The use of distributed ledger technology (DLT) in blockchains is an exciting emerging area which is revolutionising how businesses and individuals transact with one another.
Put simply, a blockchain is a distributed database. As such there is no one ‘master version’ that resides in a central location. Instead, all devices on the network (nodes) collectively build and maintain blockchains, approving new entries (blocks) by setting and solving cryptographic puzzles of varying difficulty.
To date blockchain is best known as the the underlying technology behind the Bitcoin cryptocurrency and Ethereum platform.
What are the commercial use-cases of Blockchain?
While bitcoin and other cryptocurrencies will continue to become more sophisticated, and may come to challenge fiat currencies in the future as a store of value, blockchain solutions are also set to transform businesses, particularly those which involve evidencing ownership of physical and digital assets and documenting transfers of ownership.
Beyond cryptocurrencies we see the following as some of the major disruptive use-cases of blockchain solutions:
- Real estate – through its Digital Street project HM Land Registry is actively pursuing an enterprise blockchain solution through the R3 Corda platform to increase transparency and reduce friction in property transactions in England and Wales.
- Supply chain – the nature of blockchains (that they are extremely difficult to alter) make them well suited to retail and supply chain applications, allowing manufacturers to evidence the history of a product from field or factory to consumers.
- Commercial transactions – we expect to see transactional due diligence to be increasingly automated and augmented, aided by blockchain solutions.
Public blockchain vs enterprise blockchain
It is important to note the differences between public and enterprise (private) blockchains.
Public blockchains such as Bitcoin or Ethereum are permissionless. Any user can participate (including reading and writing) and all users are aware of all transactions. Key themes are trust (or rather a lack of trust) and anonymity.
Enterprise blockchains are permissioned networks with rules on smart contracts, with role based access rights, so that data is only sent to the relevant participants in a particular transaction (along with any defined observers). These blockchains are best seen as a way of augmenting existing solutions, and are focussed on privacy, interoperability and scalability. Example platforms include Hyperledger, Quorum and R3 Corda.
Applying our legal services to your blockchain infrastructure
We can help navigate issues relating to blockchain and DLT, both by interpreting existing legislation and staying abreast of new regulation as regulators and governments are considering the new issues presented by this nascent technology.
Existing contractual principles will continue to apply, for example there is a jurisdictional issue to be dealt with. Since nodes can be anywhere in the world it could be argued that a blockchain is subject to a vast array of different legal regimes. This can be remedied through the use of an exclusive governing law and jurisdiction provision, which provides parties with certainty about the relevant regulations and forum for any disputes that may arise.
Our lawyers understand the technical concepts around blockchain, for example hashing and difficulty levels. We know what smart contracts can be used for today and are able to highlight their current limitations.
What is the future of blockchain in law?
As an area which remains in its infancy, it is difficult to predict the future with any degree of accuracy. However, we expect focussed regulation to emerge as regulators develop a better understanding of the opportunities and risks presented by blockchains, which is in turn likely to lead to enforcement action.
Smart contracts will be used more frequently, but for the time being will be limited to automating and lowering the cost of entering into repetitive low value transactions.