How to legally treat decentralization? Blockchain ordinances and Lex Cryptographia.

This logical centralization is also the common point between a legal system and a blockchain. If we follow Buterin, the blockchain is also a logically centralized system in that it behaves like a single computer. It is, on the other hand, politically decentralized since "no one controls it" (note: on this point, Buterin's assertion could certainly be discussed, which we will do in a future post on this blog). It is also architecturally decentralized in that it involves a multiplicity of servers and computers.

Buterin's remarks spontaneously lead one to wonder whether these “decentralized legal architectures” that are the rights of Common Law would not, because of this simple fact, have more facility to apprehend the decentralized networks than the rights of civil law tradition. Above all, it highlights the incredible difficulty, for any legal system, of dealing with this unprecedented reality that is the blockchain. Because it is not only a question of regulating or supervising but also, quite simply, of determining the legal effects of what happens on a blockchain. A decentralized and almost spontaneous organization, the blockchain does not know any manager or manager who can guarantee, on its own, the reality, the fairness, the legality of the operations. From this decentralization, both political and architectural, arises an irreducible difficulty, not only in designating the law applicable to the network and to the operations carried out there, but also in specifying the legal scope of these operations.

In a legal system like French law, it is the law that we expect to organize and guarantee full legal security for transactions. And the French legislator has not remained inactive. Two orders have been issued to date to provide for the possibility of issuing and transferring financial assets on a distributed register. TheOrdinance No. 2016-520 of April 28, 2016 relating to cash vouchers authorized the issuance and transfer, on a blockchain, of minibons (dematerialized cash vouchers). The very recent Ordinance No. 2017-1674 of 8 december 2017, imposed by the Sapin II law of December 9, 2016, provides for the issuance and transfer, on the blockchain, of unlisted financial securities (see, on the first version of this text, F. G'sell and J. DerULE, " Draft ordinance on the use of blockchain technology for the transmission of certain financial securities. Real progress, expected details », JCP G 2017, n ° 41, 1046).

Admittedly, these two ordinances innovate. The ordinance of April 28, 2016 provides, for example, that the registration of the sale of minibons in a distributed register (called “shared electronic recording device”) “takes the place of a written contract” (art. L. 223- 13 monetary and financial code). The ordinance of December 8, 2017 gives registration in such a device the same scope as registration in an account. However, both texts refer to implementing decrees on essential points, without which no effective implementation is possible. However if it is understandable that the technical details, such as the modalities allowing to guarantee the security of the transactions, are left to the decree, one can however regret that the two ordinances are, both, abstained. to comment on the characteristics of the networks concerned, so important is the question.

It is necessary to determine whether the issuance and transfer of financial assets can be done on fully decentralized and open blockchains or whether they will be reserved for private networks. This is a major point. If the principle of a public blockchain is retained, everyone will be able to access the network, carry out transactions and participate in the consensus process without having a specific access right. If the choice leans in favor of closed networks, only specially authorized users with access rights will be able to carry out operations. Above all, decentralization will be relative when a manager is necessary to issue access rights and ensure the safety of participants. This supervision of the network may give rise to real control, exercised either by a single person or by a set of organizations (consortium blockchain). But we will then be far from the political decentralization mentioned by Buterin, far from the “distributed trust” specific to the blockchain, which it is so often said that it should make it possible to do without “trusted third parties”.

The difficulty of this formidable question undoubtedly explains why no choice has yet been expressed as well as the significant delay in drawing up the implementing texts for the reform of the mini-vouchers. Basically, it is hard to imagine, to date, a State authorizing the issuance and transfer of financial assets on unsupervised networks. The choice, although delicate, should, in all likelihood, relate to blockchains subject to control, whatever the modalities, and for which named persons, or even approved, will be responsible. The implementing decrees must then specify the functioning and governance of these networks as well as the responsibilities of the various participants. It will thus be possible to ensure compliance, on these networks, with the rules relating to the protection of personal data, the fight against money laundering and the financing of terrorism or the procedures of Know Your Customer (KYC).

Such a prospect is certainly enough to disappoint all those who are attached to the ideal of blockchain decentralization. However, it could constitute a first step, pending a better understanding of this complex phenomenon of decentralization. Secondly, once the governance processes have been better mastered and the questions of responsibility decided, it will undoubtedly be possible to give full effect to the fully decentralized networks and the codes that govern them. This would then be the real emergence of the Lex cryptographia (P. de Filippi and A. Wright, Decentralized Blockchain Technology and the Rise of Lex Cryptographia, March 10, 2015, available at SSRN: https://ssrn.com/abstract=2580664).