Blockchain technology on the CCI’s radar

25 May 2021

by Neelambera Sandeepan Shikhar Tyagi

Businesses constantly seek to innovate to obtain an edge over their competition and sometimes this leads to particularly noteworthy innovations that become disruptive forces within the market segment. This allows the innovator to determine their own price for their products and operate independent of the market forces of supply and demand. This has most recently been seen within the digital economy where several disruptive innovations have paved the way for a new way of doing business, often creating a new and unique market segment. Blockchain in the technology world is perceived to be the next big thing and the scale and magnitude of its use can potentially be the same as that of the world wide web. The most popularly known use of blockchain is in cryptocurrencies such as Bitcoin. However, its application is not restricted to financial services. In fact, sectors such as healthcare, real estate, e-commerce and most recently high-end fashion[1] are adopting blockchain based solutions for doing business. From a legal and regulatory perspective, the potential issues arising out of the use of blockchain include, privacy concerns, competition impact, fraud, issues of ascertaining liability and territorial jurisdiction apart from basic issues such as accountability. In its role as a market regulator, the Competition Commission of India (“CCI”), has, over the past few years, proactively carried out studies into various emerging markets to study the prevalent practices. Recently, the CCI in collaboration with Ernest & Young LLP released a discussion paper on “blockchain technology” and the challenges it could pose from a regulatory and competition perspective (“Discussion Paper”)[2].

A ‘blockchain’ is a virtual chain of information on sequentially linked blocks (“nodes”), that maintains a decentralised and secure record (“ledger”) of the transactions. The transactions are stored in blocks which are arranged chronologically and can be relayed to the first block in the chain. Blockchain enhances transparency in transactions as there is information symmetry amongst all the nodes in the chain and it is unalterable and secure. However not all blockchains are created equal. There are public and private blockchains and within such blockchains there are permissioned and permission-less networks. The Discussion Paper highlights that over 50 countries across the world have already embarked on initiatives to integrate blockchain technology within their economies and global investments through venture capital (“VC”) and Initial Currency Offerings (“ICO”) crossed US$20 billion in 2018. Despite all the heavy investment, blockchain technology development remains at an early stage and over 90% of the reported applications are at the level of either proof of concept or at a pilot stage.

Typically, blockchain-based solutions are considered to be pro-competitive and “efficiency enhancing”. The Discussion paper highlights that adopting blockchain technology could lead to various pro-competitive effects including – (i) efficient growth of businesses and increasing competitiveness in markets by enabling entities to bypass intermediaries; (ii) provide consumers with greater information, and enable more efficient transactions; and (iii) reducing transaction cost between unrelated entities, resulting in disaggregation of different departments and outsourcing related functions to external individuals / entities etc.

On the other hand, certain features of blockchain could lead to anti-competitive conduct or effects. For instance, blockchain could be used for information exchange or signaling amongst competitors and in the case of sensitive business information, this could result in cartelization. Similarly, there could arise information asymmetry amongst market participants operating inside and outside of the blockchain. Further, access to use of blockchain could be restricted or discriminatory conditions could be placed regarding the use of blockchain, resulting in denial of market access and abuse of dominance position.

In addition to the anti-competitive conduct, which may be facilitated by blockchain, the Discussion Paper identifies several practical enforcement issues as well for the antitrust regulator. The decentralised and distributed nature of blockchain implies that there is no central authority that has singular control over it, making it challenging for CCI to enforce an order against any anti-competitive conduct. Further, it may be challenging for CCI to identify if there is economic evidence of anti-competitive conduct on account of what is known as the ‘opacity effect’. Even if CCI is able to identify the economic evidence, it may still be unable to determine the real-world identity of the parties and therefore, it would be hindered from undertaking necessary measures to address the competition concern and penalize the concerned parties. Moreover, blockchain applications can exist across national boundaries and could raise jurisdictional issues.

The Discussion Paper also considered whether anti-competitive conduct carried out by utilising blockchain technology could fall under the purview of the Competition Act, 2002 (“the Act”). Firstly, participation in a blockchain application may fall within the definition of an agreement under Section 2(b) of the Act and therefore, any anti-competitive conduct emerging from participation in a blockchain application may be construed as a contravention of the Act. Secondly, a dominant blockchain application may be considered as an enterprise involved in the provision of the service of distributed ledger technology under Section 2(h) of the Act, but this would require all participants to be viewed as being collectively dominant, which is a concept that has been rejected in India so far. As such, how the provisions of abuse of dominance could apply to blockchain in India remains to be further analyzed.

Finally, the paper also offered broad-level guidance for stakeholders and developers of this technology to bear in mind in relation to the competition law framework. Firstly, blockchain applications should not be used to exchange competition-sensitive information among competitors: secondly, blockchain or smart contracts should not be designed to enable enforcement of any collusive or anti-competitive conduct of any form; and finally, while designing the governance mechanisms of a blockchain, consideration should be made for the possible changes in compliance relating to any requests or orders issued by CCI.

The Discussion Paper clearly states that it is merely an intellectual and not a regulatory exercise. Although blockchain is not yet being considered as a major competition concern on account of existence of very little empirical information regarding the use of blockchain applications from a competition law perspective, CCI has begun to proactively monitor and guide the developments in blockchain technology on account of its potential pro-competitive as well as anti-competitive impact. It is evident that the CCI does not intend to stifle innovations in this exciting technology. On the contrary, the CCI seeks to engage with stakeholders and developers from an early stage to raise awareness of the likely competition concerns that may arise from this technology in the future, to ensure compliance with competition law in this novel area.

[The authors are Joint Partner and Associate, respectively, in Competition and Anti-trust practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]



[1] Luxury brand conglomerate LVMH, owner of the iconic Louis Vuitton label, is preparing to launch a blockchain for proving the authenticity of high-priced goods, available at: https://www.coindesk.com/louis-vuitton-owner-lvmh-is-launching-a-blockchain-to-track-luxury-goods

[2] https://www.cci.gov.in/sites/default/files/whats_newdocument/Blockchain.pdf

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