EU committee calls on Commission to set out common blockchain approach

Hogan Lovells

Hogan Lovells

An advisory committee to EU institutions has issued an opinion on blockchain and the EU single market, advising the European Commission on potential next steps, including launching a "comprehensive" blockchain initiative, examining the GDPR, and proposing revisions and further guidance on the relationship between the GDPR and blockchain.

What has happened?

The European Economic and Social Committee (EESC) has published an opinion on what lies blockchain and the EU single market in the Official Journal.

What does this mean?

In its opinion, which published last month but had been adopted in plenary at the end of October 2019, the consultative body to the European Union said that blockchain can have "positive transformative force across many sectors", and bring trust, transparency, democracy and security, and ultimately reinvent socioeconomic models.

According to the opinion, other potential benefits of blockchain include empowering citizens, boosting entrepreneurship and innovation, improving mobility and cross-border opportunities for businesses while enhancing transparency for consumers, including through smart contracts or digital identities.

Blockchain can also reduce tax evasion/avoidance and corruption, develop private and public services and transform concepts such as competition and governance, mitigate data breaches or generate new funding models.

However, challenges remain, in particular the "urgent" matter of addressing the current legal uncertainty and protecting privacy.

On the first point, the EESC said that although there are some regulatory solutions for cryptocurrencies and initial coin offerings, the legislative framework is still unclear in respect of system design and in areas where blockchain is applied, "resulting in a fragmented approach" at Member State level.

"Without a joint EU initiative for legal certainty and clarity across the EU, cross-border opportunities will be limited," the opinion said, adding that use cases and regulatory sandboxes could be helpful.

On privacy, the opinion noted that when the GDPR was introduced blockchain was mostly unknown. The potential tensions between the GDPR and blockchain therefore need to be reviewed.

"The EESC calls on the [European Commission] to examine the GDPR, and propose revisions and further guidance on the relationship between the GDPR and [blockchain]," the opinion said.

Another challenge concerns the legal distinction between anonymised and pseudonymised data, which still allows for some form of re-identification.

"While in permissioned [blockchain], pseudonymisation is considered as a solution for the relations facilitated by [blockchain] technology, anonymisation is still a regulatory barrier for wider use of permissionless [blockchain], which can be resolved through digital identity solutions embedded into the regulatory restrictions," the EESC said.

Other challenges include:

  • the high energy consumption of the proof-of-work consensus mechanism;
  • the interoperability with different blockchain platforms, which may not ne compatible due to the risk for parties that exchange data;
  • transactions costs are often prohibitive
  • it is key to fully understand and review how blockchain affects consumer protections and rights; and
  • analyse the potential effects ono jobs, working conditions, workers' rights and protection.

The EESC therefore called for a common EU approach to be adopted and for the Commission to launch a comprehensive blockchain initiative setting out a common approach and vision. This should be complemented by an action plan for Europe to become the reference point for blockchain worldwide.

In addition, the European Blockchain Partnership and Blockchain Observatory and Forum should be reinforced with the creation of an EU blockchain stakeholder platform, which would bring together representatives from the EU institutions, industry consumers, Member States, academics and others to create a space for joint learning and capacity building, "a network of networks and sharing good practices".

Next steps

You can keep track of regulatory developments in respect of blockchain technology and its applications with our Blockchain Toolkit.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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