Posted on Categories blockchain

Blockchain and competition law

Blockchain does not function in a legal vacuum. Depending on how the technology is used, various legal regulations may be applicable. As blockchain is often used for cooperation between unaffiliated entities, it is worth considering the consequences that may arise under competition law.

Undoubtedly, for countless reasons blockchain provides an opportunity for unfettered growth of free competition. At the heart of this technology is decentralisation (and thus the lack of any single entity controlling the activity of other entities) and transparency. For this reason, at least theoretically, the spread of blockchain technology should reduce the incidence of abuse of a dominant position and anti-competitive arrangements.

But more and more often we observe the creation of “private blockchains” or consortia made up of only selected entities. This occurs primarily in fields such as financial markets, the power industry, or distribution chains, traditionally dominated by large entities. Although from the perspective of competition policy cooperation between commercial entities should generally be encouraged, it also generates risks that must be monitored. Consequently, entities using such solutions should analyse a range of issues related to competition law.

In the world of public blockchains as well, competition regulations may prove vitally important. So far there is no universal technological standardisation, and these markets, sometimes reminiscent of the Wild West, display many behaviours that could raise doubts in light of antitrust law.

The following issues appear most crucial in this context:

  • Technical standards. Participants in a given blockchain, particularly in the nature of a consortium, will often be involved in development and implementation of common technical standards. In the context of competition law, it may be necessary to ensure the lack of restrictions in establishing standards, the transparency of the adopted standards, and access to the standards under fair, reasonable and non-discriminatory conditions.
  • Access to private blockchains. In certain circumstances the use of private (“permissioned”) blockchains may constitute an anti-competitive arrangement (whether horizontal, e.g. between financial institutions, or vertical, e.g. within a supply chain), particularly when access to the network by new entities is limited or denied. Nor can risks connected with abuse of a dominant position be excluded.
  • Exchange of information. It cannot be ruled out that within blockchain, information may be exchanged which is sensitive from a competition perspective, such as confidential information about price policies.
  • Control of concentrations. Many interesting legal issues may relate to mergers, acquisitions and joint ventures involving blockchain projects, and the related oversight of concentrations.
  • Competition regulators’ access to information. An interesting issue is access by competition authorities (e.g. in Poland the president of the Office of Competition and Consumer Protection) to information and documents on blockchains. In many of the instances mentioned above such access is essential.

Time will tell whether the legal rules and practice of competition law can rise to the new challenges.

Jacek Czarnecki