particular approach is estimated to amplify in coming years (Parker, Van Alstyne, Choudary, 2016). However, it is expedient for the success of this shared economy model that each transaction and item is properly documented, has substantiated as authentic, and bears a current value. For all these and many other business functions, blockchain technology offers extremely useful venue, where each and every stakeholder and their steps are registered in encrypted digital signatures. With the integration of blockchain technology in operations, marketplaces would better be able to align routinized processes in a pre-verified system of regulation, wherein no actor or stakeholders could deceive buyers as the sale item would carry a transparent, competitive, and most of all, unalterable pricing tag. Furthermore, availability of peer-to-peer transactional facility allows lessening, if not removal, of intermediaries that are the major factor behind exorbitant transactional costs of the traditional financial system. Apart from integration in financial systems, blockchain technology is being tested to transform governmental systems in more than 100 projects across 30 countries (Jun 2018). However, usage of blockchain technology in public and finance sector necessitates recalibration of existing legal and regulatory frameworks as existing rules do not meet the governance needs of this innovative and more direct technology-driven operations.

1.1. Background

Blockchain (BC) encompasses a specific and innovative set of distributed ledger technology (DLT), which is used to record, verify, maintain, and share coded information across multiple terminals and each of the terminals receives same record of data (Tapscott & Tapscott, 2016). Collectively, this network of interconnected terminals, known as nodes, process, maintain, and control data through a distributed and shared network. The entire BC system relies on encryption mechanisms, known commonly as cryptography, which employs extensive mathematical algorithms to formulate, sustain, verify, and process, consistently expanding data structure (DuPont, 2014). One of most vibrant manifestation of the BC technology is cryptocurrency – a form of currency that comprises of digitally generated codes and goes through a complex web of algorithms that regulate and control the generation of currency units (Kang, 2014; Ruffing, Moreno-Sanchez, & Kate, 2014). Contrary to centralized channels of traditional financial system, cryptographic techniques and confirmation nodes are used to secure and verify the viability and authenticity of each transaction. One of the major advantages of cryptocurrency is the fact that it cannot be counterfeited, owing largely to cryptographic nature of its generational and processing phases. No central bank of financial regulatory institution issues this particular type of virtual currency; hence, it is immune to governmental as well as institutional interference and possible exploitation.

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