7 Legal Challenges in Blockchain and Smart Contract Technology

Blockchain technology and smart contracts have revolutionized various industries, offering decentralized and transparent solutions.

We’ve seen examples of how blockchain is implemented in the automotive, healthcare, supply chain, and real estate sectors.

However, this rapid adoption has brought forth a myriad of legal challenges that demand careful consideration.

Legal Challenges in Blockchain and Smart Contract Technology

And, don’t worry; you can still buy Solana with credit card at regulated and licensed crypto exchanges without worrying about legal issues.

But let’s see what legal hurdles businesses and individuals venturing into the crypto realm face.

Here are the top 7 legal challenges in blockchain and smart contract technology.

Navigating Regulatory Waters

Regulatory uncertainty is one of the most persistent challenges in the blockchain and smart contracts landscapes.

The fact is that governments and regulatory bodies around the world are still formulating guidelines for these technologies.

Because of that, organizations that deal with crypto and smart contracts must stay vigilant and monitor regulatory developments.

The legality of cryptocurrencies as blockchain derivatives varies between countries.

For example, cryptos are legal in the US and fall under the jurisdiction of several regulatory bodies, including:

  • Securities and Exchange Commission (SEC)
  • Commodity Futures Trading Commission (CFTC)
  • Financial Crimes Enforcement Network (FinCEN)
  • State-level regulators

Despite that, blockchain projects occasionally find themselves under scrutiny due to allegations brought forth by the Securities and Exchange Commission (SEC), such was the case with Ripple in 2023.

On the other hand, countries like Algeria, Egypt, and Morocco strictly prohibit any actions related to blockchain, crypto, or smart contracts.

In contrast, Canada and a few other countries have only partially adopted blockchain by regulating some bitcoin-related businesses but strictly prohibited purchasing cryptos from its residents.

Global Legal Tangles

Many blockchain and smart contract-based projects are built with the purpose of solving challenges related to the traditional banking system.

Still, despite all efforts, blockchain technology often faces cross-border legal challenges.

The biggest obstacle in resolving international transaction legal recognition lies in varying legal frameworks between jurisdictions.

The most effective way to solve this challenge is through increased international collaboration and standardization of regulatory practices.

This could lead to greater clarity for crypto enthusiasts engaging in cross-border transactions.

Tokens in the Legal Spotlight

Token classification is another legal issue blockchain is facing at the moment.

Initial Coin Offerings (ICOs) are particularly challenging as regulators struggle with determining whether these tokens should be considered securities or utilities (SEC against Ripple).

This regulatory ambiguity was caused by the lack of a universally accepted regulatory framework.

The main issue is that different regulatory jurisdictions apply different criteria to determine the legal status of tokens.

Such a practice only adds complexity for blockchain and non-blockchain businesses operating globally.

Guarding Data and Privacy

Traditional notions of privacy are in direct conflict with one of the blockchain’s fundamental principles – transparency.

While blockchain ensures an immutable and auditable record of transactions, at the same time, it raises concerns about the exposure of sensitive information or personally identifiable data.

For example, the General Data Protection Regulation (GDPR) in the European Union imposes strict requirements regarding the processing and storage of personal data.

In blockchain, data is replicated across nodes (the network of computers), making it challenging to comply with such requirements.

The right to be forgotten (RTBF) is a concept allowing individuals to request their personal information to be removed or deleted from online platforms and search engine results under some circumstances.

Reconciling the right to be forgotten (RTBF) with blockchain technology poses a significant legal and technological challenge due to the fundamental pillar of blockchain, immutability — the permanent and unalterable nature of recorded data.

That said, we can conclude that the blockchain’s very design contrasts with the concept of “forgetting.”

We’re still waiting for innovative solutions to strike the right balance between privacy rights and the fundamental principles of distributed ledger technology.

Decoding Smart Contract Legality

If you think blockchain’s legality is complex, wait to hear about smart contracts.

Some jurisdictions recognize and enforce smart contracts, while others don’t have specific laws addressing self-executed contracts’ validity.

In essence, their legal status depends on whether a jurisdiction recognizes the autonomy of computer code as a valid means of contract execution.

The concept of “code is law” suggests that the code governing a smart contract is the legal embodiment of the parties’ agreement.

This is part of an idea that self-executed codes (contracts) remove the need for intermediaries.

However, challenges arise when discrepancies or unforeseen circumstances occur, requiring human intervention or interpretation by legal authorities.

While smart contracts rely on the absence of central authority, they bring out the question of what happens in case of a dispute and whether the traditional legal systems are equipped to handle smart contract-related conflicts.


Blockchain and smart contracts have revolutionized industries by presenting decentralized solutions, but their rapid adoption caused (intentionally or unintentionally) legal challenges.

Because of the lack of global guidelines, vigilance from crypto organizations is necessary.

Cryptocurrency legality varies globally; the US embraces it, but blockchain projects face scrutiny, exemplified by Ripple’s SEC allegations.

Cross-border legal challenges and token classification struggle with regulatory ambiguity.

Data protection conflicts with blockchain’s central pillar – transparency, raising privacy concerns and challenging individuals’ legal right to be forgotten (online).

Finally, as jurisdictions differ in recognizing code as law, smart contract legality is facing complexities, prompting questions about dispute resolution in decentralized systems.

A solution lies in the increased collaboration between the blockchain industry, regulators, and legal experts.

As the technology progresses and matures, improved clarity and standardization will likely create a more secure and legally sound environment, fostering acceptance of blockchain and smart contract technologies worldwide.

Chelsea Wilson

About Chelsea Wilson

Chelsea Wilson is the Community Relations Manager for Washington University School of Law’s distance learning LLM degree program, which provides foreign trained attorneys with the opportunity to earn a Master of Laws degree from a top-tier American university from anywhere in the world.

Leave a Reply

Search Programs