Is It Illegal to Run Your Own Node?

Crypto

Tech

Regulation

Is It Illegal to Run Your Own Node?

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Getblock.io

5th April 2021

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Blockchain has become an important part of the modern digital world. Many companies are launching solutions based on distributed ledger for different purposes: for example, IBM opened a platform for distributing a COVID-19 vaccine.

Blockchain and cryptocurrencies are developing very quickly, and the regulators do not have time to respond to them. Therefore, we often hear news about new lawsuits and government sanctions against miners, cryptocurrency exchanges, and blockchain companies. How legal (or illegal) is it today to run your own node and build new blockchain-based applications?

We made a review of the legislation.

Ten years outlaw

The first block of bitcoin was received in 2009. But it was only in 2017 that politicians started talking about regulating crypto. The price of bitcoin and altcoins showed record growth rates that year, and this hype drew the authorities' attention to the technology and asset. Development of laws went on for 2 years. Governments, central banks, and international financial institutions had different responses to cryptocurrencies and mining: ones built projects of state cryptocurrencies and others offered legislative bans.

The most crypto-friendly countries at that time were Switzerland, Malta, Denmark, Estonia, Sweden, the Netherlands, Belarus, and the USA.
Algeria, Bolivia, Vietnam, Lebanon, Pakistan, Ecuador have chosen the prohibitive policy.
The first high-profile events in the legislative field were the banning of cryptocurrency exchanges in China and the equating crypto tokens with securities by The U.S. Securities and Exchange Commission (SEC).

In 2020, the SEC collected over $ 4.68 billion in fines, of which $ 1.26 billion (almost 27%) — in cases of Telegram ICO and other token sales.

In some countries, there were bans on mining due to increased loads on the power system. Since 2015, the general trend has continued: the authorities are trying to regulate the cryptocurrency and limit its turnover. The same applies to ICOs — attracting investments with tokens. And blockchain as a new technology is encouraged: it seems to have a potential for use by the state, banks, and companies. Mining regulation followed the path of licensing and is allowed in countries with cheap electricity and well-developed energy systems.

Now the world has entered the stage of "civilized handling of cryptocurrencies." Four years ago cryptocurrencies were outside the legal framework; now the definitions of digital assets and their trade are enshrined in legislation. This also applies to mining. To a lesser extent, the law regulates trading and earning other profits from exchange rate movements. But there are aspects of blockchain and cryptocurrencies that are still in the “gray zone”: the dissemination of information on the blockchain. In particular, personal data as well as texts or images that could be illegal.

This is important to understand for those who want to become part of the blockchain community.

The physical location of blockchain node owners drives legal complexities. The main of them:

  • Multiple jurisdictions: a distributed ledger may pass data across borders, - and data centers could be in different countries.
  • Multiple organizations: a group of participants may communicate via а common blockchain.

With broadcast blockchains, all information including commercially sensitive data (prices or transaction amounts), and data prohibited to distribution (for example, personal information), is passed to all participants regardless of the jurisdiction of their servers. So how can a system that broadly distributes personal information comply with laws prohibiting dissemination of personal information? Who is liable if your server suddenly has data on it that is prohibited by regulation from being there, sent by someone else?

Supporting of nodes and law issues

Despite the problems described above, in no country does the law prohibit users from installing full nodes of any blockchain (including Bitcoin and Ethereum) and supporting any number of network nodes. Also, every computer with special software can be connected to the blockchain network at any time as a light node. It is also not prohibited by authorities.

So far, there have been no legal precedents in the world according to which the owners of blockchain nodes of any type were banned because of information or transactions in the network.

However, there is no certainty that precedents will not appear. So, in Russia in 2017 a lawsuit was initiated against the owner of the exit node of the anonymous Tor browser ("Bogatov's Case"). The person was charged with inciting terrorism and mass riots from a network node belonging to him. The trial ended with indictment and detention. Only after several months the government finally dropped all charges.
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Image by Radio Svoboda

BaaS vendors and the law

There are other arguments against launching your own full node, in addition to legal issues: these are high requirements for computing power and high labor costs for blockchain experts. Therefore, many companies use services of blockchain providers.

“Blockchain as a service” is absolutely legal and provided by many companies: from IT giants (IBM, Amazon, Alibaba) to small highly specialized startups. By working with a blockchain vendor, you enter into a legally binding service agreement. This means that you have guarantees and the opportunity to defend your rights as a consumer.

GetBlock.io can connect your decentralized app to almost every node in existence including Bitcoin (BTC) and top programmatic blockchains: Ethereum (ETH), Cardano (ADA), Binance Smart Chain (BSC). You can be sure that you won’t lose connection to the preferred blockchain even because of network congestion. Learn more about conditions and prices.

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