CCI issues discussion paper on blockchain tech, competition

Blockchain technology might pose challenges pertaining to jurisdictional, data protection and privacy, and competition, according to a discussion paper by fair trade watchdog . A blockchain is a virtual chain consisting of information on various blocks (transactions) grouped together in a sequential manner. It maintains a decentralised, distributed, immutable and secure record (or ledger) of the transactions.

The decentralised and distributed nature of blockchain implies that there is no central authority that has control over it, making it challenging for the competition authority to enforce an order against any anti-competitive conduct in this, as per the discussion paper.

The paper on ‘blockchain technology and competition’ noted that in the case of any legal, policy or regulatory issue, it is difficult to understand which jurisdiction’s policies and regulations might apply.

Policymakers and regulators are also likely to face enforcement challenges in terms of identifying liable entities and penalising them for wrongful conduct. It is because network participants in case of permission-less blockchains may be anonymous or pseudonymous, the paper said.

Further, it said that an authority in blockchains can be totally decentralised and it might be difficult to understand who is responsible for the actions of a blockchain.

Also, blockchains might not be fully compatible with the current privacy and data protection frameworks, it added.

This raises the question if a blockchain application can be viewed as a dominant enterprise. One possibility could be to consider all participants together as collectively dominant, it added.

However, the paper noted that collective dominance is not yet recognised in India.

According to the paper, awareness about competition issues that may emerge in the case of blockchains may help in the development and use of blockchain applications in line with the principles of the competition law.

“This may be achieved by proactively engaging the blockchain stakeholders (miners, developers, users, etc.) at an early stage while the technology is still being developed, making these stakeholders aware about the likely concerns of competition law that may arise and how competition authorities deal with them,” it added.

The 49-page discussion paper has also provided some broad-level guidance for various stakeholders in a blockchain ecosystem, including that blockchain applications should not be used to exchange competition-sensitive information among competitors.

Blockchain or smart contracts should not be designed to enable enforcement of any collusive or anti-competitive conduct of any form, the paper said.

It also noted that while designing the governance mechanisms of a blockchain, consideration should be made for the possible changes in compliance relating to any requests or orders issued by CCI.

The paper has been prepared by leading consultancy EY along with the regulator.

“The aim of this paper is to provide broad-level information to all stakeholders on the interplay between blockchain applications and competition law. Its contents should, in no way, be treated as the official view of the CCI, or CCI Officers.

“The examples or possible situations related to competition issues discussed in the paper are purely hypothetical in nature… This paper is merely an intellectual exercise and not a regulatory or investigative guidance,” it said.