Cross-border blockchain transactions create substantial complexities under international law due to their decentralized nature, which creates obstacles for jurisdiction, regulation and enforcement.
Jurisdictional ambiguity occurs when blockchain operates in multiple countries at once, making it difficult to determine what laws apply in the event of disputes. Additionally, varying national regulations on cryptocurrency, financial transactions and data privacy create conflicts – particularly around ‘anti-money laundering’ (AML) and ‘know-your-customer’ (KYC) laws.
Taxation becomes equally problematic, as blockchain transactions invariably involve international counterparties making it hard for governments to track or tax the transaction. This gives rise to a risk of double taxation.
In addition, the anonymity created by blockchain saves any enforcement of taxes which further complicates tax obligations. Legal complexities such as ‘conflict of laws’ and enforcement of smart contracts are created as blockchain agreements often fail to clarify what law governs the challenges of the contract in the first place.
The lack of central authority in blockchain systems complicates dispute resolution and legal rights enforcement, while intellectual property rights might be difficult to protect in many situations given blockchain’s decentralized and tokenized nature. Moreover, data protection is a concern when it comes to cross-border data flows, as the immutable nature of blockchain can contradict privacy laws, such as the EU’s GDPR.
Another security complication created by blockchain is that it can facilitate cybercrime across countries, meaning law enforcement might be hindered from tracking offenders across jurisdictions. Blockchain’s decentralized nature can pose issues to state sovereignty, since countries with different legal frameworks lead to a legal pluralism that complicates international cooperation.
Ultimately, the cross-border transactions made possible by blockchain exemplify the subsequent necessity for new international legal frameworks or harmonized regulations that can address these complex issues.
