Technology in the Law Practice
BY ERIC KINTNER
Blockchain, the distributed ledger technology at the heart of cryptocurrencies like Bitcoin, is one of the most talked about new forms of technology today. Proponents claim that blockchain technology is one of the most innovative technologies of the 21st century and has the potential to bring the biggest change to modern life since the introduction of the Internet. This article describes blockchain technology and how government regulators have started to address the challenges presented by blockchain-related activities and cryptocurrencies. It also discusses potential implications for lawyers and the legal profession at the dawn of this blockchain era.
What is Blockchain?
Blockchain is a type of database technology in which data is stored on a network of distributed ledgers in a chain of blocks or “blockchain” that is protected with cryptography. The first use case for blockchain technology was Bitcoin, the peer-to-peer digital cryptocurrency. Bitcoin allows an individual to transfer digital currency to another person without an intermediary, such as a bank, having to process the transaction. Today, there are over 1,600 cryptocurrencies with a total market cap of approximately $350 billion.1
Traditional, centralized ledgers are used by banks, Internet companies, and other intermediaries to track transactions over time. The problem with centralized ledgers is they require trust that the holder of the centralized ledger will not be hacked or lose the data, or, even worse, steal the data or extort network participants for access to or maintenance of their data. Blockchain ledgers, in contrast, are distributed across the network so that each network participant—or “node”—maintains an identical copy of the ledger. As a result, no single node can control data in the network.
To add a new transaction to the blockchain ledger, the transaction is broadcast to the network and then linked with other transactions into a single block. Each block of data includes a small piece of data that connects it to the previous block. This block is then encrypted so that the entire set of data in the block is represented by a fixed set of random numbers and letters called a hash. If a malicious actor were to try to modify just one bit of data in a given block, the hash for the entire block...