Building the blocks: developing an effective regulatory framework for the attribution of liability in distributed ledger technology

Distributed ledger technology is revolutionising online payments and finance by transferring the trust and power held by intermediaries and central authorities to the distributed network and the underlying code. The technological advancements of distributed ledger technology have extended the applications from facilitating cryptocurrencies like Bitcoin, to reshaping the financial industry, restoring asset and identity ownership back to the individual, and liberating the unbanked. However, legal uncertainty surrounding the operation of distributed ledger technology and its applications, creates indeterminate liability for the network participants that use it and prevents ubiquitous adoption. This paper seeks to address this uncertainty by developing a principles-based theoretical framework to underpin the design of regulations which attribute liability to participants using distributed ledger technology. The paper then deploys the framework to identify the legal challenges generated by distributed ledger technology to existing laws and regulations, before analysing the sources of liability at the different technological layers. Finally, this paper uses the theoretical framework to design a three-step regulatory model for reform, which attributes liability to distributed ledger technology participants. The model assesses the incorporation of distributed ledger technology and its applications into existing legal regimes, establishes the need for new laws and regulations and acknowledges the capacity for self-regulation.