By Joseph Raczynski
“Blockchain is Hot: More than $1.5 Billion has Been Invested in Blockchain in the Last 18 Months”
- Tori Adams, Booz Allen Hamilton
NATIONAL HARBOR, Md. — If someone had told you in 1993 that the Web would be integral to your life today, would you have believed them? Well, the discussion around blockchain technology at ILTACON 2016 harkened back to that same scenario of the early ‘90s. This is a reboot, where another new technology will revolutionize the world.
Moderated by the esteemed Ron Friedmann, Partner at Fireman & Company, we were led down the path of what to expect with blockchain. Rohit Talwar, CEO of Fast Future Research, started us off with his futuristic vision on what we can expect over the next five years. Joe Dewey, Partner at Holland & Knight, who specializes in blockchain, discussed the law and smart contracts. Lastly, Tori Adams, a data scientist at Booz Allen Hamilton, illustrated her predictions on the reality of this technology in the near term.
All major industries are looking toward blockchain — most pointedly, the financial sector. Talwar focused on one platform that is pushing this new space forward quickly — Ethereum — a pseudo-Bitcoin 2.0 that allows users to code on top of the blockchain. This can create huge advances in how the blockchain can interact with the world; utlizing smart contracts and digital identities, an even executing stock trades. In fact, Talwar stated that Goldman Sachs estimated a legal savings of $11 billion to $12 billion per year from streamlining clearing and settlement of cash and securities through such technology.
The next significant phase developing now is the DAO (Decentralized Autonomous Organizations) which means that processes and companies are completely autonomous. This technology has the ability to disrupt a disrupter, e.g. Airbnb. Let’s say you visit a DAO-enabled travel site. The condo owner places an ad on the site to rent their place weekly. You choose their place in Miami, agree to the terms (date of check-in and -out, etc.) and agree to the fee and deposit (paid automatically). When you arrive at the condo to check-in, simply enter the password at the door through an Internet of Things (IoT) tech-enabled doorknob (check out Slock.it) and you gain access. That lock at the front door knows who you are and how much you paid, and it can also see your contract for the rental of the condo and knows when you are to be out. The DAO can do all of this with one employee running the entire operation.
Law Firms Start to Embrace Blockchain
Several law firms are starting to make a foray into this space. Recently Steptoe & Johnson began a multi-disciplinarian practice to help manage the blockchain for clients. They will also be accepting Bitcoin as payment. Most importantly, they co-founded the Blockchain Alliance6, a coalition of 25 blockchain companies and 25 regulatory and law enforcement agencies — including Interpol, Europol, the Securities and Exchange Commission (SEC) and the FBI — to educate enforcement agencies about digital currencies and blockchain technology. Other law firms including Holland & Knight see exponential growth of attorneys laboring in this discipline.
Holland & Knight’s Dewey said he believes the definition around smart contracts can be varied. For the purposes of this conversation, it is snippets of code that can change the ledger or a legal contract that is implemented on the blockchain. Of course, he outlined several benefits and challenges to this new innovation in the area of smart contracts:
- Smart contracts are coded so there is less ambiguity than prose;
- Verification can be achieved even within a trustless environment;
- Self-executing; so once released, it is difficult to impede execution; and
- Integrates well with IoT, artificial intelligence (AI) and machine learning.
- Must balance transparency with privacy concerns;
- Infrastructure needs to be updated;
- Lack of experience with blockchain technology in IT departments;
- Lack of education and understanding of the technology in other departments, including compliance;
- Development of uniform standards and protocols; and (of course)
- Need to overcoming custom and tradition (e., change is hard.)
So a real world example of how a smart contract was implemented can be seen in how Barclays did it with an interest rate swap prototype. Essentially, the investment bank set up an incubator of coders who worked with their legal department to understand how these swaps (trades) worked legally. They distilled three lines in the process that could be coded — (x) the amount of cash; (y) the interest rate; and (z) the currency. Once this information was garnered, the transaction could be solidified and then stored on a blockchain.
One of the most surprising revelations of the session came from Dewey when he stated: “Big news for attorneys, existing law — passed well before blockchain technology was contemplated —not only validates transactions, including the trading of credit interests accomplished through the use of the technology we are discussing, but as a matter of policy, strongly supports it.”
There is little question that this is an industry that will be growing rapidly over the next few years. Many firms are moving forward with practice areas and educating their attorneys on the technology to better position themselves for the coming wave.
Lastly, Dewey added some additional encouraging words surrounding the future of blockchain. In May, the State of Delaware — which is home to almost two-thirds of the Fortune 500 companies — announced a Blockchain Initiative so that corporate filings can be added to the ledger. “This is a clear sign that blockchain technology will have a significant impact on business,” he said.