Blockchain Technology Will Transform the Practice of Law

The blockchain will not replace the need for lawyers. It will, however, change how lawyers approach contract drafting, administration and enforcement among other aspects of the practice.

In the future, transactional lawyers may draft contracts that resemble how developers code software applications. In fact, future lawyers will likely need basic-to-intermediate training in coding in order to implement smart contracts based on the blockchain — a phenomenon that is already taking hold in the general population. In addition, lawyers will need to understand the intricacies of how these systems work in order to counsel clients on potential pitfalls and best practices in utilizing these systems for their business. Countries, like Honduras, have already committed to replacing their existing real estate records with blockchain technology — which one day could allow for its citizens to sell or buy a house via an iPhone app.

This (blockchain technology) has significant implications for lawyers and the business of law. Ultimately, however, this technology offers a great opportunity for those firms who can innovate. Those firms that are willing to adapt and embrace this technology will be able to provide more effective and efficient services, which will lead to a competitive advantage over those firms who do not evolve.

By Joe Dewey, Partner, and Shawn Amuial, Associate, Attorneys at Holland & Knight

Read the full article here

Banks and Exchanges Turn to Blockchain

The Blockchain — the technology that underpins bitcoin — has been called “the future for financial services infrastructure”. Now banks, clearing houses and exchanges are becoming increasingly excited at the prospect of blockchain fundamentally transforming their business models.

Banks and exchanges see a ledger updated in minutes as saving millions in collateral and settlement costs to third parties.

“Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole,” says Bob Greifeld, chief executive of Nasdaq.

Read the full article published by the FT here:

http://tinyurl.com/BlockchainBanks

Comment:
The Blockchain and its derivative technologies are one of the biggest opportunities in the last 30 years to re-engineer banks and financial services. The key question is whether the banks will fail to reinvent themselves as they did with the Internet, or if they will dare to induce a self-inflicted shake-up and embrace a "Blockchain Banking" technological future with significantly lower costs, less friction and faster settlement and clearing times. 

FT Explainer: 

At present, when one bank sends money to another, no physical currency changes hands. Banks and settlement systems use central electronic ledgers to track assets. But they can be slow and inefficient, often relying on faxes or manual input. That not only wastes time but racks up fees. The system is also open to hacking and fraud.

Proponents say a ledger updated in minutes could savemillions in collateral and settlement costs, while also automating banks’ creaky and expensive back office systems. Collateral could also be moved around the system faster, to meet new rules on derivatives markets implemented after the financial crisis.

Full article here:

The blockchain and financial markets 

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Interview with Gideon Greenspan
"Crucially, banks want permissioned ledgers so they can say who can connect to the network, who can send, who can receive and who can confirm transactions."

"While the bitcoin network expends vast amounts of collected computation power to prevent a 51% attack, private blockchains can employ simple but effective security enhancing techniques such as forced rotation mining patterns.

Greenspan explained: "If there are ten permitted miners (Ed: ie. validators) we could insist that at least eight of them mine in rotation."

Full article from IB Times:

What do banks want from blockchains?

What is a Smart Contract?

Smart Contracts

Smart contracts are self-executing automated digital contracts stored and operated in a distributed blockchain.

A smart contract is an event-driven program, with state, which runs on a replicated, shared ledger and which can take custody over assets on that ledger. 

(An excellent definition of a Smart Contract by Richard Gendal Brown)

 
Smart contracts refer to defined services which are enacted by code on a censorship-proof ledger system - the blockchain. 
Smart contracts are able to securely execute a wide range of services including for example, financial exchanges, voting systems, property (land) registers, crowdfunding platforms, insurance, decentralised auction sites, a decentralised personal identity system, other self-enforcing contracts and intellectual property.

Main features of smart contacts are:

Data Driven Verification
Smart Contracts provide proof of performance by tracking verifiable data, eliminating the risks inherent in traditional paper contracts.

Fully Automated Enforcement
Smart Contracts can be written to execute their own conditions, eliminating the risk of relying on someone else to follow through on their commitments.

Securely Stored in the Blockchain
Smart Contracts are self-executing contractual states, stored on the blockchain, which nobody controls and therefore everyone can trust.

Public or Private Blockchains?

Bitcoin is the first iteration of a public decentralized Blockchain, controlled by no-one and cartel free.
What other options are there? To summarize, there are generally three categories of blockchain-like database applications:

• Public blockchains: a public blockchain is a blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process – the process for determining what blocks get added to the chain and what the current state is. As a substitute for centralized or quasi-centralized trust, public blockchains are secured by cryptoeconomics – the combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following a general principle that the degree to which someone can have an influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear. These blockchains are generally considered to be “fully decentralized”.
• Consortium blockchains: a consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants, and there are also hybrid routes such as the root hashes of the blocks being public together with an API that allows members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains may be considered “partially decentralized”.
• Fully private blockchains: a fully private blockchain is a blockchain where write permissions are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent. Likely applications include database management, auditing, etc internal to a single company, and so public readability may not be necessary in many cases at all, though in other cases public auditability is desired.

