Blockchain Law 101: Understanding Blockchain Technology and the Applicable Laws, 0219 KSBJ, 88 J. Kan. Bar Assn 2, 40 (2019)
| Author | by Dave Berson and Susan Berson. |
| Position | 88 J. Kan. Bar Assn 2, 40 (2019) |
by Dave Berson and Susan Berson.
Blockchain software technology has rapidly evolved from a few bitcoin software nodes ten years ago to a multi-billion dollar industry backed by Wall Street, Silicon Valley, and major banks. Blockchain software, which permits the maintenance of a public ledger secured by cryptography, can be used to increase the speed and lower the cost of consumer and business transactions Block.
Expect that within the next decade, small businesses which choose to utilize the technology will be able to purchase software to issue their shares of stock as digital tokens, rather than as paper certificates. Likewise, state and local governments which choose to implement the technology will be able to purchase software to permit real estate transactions to be instantly recorded through “smart contract” software. Smart contracts utilize electronic signatures and metadata, rather than physical flings. Banks will be able to permit their customers to utilize blockchain-based software that will enable instantaneous and irrevocable transfers of funds between bank accounts (rather than on a delayed basis using wire or ACH transfers).
Tis article will provide you with the basics of blockchain technology and an overview of the applicable laws and regulatory framework that apply to it.
Blockchain Technology
Blockchain software creates a transaction ledger database that is secured by cryptography and shared by a distributed network of computers. The blockchain software records and stores every transaction that occurs on the computer network. All of the computers on the network can view all of the block-chain records, with any change to the distributed ledger being visible to everyone.
Blockchain software can create a blockchain that is either decentralized or centralized. The differences between these two types of blockchains are as follows: • Decentralized. Decentralized blockchain technology is used in the creation of cryptocurrencies (such as Bitcoin) and other digital assets. In a decentralized and public block-chain, anyone can download software to send and receive funds, without the need for a centralized financial institution (such as a bank) to process the transactions. Transaction processing is done through a decentralized mesh of computers located around the world, with anyone being able to operate a computer node to process transactions.
• Centralized. Centralized blockchain technology is used in the creation of secure and high-speed record-keeping by businesses and governments. A significant amount of centralized blockchain software development is being done using IBM’s Hyperledger Fabric software. Access to a centralized blockchain is restricted, with only known participants being permitted to process and view records on the blockchain. Centralized blockchains are usually distributed among fewer computer nodes. The advantage of centralized blockchains is that they can currently process records and transactions at a higher speed, and with a lower energy cost, than decentralized blockchains.
Here are some examples illustrating how blockchain technology is currently being implemented by businesses and governments:
• Deed Recordation. In the United States, the high-speed recordation of real estate deeds through the blockchain has been tested in Cook County, Illinois, and South Burlington, Vermont. In addition, deed recordation through blockchain software has also been tested internationally in Brazil, Dubai, Georgia, and Sweden.
• Automobile Recordkeeping. In May 2018, Ford, General Motors, BMW and Renault formed the Mobility Open Blockchain Initiative (MOBI). The intent of MOBI is to create common standards for blockchain software related to such data as vehicle identity, vehicle history, and supply chain tracking,
• Higher Speed Funds Transfer. In September 2018, two New York non-depository trust companies (Paxos and Gemini) launched FDIC-insured “stablecoins,” with each digital token backed by a stable $1.00 in value. In December 2018, Signature Bank, a New York bank, announced the launch of a...
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