Blockchain interoperability : implications for EU competition law and data protection law

Abstract

Since the launch of Bitcoin in 2009, blockchain technology has undergone significant development and demonstrated its potential to revolutionize several industries. Distributed Ledger Technologies (DLTs) enable the transparent recording and secure sharing of data across a network of participants in a decentralized manner. However, the adoption of DLTs has been hindered by the existence of numerous protocols and diverging standards, leading to the creation of isolated ‘walled gardens’ where each blockchain operates independently. Achieving interoperability between different blockchains is thus essential for the broader application of the blockchain technology beyond cryptocurrencies. So far, blockchain interoperability has been analysed primarily from a technical perspective, with a noticeable gap in scholarly contributions addressing its legal implications. This article is the first attempt to examine how EU competition law and data protection law will be affected by, and can support, the evolution towards interoperable blockchains. To this objective, it first provides the background by briefly explaining blockchain interoperability and its underlying mechanisms, as well as demonstrates the benefits of fostered interoperability and the challenges preventing it from fully materializing. As regards a competition law assessment, our analysis identified three potential areas that might be affected by blockchain interoperability: collusion and information exchanges, anti-competitive foreclosure, and standardization. A data protection analysis focuses on evaluating the potential impacts of blockchain interoperability on the principles of accountability, data minimization, and purpose limitation, as well as on the rights of individuals, particularly the ‘right to be forgotten’. The article concludes that blockchain interoperability does not introduce entirely new legal challenges beyond those already identified in the existing literature on blockchain’s compatibility with competition law and data protection law. However, it has the potential to exacerbate these challenges. By enhancing the degree of data sharing among different parties, blockchain interoperability may foster collusion and complicate compliance with the GDPR. At the same time, blockchain interoperability could lower market entry barriers and reduce market concentration, thereby decreasing the risk of foreclosure practices. Our analysis also revealed that, in the near future, particular attention should be paid to the standardization efforts surrounding blockchain interoperability, which are likely to become a crucial nexus between blockchain technology and competition law.