Source: read full article:

On Public and Private Blockchains - ethereum blog 
by: Vitalik Buterin

Forbes 9 September 2015: Bitcoin’s Shared Ledger Technology: Money’s New Operating System
See also -IB Times UK, by Ian Allison, 8 September 2015:

Nick Szabo: If banks want benefits of blockchains they must go permissionless
Extract:

"Legendary cryptographer Nick Szabo says the only way to realise seamless, automated, and global financial integrity is if banks embrace permissionless blockchains, like the system Bitcoin runs on.

If banks were to embrace permissionless blockchains they could participate as well or better than the newcomers.

"But their bureaucracies are so heavily invested in the expertise and importance of local regulations and standards that it's extremely difficult for them to cut the Gordian knot and implement seamless global systems."
See also:

"There are many benefits to permissioned ledgers, but the cost of immutability provided by the most popular unpermissioned blockchain is so low, that it makes sense for even a permissioned ledger to utilize it as insurance.

By using the same SHA encryption technology that protects bitcoin balances, I would argue that either the central point (i.e. permission giver) and each of the players in a permissioned blockchain can create a full hash of their blockchain and record it in the Op_Return of a unpermissioned blockchain.  In fact I can see a future where permissioned ledger wallets/nodes vary their chatter to the decentralised network dependent on the level of risk they perceive in the permissioned ledger environment.

By treating a permissioned blockchain almost as a mutable coloured coin asset on a decentralised blockchain, this cheap insurance policy will act to strengthen the immutability of the permissioned ledger, along with the prestige and reputation of the global blockchain."

Read the full article: Permissioned versus un-permissioned Blockchain ledgers?

FT article:
Blockchain promises back-office revolution
"For now the market remains split between three core system approaches: private blockchains such as R3CEV and DAH, known as permissioned ledgers, which make use of trusted networks; open-ended blockchains such as Ethereum, which stay faithful to bitcoin’s original design but improve on the smartness of the ledger technology; and applications designed to take direct advantage of the prevailing bitcoin network."

Definition of Blockchain

What is a Blockchain?

Video: Bitcoin's blockchain technology explained in 2 minutes

Blockchain Definition from Financial Times Lexicon

Blockchain description

A Blockchain is a peer-to-peer public ledger maintained by a distributed network of computers that requires no central authority or third party intermediaries. It consists of three key components: a transaction, a transaction record and a system that verifies and stores the transaction. The blocks are generated through open-source software and record the information about when and in what sequence the transaction took place. This “block” chronologically stores information of all the transactions that have taken place in the chain, thus the name blockchain. In other words, a blockchain is a database of immutable time-stamped information of every transaction that is replicated on servers across the globe. 

Blockchain technology is the foundation of and underpins bitcoin, a decentralized digital cryptocurrency.
In traditional transactions such as money transfers or foreign currency, there is usually an intermediary or a centralized entity that records the transmission of money or currency that exist apart from it. In a blockchain, the token or digital coin itself is what has value, which is determined by the market. This is what makes the system a truly decentralized exchange. When people buy or sell bitcoins, a secret key or token is broadcast to the system. “Miners” use nodes, computers or devices linked to a network, to identify and validate the transaction using copies of all or some information of the blockchain. Before the transaction is accepted by the network, miners have to show “proof of work” using a cryptographic hash function –a special algorithm- that aims to provide high levels of protection. Miners receive some form of compensation for their computing power contribution, avoiding the need to have a centralized system. Newer protocols such as Ripple rely on a different consensus process that does not need miners nor proof of work and can agree on the changes to the blockchain within seconds. 

Blockchain disruption in banking and finance

The first levels of disruption would seem more likely in the payments space where traditional transactions such as money transfers, credit and debit card payments, remittances, foreign currency and online payments, require an intermediary such as a clearing house or a financial institution. In these cases the transaction would occur directly between the buyer and the seller without any intermediary and the validation of the transaction would happen in a decentralized way or “distributed ledger”. This would result in significant infrastructure savings for banks by allowing them to bypass payment networks that are oftentimes slow, cumbersome, and expensive.

However, the biggest potential impact of a public ledger may extend beyond the payment system. Given that the majority of financial assets such as bonds, equities, derivatives and loans are already electronic it may be possible that someday the entire system is replaced by a decentralized structure. In fact, the latest innovations are using tokens to store and trade assets like shares, bonds, cars, houses and commodities. These so-called “colored coins” attach additional information on the asset, generating “smart property” or the ability to record and transact these assets using “smart contracts”, which are enforced by complex algorithms, through distributed platforms without a centralized register, thereby increasing efficiency. In this environment, the current system where financial institutions record individuals’ accounts in a centralized fashion and the banks’ reserves are stored by the central bank (ie. The Federal Reserve or The Bank of England) would be replaced by the “internet of money” or the “internet of finance” – a fully decentralized and independent financial system. 

Source: read full article:
Blockchain Technology: The Ultimate Disruption in the Financial System 
...published by BBVA research

And, what about the Blockchain future?
“blockchain technology…is presented as a piece of innovation on a par with the introduction of limited liability for corporations, or private property rights, or the internet itself” (The Economist)