I recently attended the American Bar Association’s annual institute on blockchain technology, digital currency, and ICOs (initial coin offerings). Some might view these new technologies as libertarian, even revolutionary. Others might call it anarchy with hype reminiscent of the dot-com bubble. For attorneys, it is crucial to understand the commercial potential of these new tools if we are to properly advise clients about safely conducting business and limiting liability and risk. We may also face possible ethical responsibilities, as the chairman of the Securities and Exchange Commission (SE”) has called on attorneys to act as gatekeepers to maintain “high professional standards” in this developing field.
The ABA Institute was a talk-shop for lawyers and regulators about legal issues swirling around emerging distributed ledger technologies (DLTs). DLTs attempt to create a reliable means for anonymous strangers to conduct business directly and to value and exchange assets. There is supposed to be no need for trust derived from a government banking system or achieved through due diligence about the character of a seller or buyer. DLTs attempt to create a “trustless” system—without the need for traditional hallmarks of surety—by using a decentralized (i.e., distributed), continuously synchronized database (i.e., ledger), accessible to all participants. Everyone can see what is happening in near real time. Blocks of information linked together in chains keep track of ownership. Every transaction has a permanent timestamp and encrypted identification code, which creates an immutable record of the deal. The users decide the validity of updates to the database by consensus. There is no supervising intermediary, like the government, overseeing the process.
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