The issue of the ruling power over the arising disputes is easier with centralized (i.e., Ripple, NEO) or semi-centralized (i.e., Bitcoin Cash, Ethereum) blockchains, while with anonymous blockchains (i.e., Monero, ZeroCoin) this issue doesn’t even get posed, as all participants of the network, miners, executors or even pushers of transactions retain the highest extent of anonymity.
However, let’s imagine that a proper ODR System is established within the blockchain. Even then, the bridge linking the blockchain and the real world would be necessary to apply all of the rules and execute all plausible types of smart-contracts - so would be the invasion by people into the system. For instance, what if the return of a loan taken on the blockchain (there are numerous services offering loans on the blockchain) cannot happen due to the debtor’s initiated insolvency process. Then a transaction would encounter conflicting conditions and the smart contract, if not programmed with all necessary considerations, could be dug in the blockchain forever. This would be the result of the events occurring in the real world. Can the existing private international law serve as this blockchain-real-world bridge?
Worldwide application of the private international world norms would enable blockchain transactions to be observed and, if necessary, controlled or amended by national legal order. The goal would then be to provide those transactions with the adequate legal framework that would protect the interests of all participant and legal force that would enforce the compliance of the rules. The blockchains are deprived of both as long as they are not connected to the level of state supervision.
Speaking of the very initial stage of the maturing of the system, it is worth noting that if a given state is against recognizing certain types of transactions as legally binding, like in cases where that go against its public policy, the bridging of those transactions would have no legal scope. Therefore, the very first necessary step for those transactions to be an oversight is that the state itself should recognize transactions executed on the blockchain in the first place.
Only when the transactions themselves are recognized by all respective authorities and overseeing bodies of a state, then initiating court proceedings related to those transactions is at least possible. This situation presumes that the transaction is considered binding for all parties and, here the things are getting tricky, all those participants may be identified. This may pose some considerable challenges for the law enforcement, especially, with relation to the anonymous blockchains I referred to earlier. This renders us with the two possible developments: either a state must have control over the mining power, or it should simply dismiss the cases where the parties are impossible to identify. Even with the first scenario, it would be unethical, as a single transaction cannot be pulled back in any blockchain, only the whole blocks, therefore, the transactions executed by other, unrelated people will also be affected. Imagine that you receive the money for the service you rendered in Bitcoin, and then, after a couple of weeks, this money literally evaporates from your wallet. The conclusion is - states need a tool that would help them identify the person who pushed a particular transaction.
The tools and services for the identification of transactions already exist (they are usually referred to as ‘Know-Your-Transaction (KYT) Toolkits’), however their functionality is limited to a far-from-precise identification of IP a transaction was sent from (IP issue is dealt with the dynamic IP VPN services), or a mere compiling of the blockchain addresses that are used by organized crime groups, such as DarkNet drug marketplaces. It is already becoming commonplace for traders of the regulated exchanges to find their accounts blocked or suspended due to an attempt to withdraw funds directly to those marketplaces accounts. However, this issue is easily dealt with the help of Bitcoin mixers or Bitcoin-Monero laundering. The main takeaways from this situation - it is extremely hard and almost impossible to control a blockchain transaction if it is done by a sophisticated user.
Interestingly, our users do not seem to particularly like the idea of using KYT tools for VHCEx deposits and withdrawals.
Taking into consideration our users' position we're gonna hold the idea of implementation of KYC tool on VHCEx for a while.
Thank you for your time,
your VHCEx team!
