Jamilia Grier is the founder and CEO of Byte Baoan ecosystem of legal resources for lawyers and Web3 companies.

Introduction

Web3 technology is based on decentralization, transparency, and trustless networks.

Decentralization means that information is not owned, managed, or controlled by a single source. Instead, the information is scattered throughout the blockchain and is created by anyone who participates in a transaction on that blockchain.

In terms of transparency, blockchain transactions are recorded in ledger form and are open and visible for anyone to see as they are not owned by any party. Transaction data is created and recorded on the blockchain.

The issue of trust plays an important role in blockchain technology. Transactions are primarily confirmed using a proof-of-work or proof-of-stake protocol that incentivizes confirmation of only accurate information. There is no incentive to incorrectly confirm transactions; as such, this creates a trustless system where a blockchain acts as the sole source of truth for transactional data.

Many advocates of Web3 technology expect the technology to significantly disrupt traditional systems in industries such as banking, real estate, and education. Most industries have pockets of centralization, with large multinational corporations possessing vast amounts of information and control over the marketplace. Many blockchain-based technologies hope to restore control with users and creators to level the playing field.

However, cross-industry disruption still requires the rule of law. In order for startups to be sustainable and for startups to create solutions using this technology, these startups must comply with existing laws and regulations. Blockchain technology, in its essence and uniqueness, does not erode the requirement of legal and compliance frameworks.

Proper education for regulators

To properly build within this new tech space, startups need to know what the rules are. Each country has the responsibility to clearly define the rules and ways of working with blockchain technology. This can foster innovation and promote new exploration in Web3.

1. Working groups and working groups with industry and academia should collaborate to educate regulators.

2. Early regulations can start us on the journey of understanding the balance between underregulation and overregulation.

3. The creation of cross-border working groups can help companies understand the international implications.

Web3 companies must take legal and compliance issues seriously

While regulators have a responsibility to clearly define the laws and regulations on digital assets, entrepreneurs and start-ups have an obligation to society and consumers to comply with those laws and regulations. For better or worse, a lack of trust and credibility fostered from the start can cause long delays in the mass adoption of the technology by users and society as a whole.

1. Early Hiring of Lawyers and Compliance Professionals. Since many Web3 companies involve the monetization of intellectual property or the use of data, these companies should look to hire legal and compliance professionals with IP and data privacy experience or even previous experience in technology companies to ensure a smooth transition to business. Privacy by design or expertise in structuring compliant cross-border data flows are skills that are still in high demand in Web3.

Additionally, for more mature Web3 companies looking to build a complete in-house legal team, attention to the right balance of skill sets and seniority is imperative. Due to the fact that many major markets are still creating strong regulatory frameworks for digital assets, experienced lawyers can help develop strategies that are in line with existing regulations. Meanwhile, the creativity of tech-savvy lawyers can allow them to think outside the box to create new solutions. While it’s tempting to outsource all legal work, companies should consider a long-term strategy of building an in-house team that can ensure continuity and a deeper understanding of business needs.

2. Privacy and compliance by design. In most startups, there is a tendency to bring in lawyers just to review a new product after it has been developed. However, having someone with legal or compliance experience at the table when product ideas are being generated can reduce costs and risks of non-compliance in the long run because these considerations are built into the overall product design. For example, consider an application that collects, stores, and analyzes user-specific digital wallet data. Given potential data privacy concerns, it would make sense to raise those concerns before millions of dollars are spent designing and developing an app that risks violating various privacy regulations.

3. Follow existing best practices in ethics and corporate compliance. While it is tempting to assume that a new set of laws applies due to the novelty and uniqueness of Web3, that is certainly not the case. The US Department of Justice has published an “Assessment of Corporate Compliance Programs” that provides excellent standards that all technology companies should use to self-assess the maturity of their compliance programs. The goal is not to overburden emerging technology companies, but rather to bring the business ethic of Web3 to a long-standing industry standard.

There is a long track record for Web3 when it comes to mass adoption, but blockchain is here to stay.

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