Recently, Zambian Minister of Technology and Science, Honorable Felix Mutati, announced that Zambia was looking to regulate cryptocurrency by testing blockchain technology. The conversation surrounding whether or not this announcement was an implied endorsement of the use of cryptocurrency in the country is a different one. This article simply notes the fact that blockchain technology is being considered and once effected, could have certain notable legal implications on a lot of sectors, the competition one not being left out.

What is Blockchain Technology?

A blockchain is a digital distributed ledger which allows for secure, transparent and tamper-resistant record keeping. Simply put, it is a system within which data about various transactions is recorded. In a blockchain, separate transactions are recorded in what are known as blocks which are then linked together in chronological order to form a chain.

This system is nearly impossible to hack as it is distributed throughout the network meaning any changes or manipulation to the data on one block would alert and necessitate changes to the data on all the subsequent blocks in the chain. It is also decentralised – this means that the process of adding a block to the chain is not left to one entity that could act in its own interest.  

Blockchain Technology and Zambian Competition Law 

Competition law is a branch of law that seeks to regulate competition in a free market economy. It achieves this in three key ways; by avoiding anti-competitive agreements, abuse of dominance and through merger control. All this is done to ensure that there is freedom of trade and to promote and sustain healthy competition. The main legislation that governs competition law in Zambia is the Competition and Consumer Protection Act, 2010 (the “Act”). Sections 8, 9 and 10 of the Act provides for the prohibition of anti-competitive agreements generally, then at a horizontal level and a vertical level respectively.

One interesting feature built upon blockchain technology is the smart contract. Smart contracts are self-executing contracts with predefined rules written into a code, similar to a software programmed to work in a particular way without the parties needing to be physically involved in the process. With smart contracts, transactions can be automated eliminating intermediaries and increasing the trustworthiness of said transactions.

However, concerns have been raised that collusion may arise where competitors use similar smart contracts to align their behaviour. A serious consideration when it comes to determining collusive conduct among market players is the sharing of information. This information could relate to pricing formulas, clientele information, output decisions et cetera. As stated earlier, all entities on a blockchain are privy to each other’s information hence it would make it easier for competitors to adopt methods, formulas, policies et cetera employed by other market players to use in their enterprises. If the use of such is either for the purposes of distorting competition or has the effect of doing so, it amounts to an anti-competitive agreement falling under the wording “concerted practice” in Section 8 of the Act. This means that it becomes a bigger task for the enterprises in the chain to prove that there was no collusion.

While competition law is not concerned with an enterprise being merely dominant [United States v. Aluminum Co. of America 148 F.2d 416 (2d Cir.1945)], it becomes a problem where that enterprise abuses its dominant position. In our legislation, the abuse of dominance by an enterprise(s) is prohibited under Section 16(1).

There are many ways that a dominant enterprise(s) can abuse its position, these are outlined in Section 16(2)(a-g) including refusal to deal with other enterprises. If the type of blockchain entities are a part of is private (one controlled by an organisation which permits only verified members to join its network), this could lead to selective granting and denial of access to certain data which could disadvantage certain market players over the others. The members on the blockchain could easily exercise a monopolistic power over the market.

When it comes to merger control, blockchain based mergers and acquisitions, through smart contracts, can be difficult to assess because of how innovative the technology is and the potential for market concentration.

What Regulatory Approaches can be adopted?

There is always need to strike a balance between innovation and healthy competition. Seeing that blockchain technology is fairly new, especially on the African scene with less than 20 countries entertaining the concept, the Competition and Consumer Protection Commission (the “Authority”) needs to employ an efficient regulatory framework to ensure that while the benefits of blockchain are enjoyed, it does not distort, restrict or hinder competition.

There are a number of ways that this can be done. The Authority could employ a more proactive approach of regulation, meaning close monitoring of the blockchain landscape to be able to actively engage with industry stakeholders so as to get an understanding of the technology’s nuances and potential challenges. The use of regulatory sandboxes can help with this approach.

It may also prove to be necessary for the Authority to ensure that there is competitive access to data while protecting individual privacy. Open data standards and data-sharing regulations could be set to dictate what data and how much of it can be shared on the blockchain to reduce the possibility of collusion among market players both at horizontal and vertical levels.

A technology neutral approach would also come in handy as it would ensure that the law does not discriminate against or for specific technologies. This would allow for a level playing field for both traditional-model market players and those undertaking a blockchain-based businesses.

Essentially, there would be need to maintain a dynamic approach, one that allows for the Authority to quickly adapt with the rapidly evolving blockchain space so that they can create flexible frameworks that can address emerging issues effectively.

Conclusion

The potential that blockchain technology holds is immense and could revolutionize industries and change the competition scene. However, it is important to be aware of the unique opportunities and challenges for competition. The paramount consideration remains whatever will maintain and safeguard competition, to achieve this, the Authority will have to collaborate with industry players and other stakeholders.