FIDUCIARY DUTY TO THE COMMUNITY-Part 2: Regulatory Consideration
“If there is any gap in the law regarding public blockchain applications, it exists only because no plaintiff has brought the matter before the courts.”
Regulation and Governance
Actors within the blockchain ecosystem are dealing with technology with no finite regulation, but the roles they play arguably fits within some existing laws. As blockchain technology becomes increasingly adopted, it is inevitable that the courts will be called upon to determine how existing laws, and in particular the law of fiduciary duties apply.
Currently regulatory officials are examining liability frameworks for blockchain technologies.
Due to the various attacks and exploitation of codes resulting in the theft of tokens over the years, some scholars have argued blockchain platforms should have fiduciary duties.
Some, however, argued that for technologies that emerge outside of institutions, one must be prepared to examine distinctions and put various factors into perspective before creating a duty as high as fiduciary.
Others are of the view that there are existing legal frameworks that are much better suited for dealing with risks in blockchain networks.
If there is any gap in the law regarding public blockchain applications, it exists only because no plaintiff has brought the matter before the courts. Or at the very least, because legislators have not yet legislated for it. The emergence of Dr. Wright’s hack and subsequent legal action against specific blockchain developers has brought some change and hope in the community.
There are good policy reasons to apply traditional understandings of duties to blockchain governance, as evidenced by the countless other people who have found themselves in Wright’s shoes; victims of theft, left with no obvious recourse despite the stolen property remaining in full view and the case of a security breach like the Open Sea Email data breach.
The good governance of these blockchains is in the public’s interest: should they fail, the people relying on them could lose their data, money, and even their businesses.
The creation, development, and maintenance of blockchains may be seen as novel circumstances, but it is critical that appropriate non-intrusive and favorable laws are enacted.
- Technology is in its nascent stage and there is a need to study it, be proactive and come up with robust regulatory frameworks that will not inhibit innovation but, at the same time, bring about accountability and secure the assets of its users and the community as a whole.
- There is a need to impose regulation on platform operators and protocol developers. This will instill in them a serious culture of taking their work seriously, as the platforms/projects they build and operate are now and in the future important parts of life.
- Strict application of the existing regulations might not take into consideration the differences in the blockchain technologies, and as a result, the full potential might not be harnessed. The special nature of blockchain must be taken into consideration in applying existing laws.
- All the stakeholders in the ecosystem must work together for a better understanding and, as such, regulators will be able to come up with robust policies that will take into consideration the interests of all stakeholders.
It is critical that regulators apply a legal framework that reflects the way an economy works and the economic incentives and structural roles of the stakeholders involved.
The existing laws will apply to impose a fiduciary obligation, which recourse will be given to each particular case at hand and in time. This will help secure the interests of the community as the platforms and projects act more on the side of caution.
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