By Louis Lehot, a business and technology lawyer at Foley & Lardner LLP in Silicon Valley
Much of blockchain's success in the last 10 years has been connected to cryptocurrencies, but distributed ledger technology is set to become mainstream with new launches opportunities in multiple markets.
Originally, blockchain was created with bitcoin to give power back to the people. Since it was originated, blockchain has expanded far past cryptocurrencies and has been growing exponentially. Blockchain has become so valuable because it allows us to own our digital goods, assets, and data. In fact, estimates suggest that blockchain technology has been adopted by over one-third of the world's companies. In the future, blockchain's influence will affect virtually every part of your life, such as how you purchase goods - from clothes to houses.
There are two types of blockchain – permissionless, which is public and permissioned, which is private. Today, participants use pseudonyms to protect their identity with permissionless blockchains, and there is no identification of participants, while permissioned blockchains are protected by access priviledges. And permissionless blockchains are considered much more reliable because of the consensus principle.
Today, blockchain allows several uses, including Tokenization to protect data, unalterable timestamping, the transfer of assets through a payment channel, and facilitating smart contracts. Blockchain has been used to make processes more efficient by replacing tasks or by providing a brand new blockchain service.
In fact, by 2023, the global blockchain market is set to reach over $20 billion, showing how quickly businesses will likely adopt blockchain. The most influential companies across the globe have all turned their attention toward blockchain including tech companies like Apple, Microsoft, Google, Amazon, and Facebook who are investing billions in powerful technology.
Why is blockchain so attractive to businesses? First, it reduces and points of contact, which improves overall company efficiency and growth. It has been said that the adoption of blockchain technology will save more than $100-$150 billion by 2025. Overall, blockchain's adoption will reduce the costs of personnel, support, operations, IT, data breaches, and much more.
Still, despite the many advantages, we have to also know the legal implications, risks, and opportunities. Stakeholders in blockchain solutions must ensure that their products comply with a legal and regulatory framework. From a commercial law perspective, smart contracts must be contemplated for negotiation, execution and administration on a blockchain - in a legal and compliant way. Additionally, liability needs to be addressed.
There are also public policy concerns that should be taken into account in shaping new laws, rules and regulations. For instance, permissionless blockchains can be used for illegal purposes including money-laundering or circumventing competition laws. Participants may be exposed to actions on the part of the "miners" who create new blocks, and unfortunately, there are not current legal remedies for addressing corrupt miners.
While lawyers and technologists explore these issues, there are solutions being considered. One possible solution consists of a hybrid model of permissioned and permissionless blockchains. And, some transactions require intervention by a responsible party, like when Know Your Client regulations are in play - all participants in blockchains and smart contracts where data is exchanged are data controllers, meaning participants must comply with the rules. In addition, another consideration is what goes on the chain or what goes into the smart contract and off-chain. The recent regulatory push for increased data with trends like controlled free trade, increased border security, and accreditation of economic operators, creates higher compliance costs, which means that parties trading globally need higher supply chain visibility and security.
Global trade involves parties beyond the buyer and seller, including regulatory authorities, financial institutions, shippers, brokers, insurers, etc.. There are many exchanges of data among participants, offering opportunities for implementing a blockchain to record invoices, bills of lading, and customs compliance. As the technology of blockchain matures, global trade supply chains will continue to use the technology with the authorities monitoring transactions and compliance with customs declarations, duty payments, and sanctions rules
No one can predict how the future will hold, but it’s certainly clear that blockchain will play a key role.
Louis Lehot:
Louis Lehot is a partner and business lawyer at the international law firm, Foley & Lardner LLP. Louis operates from three of the firms’ offices based in Silicon Valley, San Francisco, and Los Angeles. Louis Lehot is a member of several teams and groups in the firm such as the Private Equity & Venture Capital, M&A and Transactions Practices, and also the Technology, Health Care, Life Sciences, and Energy Industry Teams. Louis Lehot assists and advises his clients at all stages of their career, guides them to achieve hyper growth, go public, and obtain optimal liquidity events through an array of legal and business instruments, processes, and strategies. He has experience in handling a number of high tech cases in different fields, and is known to be one of the leading corporate lawyers in the San Francisco and Silicon Valley area. He is likewise acclaimed by his peers and press. The Chambers of USA quoted “Louis Lehot is known for the high quality of his advice, his responsiveness and passion for his clients.”
