Beyond cryptocurrencies, blockchains have been proposed for applications in a number of different fields[1] including financial, integrity verification, governance, internet of things, health, education, privacy and security, business and industry. Applications may be a good fit for blockchain[2] if multiple stakeholders are contributing; more trust is required between parties than currently exists; there an intermediary that could be removed or omitted to increase trust or efficiency; there is a need for reliable tracking of activity and there is a need for data to be reliable over time. One of the factors not on that is the degree of legal/regulatory headwinds or tailwinds that a new blockchain application would receive. Recall that blockchain applications are inherently distributed multiparty applications where trust is an issue. Such applications will almost always have some industry or market-specific legal/regulatory framework in place for the resolution of issues with existing transactions. While cryptocurrency applications may face some headwinds from existing legal regulatory frameworks (e.g. AML) that predate their invention, other applications may face more neutral or even favorable legal/regulatory environments.
Supply chain applications for blockchain have been proposed[3],[4] for some time, and with good reason – typical supply chains have multiple competitive actors; increased trust may be required for a number of reasons; optimizing supply chains with the addition or removal of actors is an ongoing process for most large enterprises and the needs for tracking and logging are increasing. The scale, structure, and dispersion of supply chains vary by industry and the complexity of the products and services being delivered. The components delivered through supply chains vary from traditional commodity products (e.g. minerals, agricultural products), complex manufactured goods (e.g., aircraft or smartphone components) or even intellectual property (e.g., software, digital assets). While tokens representing commodity products might be fungible, most of the other supply chain applications would seem to lend themselves more to non-fungible tokens. Indeed, for some supply chains, the scaling challenge lies in the large number of non-fungible tokens required e.g. consider the number of components in a modern jet aircraft.
Increased levels of terrorism, trade disruptions, and product diversion or tampering all support the need for increased tracking and logging of the provenance of the goods in the supply chain. Depending on the industry, there may be varying degrees of regulatory/ legal incentives for tracking/ logging provenance. Most industrial supply chains would seem to have a relatively neutral legal/regulatory environments. Even commodity metals may require provenance in some cases – (e.g. Tin, tantalum, tungsten, gold have supply chain laws/regulations in US[5] and EU[6]), but pharmaceutical supply chains have specific incentives to consider mechanisms to track provenance under the Drug Supply Chain Security Act (DSCSA) of 2013 . This outlines steps to build an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United States, and gives the FDA a 10-year timetable to implement the necessary standards and regulations in a phased approach. The FDA had an initial workshop on pilot projects in 2016 and recently extended the pilot project program in 2019. Several of the proposed pilot projects are explicitly based on blockchains or distributed ledger technology including:
| Project Leads | Pilot Project Title |
| IBM/KPMG/Merck/Walmart | DSCSA Blockchain interoperability Pilot |
| IDLogiq | IDLogiq Next Generation Advanced REAL FIPS-Compliant Cryptographic ID Authentication with Transaction Ledger Powered by Blockchain/Distributed Ledger Technology for Decentralized Heterogeneous Global Network Computing Environment |
| MediLedger | MediLedger DSCSA Pilot |
| Rymedi | DSCSA Implementation in Intra and Inter Healthcare System Medicine Transfers |
| TraceLink | DSCSA Traceability with Distributed Ledgers and Digital Recalls Project Proposal |
| UCLA Health | UCLA-LedgerDomain: DSCSA Solution Through Blockchain Technology |
While the DSCSA legislation and FDA actions to date are not technology-specific, this does provide significant legal/regulatory tailwinds for blockchain-based applications in the pharmaceutical supply chain. The phased approach of the FDA also helps the pharmaceutical industry to mature the blockchain solutions before the final regulations come in place by 2023.
If you are looking for a book that provides a detailed overview of the legal implications of blockchain technology and smart contracts, then “Blockchains, Smart Contracts, and the Law” is the perfect choice for you. This book is written clearly and concisely, making it easy to understand even for those who are new to the topic.
[1] F.Casino, et.al. “A systematic literature review of blockchain-based applications: Current status, classification and open issues,” Telematics and Informatics, vol. 36, pp. 55-81, 2019.
[2] According to – M. Englehardt, “Hitching healthcare to the chain: An introduction to blockchain technology in the healthcare sector.,” Technology Innovation Management Review, vol. 7, no. 10, 2017.
[3] M. Casey, P.Wong, “Global Supply Chains Are About to Get Better, Thanks to Blockchain”, Harvard Business Review, March 13, 2017
[4] T.Felin, K. Lakhani, “What problems will you solve with blockchain?”, MIT Sloan Management Review, Fall 2018
[5] Dodd-Frank Act Section 1502 and SEC implementation rules at 17 CFR 229.
[6] Regulation (EU) 2017/821 of the European Parliament.