In 2019, the US District Court for the Southern District of Florida, decided the first blockchain antitrust case, American Corp. v. Bitmain, Inc, which began over a disagreement about the rules governing the Bitcoin Cash Cryptocurrency and was to be decided by the count of votes. One side was Bitcoin Cash ABC & Ors. which believed the Bitcoin Cash blockchain should consist of large blocks which will also make for cheaper transactions process and on other side was Bitcoin Cash SV faction which develops technology and services for mining Bitcoin Cash, believed that blocks should remain consistent to have more mining and more decentralized blockchain network. The decision was based on greatest hashing power and thus Bitcoin Cash ABC won for having greater share of mining power and became the legitimate Bitcoin Cash blockchain.
Aggrieved by the outcome, United American Corp. alleged that the Bitcoin Cash ABC faction conspired to vote a specific manner using their dominant hashing power and have succeeded in centralizing what was supposed to be decentralized cryptocurrency.
The Antitrust Authorities were posed with a task to examine whether this conduct restrained trade and due to which United American Corp. suffered. The Court decided in negative to the suit and held they could not infer any agreement meant for restraint of trade or harming competition as both Bitcoin Cash ABC and Bitcoin Cash SV are into existence and drop in their respective values cannot be attributed to defendant’s actions.
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If you thought moving from offline to online interactions and transactions, was a massive change, then you need to embrace yourself for the change which blockchain technology is bringing along. India, is conservative and has, in a short period oscillated from a RBI imposed ban to a Supreme Court lifting the ban on Cryptocurrencies. .
Globally, Tesla backtracked in the interest of environment, and decided not to mint more crypto-currencies and China, which has its own digital yuan with the backing of China’s Peoples Bank, banned banks indulging in Speculative trading of Cryptocurrencies.
A week before these events, the raving of cryptocurrency, blockchain and advent of Bitcoin and Ethereum had peaked. Soon Bitcoin tumbled to from $62000 in April 2021, with the uncertainty that global news sparked.
Deconstructing Blockchain, Cryptocurrency and Smart Contracts?
A virtual chain consisting of various blocks which are transactions classed in a sequence. The main features include:
– it is Decentralised, which means addition of a new block depends on consensus of the different nodes participating in the network;
– it is Distributed, that is each node contains the record of all past entries, which helps in avoiding record manipulation to its best. It is like a ledger maintained;
– it is Immutable, that in the sense once an entry is added it becomes next to impossible to edit, delete or correct it or reverse or erase it. Updating an entry is possible only through addition of a new block; and
– it is Secure, as in any addition involves cryptography which is encoding the information using mathematical algorithms and it also provides for economic incentives to the encoder.
Cryptocurrency, a virtual currency and one of the dimensions of blockchain. It is used as a medium of exchanges/ financial transactions. It’s denomination is tokens and is represented by ledger entries within the system. For instance, Bitcoin, the first blockchain based cryptocurrency, was launched in 2009 by a person or group pen named as Satoshi Nakamoto.
Smart contracts like cryptocurrency are an application of blockchain decentralised in nature. It runs by following “if/then” statements written into code on a blockchain and can be used in various sectors such as insurance, financial exchanges, real-estate etc. They skip manual intervention from its process and it can carry out the transaction in real-time. It avoids human error and bias. For example, the World Food Programme which uses blockchain technology to make cash transfers has already successfully transferred around US$23.5 million of dispensations to help 106,000 Syrian refugees in Jordan.
The recent hullabaloo on ban on the usage of cryptocurrency by India, Chain and US has indicated that opposition is on cryptocurrency and not Blockchain technology which, in a way is a paradox as pointed by the advocates of cryptocurrency transactions in India.
It is a dynamic field and leaves sufficient room to predict the possible future of the cryptocurrency and blockchain technology in India once and if it takes a consistent flight of operations in transactions. What could the Competition Commission of India (CCI) potentially think in terms of curbing the anti-competitive practices and upholding consumer welfare is perhaps speculative and little ahead of its times but definitely not ignorable.
