Mireia Artigot, professor of Civil Law in the Department of Law of UPF

Let’s imagine that, after a long search, we’ve finally found the flat-for-sale we want to buy.  Before signing the sales contract we go to the Land Registry to get the official, public information of the flat’s ownership and its characteristics (sqm, number of bedrooms, layout, etc.). Based on the information included in the document the Land Registry provides us we can verify, among other things, whether or not the person who is selling us the flat is its rightful owner and if the price of the flat seems reasonable based on its characteristics. We trust the information we are given by the registrar, as one of their tasks is to verify that this information is correct. So, we decide to buy the flat from a seller we do not know because there is an intermediary who has verified that the information relative to the transaction is truthful.

Blockchain technology can replace some of the functions that, until now, market intermediaries have always performed. Blockchain is a technology that lowers two of the costs inherent in transactions: that of verifying the information in the transaction and the interaction between the market participants. If the information on property transfers and the characteristics of flats were to use blockchain technology, the transactions would be much cheaper than they are now.

And how is it done? Through a blockchain; a series of computers connected in a network to allow any newly introduced information, on, for example, transactions and/or characteristics of products, to be chronologically recorded in a ledger which is protected by encryption, thereby preventing its manipulation and ensuring its authenticity. This information, which is entered into one of the computers that forms part of the blockchain, is distributed throughout all the computers in the network so that they all have the same encrypted information. The data, in turn, is grouped into blocks which go on to form a chain.

Blockchain technology, therefore, allows us to verify information and formalise transactions at minimum cost, while maximising the transparency and security of these transactions.

However, while this technology has much in the way of potential, it also throws up challenges on many different levels. In a decentralised system such as this, who can be held liable if the system fails or collapses? And who does the data come from that is entered into the system? How can fraud regarding third parties outside of the blockchain –such as tax fraud, for example– be monitored and prevented - and who by - which then generates the transactions performed through the blockchain? What regulations are applicable to the contracts formalised in transactions that are formulated in this system? Contracts formalised in transactions that use blockchain technology are different to normal contracts in terms of how they are perfected and fulfilled and how consumers are protected.

Blockchain technology is still in its very early stages. It has the potential to reconfigure the morphology of transactions and exchanges as we know them today. However, it poses major challenges we will need to address in every context in which this technology is used.