Blockchain and Competition Law: New Technology, Old Challenges

[Swasti Gupta is a Research Associate at CUTS International, Jaipur]


The rapid emergence of “blockchain” in recent years has caused ripples in the global digital economy and has gripped the world’s attention. For those in search of a non-technical explanation, a blockchain is a decentralized, distributed ledger for transactions executed amongst the participants. It enables real-time, peer-to-peer transactions thereby eliminating third parties from the chain (for instance, banks and financial institutions, in the case of traditional mode of exchanging currency).

The interest in this nascent technology emanated in 2009 from Satoshi Nakamoto’s white paper on Bitcoins, a form of cyrptocurrency that operated on blockchain technology.[i]While blockchain may have become widely popular for its use with cryptocurrency transfers, it is increasingly paving its way in other sectors too, such as insurance, finance, voting records, education, healthcare, asset registry and maintenance of public records by governments.

Several countries are racing to adopt it while the venture capitalists are also queuing up to back it. Even in India, the technology is gaining momentum with experiments for integrating blockchain based solutions in governance (for example, see Bankchain, Indiachain, state run pilots in Andhra Pradesh and Maharashtra). In his budget speech, Finance Minister Arun Jaitley announced that the Government “will explore blockchain, to add muscle to the digital economy”. This will also be in line with the Digital India campaign launched by the Government in 2015.

However, adoption of this contemporary technology will not be bereft of old competition law concerns that require consideration prior to its widespread implementation.

Potential Competition Law Challenges Affecting Blockchain Technology

Risk of Collusion

Consensus Mechanism:

The process of validating a transaction on a blockchain entails a consensus mechanism that is governed by a pre–determined set of rules. In order to add a block of transaction to the chain, it needs to be verified through the consensus process. For instance, in a bitcoin blockchain, the transaction needs to be authenticated by 51 percent of nodes on the network before it can be added to the bitcoin ledger. The ability of an individual to participate in the consensus mechanism may depend on whether the blockchain is permissioned or permissionless. In the former, select members can participate in the consensus mechanism while in the latter, like the bitcoin blockchain, any member of the public may participate in the validation process. This consensus mechanism may be manipulated in order to prioritise the verification of transactions in favour of certain members of a consortium.


Blockchain could be an electronic means of setting up a cartel of stakeholders competing in the market. A blockchain allows all nodes on a network to view information about a transaction conducted using the chain. This may facilitate price coordination or price-fixing amongst the participants on the chain or players in the market as they can view the changes in price or any other material information stored within a blockchain with greater speed and accuracy and accordingly alter their future course of action. One possible emergence of cartels is through the formation of blockchain consortiums by a few players in the industry, which has been trending lately. Such consortiums are prevalent in the financial, healthcare and logistics sectors as well as amongst policymakers, regulators and central banks.

For instance, several major automakers, startups and tech companies, that together account for over 70 percent of market share worldwide in vehicle production, have formed a blockchain consortium named ‘Mobility Open Blockchain Initiative’ (MOBI). The consortium is aimed at exploring blockchain for enhancing the transportation sector to ensure better safety, accessibility and affordability. Similarly, a renowned global software firm R3, whose members include over 200 banks, regulators, financial institutions and professional services firms, is working on a distributed ledger technology platform called Corda designed specifically for businesses.

Information exchange:

Blockchain may also carry a concern regarding exchange of commercially sensitive information through blockchain recorded transactions. Each participant on a given blockchain possesses an identical record of all transactions stored on the distributed ledger. This may facilitate price fixing or even lead to tacit collusion or reducing competition. Additionally, these participants could also be competitors engaged in the same field who may then get access to sensitive information. In such a case, one possible solution in a public blockchain, would be to store price sensitive information off the chain and use the blockchain to record other aspects of the transaction. For a private blockchain, certain participants may be denied access to sensitive information at the node level by adding a layer of cryptographic privacy to the Blockchain.

However, not all information sharing may be risky. If information is shared between regulators and regulated agencies, it may be instrumental in drastically cutting down compliance and monitoring costs. Further, data sharing through blockchain may also lead to enhancing competition and innovation in the industry.

Abuse of Dominance

Abuse of dominance may be triggered by refusal to accessof permissioned blockchains, where such access is necessary to participate in the market. Where access is controlled jointly by existing members of the consortia, such control on access may be used to foreclose new entrants in the market.  This concept is known as “gating”. Similarly a private blockchain may only allow consumers to transact with a few dominant undertakings. Such a scenario could also raise the possibility of predatory pricing.

For instance, there may be a blockchain network of all the banks in the market to facilitate interbank payment.  If a new entity was seeking entry in the market, it would require access to the blockchain in order to become a competitive force. This entity could be refused entry on the network by the controlling participants (the gatekeepers) thereby indulging in anti-competitive behaviour and limiting the choices of consumers to transact only with the dominant banks in the market.

Standardisation of operations

As we get closer to accepting the blockchain technology and tapping its wide uses, there will be a need to set common technical standards of use of the nascent technology. As recognised by the European Commission’s guidelines on horizontal cooperation agreements, adopting common standards of operations by participants in a market promotes economic interoperability…increases competition and lower output and sales costs, benefiting economies as a whole.

However, setting these standards may have anticompetitive considerations. Competitors may collaborate on setting the standards in their favour by unduly restricting participation in consortiums and thus engaging in anticompetitive practices.  A single player may also abuse the standards by using a dominant position that is incorporated into a standard adopted by other participants. For instance, if the adopted standard requires a specific intellectual property which is owned by one participant, they may demand steep royalties or licensing terms from other participants that need access to the technology. Thus, in order to facilitate ‘unrestricted participation’, there will be a need to ensure effective compliance with the ‘standard on fair, reasonable and non-discriminatory (FRAND) terms’ (see paragraphs 281-283 of the European Commissions guidelines as mentioned above).

Review by Competition Authorities

Another potential competition law consideration is whether competition agencies should be given access to all blockchains to keep a check on anti-competitive practices. This might enable them to monitor trading prices in real-time, spot suspicious trends and have necessary data for investigating mergers and abusive conducts in the market. Detection of anti-competitive conduct would be possible in public blockchains as the visibility of transaction data will enable the authorities to simply review previous transactions in the chain for patterns of suspicious activity. However, in a private chain, the agencies would not be able to detect anti-competitive conduct on their own accord.

For instance, cartel trends would be most prevalent in permissioned blockchains, since permissionless blockchains are easily accessible by virtue of falling in the public domain. Therefore, competition review authorities and agencies across all sectors would need access to all blockchain networks, including permissioned chains, in order to detect and investigate cartels.


Blockchain technology, though still in its infancy, carries the promise to be the next big disruption after the Internet, with its applications as wide as one’s imagination. The unique features of blockchain such as consensus, trust, transparency and immutability give limitless possibilities of its use cases.However, deploying a blockchain may involve direct or indirect interaction between competitors at different levels in the value chain. Further, as the technology evolves and its uses venture into varied sectors, it will present competition challenges unique to the factual situation at hand.

Thus, there is a need to adopt an ex-ante approach in deploying the technology to advance its benefits and to mitigate the associated challenges. With its legal, social, political and economic implications still unknown, we must warm up to the technology with caution.

Swasti Gupta

[i] The paper titled Bitcoin: A Peer to Peer Electronic Cash System was published pseudonymously by Satoshi Nakatomo. The actual author remains a mystery.

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