- A company indulging in blockchain technology dealing in cryptocurrency may qualify as Enterprise defined under Section 2(h) of the Competition Act, 2002 (the Act) as a person or a government department which engages in different activities. The definition of person defined in Section 2(l) of the Act includes an association of persons or a body of individuals irrespective of being incorporated or not. In case of government departments offering official digital currency replacing cryptocurrency tokens as we commonly know today in India will the definition of Enterprise penetrate the veil of sovereignty offered to government entities. Then will there be a market for Cryptos in the historical sense?
- A blockchain transaction qualifies as an Agreement under section 3 of the Act- “agreement, as any arrangement or understanding or action in concert whether or not formal or in writing or intended to be legally enforceable.” It is an inclusive definition with space for various kinds of agreements including firms/ individuals in blockchain application to be classified as in agreement. This gives rise to concerns around appreciable adverse effects in competition in India.
- Possibility of cartel formation – Can miners of the network, form cartel? It puts miners in a position of power to indulge in aspects of price-fixation, collusive agreement on coordinated strategy. Probability of circulating competition sensitive and sensitive personal information among competitors.
It raises issues around liability as to whether it should be on all the nodes of a blockchain, irrespective of sharing of information?
- Chance of anti-competitive agreements – The horizontal and vertical anti-competitive agreements with contours of exclusive dealings (agreements between blockchain developer and platform preventing the developer from dealing with competing platforms) could have a few issues:
- tie-up arrangements (mandating linking blockchain usage to a wallet or exchange) or
- through self-enforcing smart contracts.
If CCI follows the existing regime then both will have to be judged with a rule of reason like every other agreement. This leaves the sword of Damocles over the accused to demonstrate no anti-competitive actions were resorted to. CCI will have a harder task at hand while looking into agreements which are difficult to trace with identities impossible to know.
- Case of abuse of dominance. Blockchain technology is the essential facility as understood under the Competition Act, for a competitor or new entrant to enter the Blockchain market or to maintain its place in the market.
– The patented blockchain technology works on royalty-based facilitation of essential facility. Is this royalty a commission which can trigger a conversation around abuse. As the market grows, the possibility of abusive behaviour or exploitative or exclusionary conduct cannot be overlooked.
CCIs challenges in assessing abuse
– determine and delineate the relevant market. What will comprise of relevant market, a single blockchain application or all similar blockchain applications and could it also be both blockchain and non-blockchain applications?
– Regulating off-shore parties as the technology allows very easy and convenient cross border agreements. Section 32 empowers CCI to look into anti-competitive agreements or abuse of dominance cases outside the territory of India but having a competitive effect within India.
– determining dominant position with accuracy is a complicated task i.e., operating independently in a market.
Section 19(4) includes market share, size of the enterprise, dependence of consumers on the enterprise, the size of its competitors, number of users (or active users), number of recorded transactions, number of blocks, revenue etc. which are qualifying factors for dominance.
Assessing abuse, by entity capable of deploying predatory pricing by reducing transaction fee below cost, acting as entry barriers, offering discriminatory pricing to consumers for purchase of similar volume of the product or service, or tying the use of a specific wallet by a dominant blockchain application could be another example.
Way forward:
Tough way ahead. Deciding on competitive concerns of blockchain application will pose questions on around what is potential restraint of trade, what is the impact of such restraint, what are the parameters to govern the offshore issues etc.. CCI is not completely oblivious to the upcoming challenges and has released a paper on Blockchain and Competition law to familiarise the user with this new technology available for use.
Jurisdictions are steering to keep abreast with the torrential information and have even decided cases on the matters concerning blockchain technology. It is an exciting time to see CCI ring fencing this technology and reigning conduct of a blockchain platform/ developer for anti-competitive/abuse of dominant position, as the matters start to pop.
Reference:
This blog on Blockchain technology in India and Competition is only for information purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter with legal analysis, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Very usefully research paper. Congratulations Team Tag bench👍😊