Bitcoin brought about solutions to persistent problems that stood in the way of previous attempts to invent digital money, such as the risk of double spending. Some of its features, however, like the characteristic irreversibility of blockchain transactions, have created certain challenges for the traditional legal and financial systems. At times they may seem incompatible with cryptocurrencies, but that’s not always the case.
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Legacy Legal Systems Facing Distributed Ledgers
Matthias Lehmann, director of the Institute for International Private and Comparative Law at the University of Bonn, explores some of the challenges decentralized digital currencies pose to the current legal systems and proposes solutions in a recently published article. But Instead of focusing on transfers resulting from fraud, like the media often does, the German professor turns attention to “less reported” but equally possible transactions.
Lehmann highlights two groups of problems – ‘endogenous,’ associated with faulty transfers where the sender commits a mistake or lacks legal capacity to make the transfer, and ‘exogenous’ problems, when a need for correction may arise because of events taking place outside of the blockchain. The latter category includes insolvency proceedings, for example, or succession of crypto assets. The distributed ledger technology (DLT) was designed to prohibit double spending, but it cannot reverse faulty transfers and does not allow for a transfer of title outside the blockchain, the scholar notes.
These are common problems and they are pretty standard in private law, the legal expert remarks. But imposing the ordinary rules of private law is not an option in the case of cryptocurrencies. That’s because of the irreversibility of blockchain transactions, on the one hand, and the difficulties in establishing the governing
