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What it is and why it’s going to change the world

The hype over terms like blockchain, distributed ledger technology, Bitcoin, and ICO may leave many wondering what this is all about. We hope to answer some of your questions and pique your interest in the most exciting technological innovation since the invention of the Internet. If interested, we encourage you to review our Michael Best and Michael Best Strategies’ blog, Blockchain + The Law for a more in-depth understanding of the issues and the firm’s capabilities in this exciting field. We also publish daily the Michael Best Strategies’ Blockchain Cryptocurrency Daily Clips. Click here, if you would like to subscribe.

The history

Distributed ledger technology, or, more famously, blockchain, is an algorithm, or a line of code, without a central administrator. In 2008, an individual, working under the alias Satoshi Nakamoto, proposed and conceptualized the first blockchain. Within a year, blockchain became the core platform for the popular cryptocurrency, Bitcoin. The timing of this innovation is very important. While distributed ledger technology had been proposed, theorized, and discussed since the early 1990s, it only really took off at the height of mistrust in government oversight of the financial sector – the 2008 financial crisis. Before blockchain, there were many issues and concerns with these new and unknown cryptocurrencies. One of the biggest issues was ‘double spending,’ which is the act of using the same digital token on different expenses. In a very simplistic explanation, imagine sending an email with one attachment to two or more people. Technically, you have technically sent the same ‘item’ to different individuals. Now imagine that the attachment was money and you can understand the problem. What blockchain did was it enabled Bitcoin to become the first digital currency to solve the issue of “double counting” without the need for a trusted, third-party’s oversight. This innovation is what helped Bitcoin and other cryptocurrencies explode in popularity, as the lack of trust in governments’ abilities to oversee financial transactions and institutions grew as the world was wrecked by global financial mismanagement.

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What makes blockchain so important

While cryptocurrencies have grabbed the headlines, it is the foundation underlying cryptocurrencies – blockchain — that will completely reengineer how business is done in nearly every industry sector. Blockchain is a decentralized database, or ledger, that records assets, transactions, or actions on a peer-to-peer network. It is essentially a public registry of who owns what and what is transacted. The beauty of the blockchain works without a central regulatory figure because its’ peer-to-peer network and requires over half of the computers in the network within which a transaction is taking place to approve that transaction – a truly community-run system that was built out of the mistrust in the regulatory oversight bodies. While the benefit to transactions involving digital currencies is demonstrated by proving the authenticity of the money is obvious, it is not much of an intellectual leap to see where other industries could utilize this technology: a ledger that records transactions on a peer-to-peer, decentralized network.

Blockchain will revolutionize how business is done

Smart Contracts

Just about every business endeavor involves a contractual agreement. Multi-million dollar business deals simply do not transpire without lawyers hammering out the details and arbitrating the financial aspects of the deal. With blockchain technology, we could see the advent of a new way of conducting contractual business. Following the trend and popularity of decentralized activities, utilizing smart contracts and avoiding costly “middlemen,” expenses can be cut and efficiencies enhanced. A contract between two parties could be written as code into the blockchain and then a triggering event, such as an expiration date or a strike price being hit, will make the contract execute itself according to the terms of the contract that were in the code. An additional bonus to smart contracts is that regulators can use the blockchain to monitor and understand the market activity, and perform their regulatory oversight and enforcement responsibilities much more efficiently.

Crowdfunding

Blockchain increases the potential, and ability, for crowd-sourced venture capital funds. It took Facebook seven years to raise $1 billion from their investors; Uber took five. The popular messaging app Telegram, however, recently launched their initial coin offering (ICO) and, within just four months, managed to crowd fund $1 billion for their business. Wild successes like Telegram’s will only further the popularity of crypto fundraising methods.

Governance

By making election results fully open and transparent and, more importantly, publically accessible (though still anonymous), blockchain could ensure full trust and authenticity in our electoral process. A smart contract, for example, could be coded so that when candidate X wins a majority of votes from the state of Y, they receive Z number of electoral votes, and once a candidate receives 270 electoral votes, the contract automatically executes and declares them the president-elect.

Supply Chain Management

Just about every imaginable industry or business sector uses a supply chain. Whether it is an agribusiness monitoring an ear of corn’s journey from farm to store or a diamond company tracking where their diamonds come from, supply chain management is a crucial part of almost every industry. Blockchain provides an easy way to certify that the ‘story’ the consumer is sold about a product, whether it’s actually French wine, oil not originating from a sanctioned country, truly free trade sugar, or an “ethically-mined” diamond, is true. The transparency originates out of the timestamping of a date and location for each ‘block’ that is added to the ‘chain.’ In addition to authenticity assurances, supply chain efficiency improvements brought upon by blockchain can expedite processing shipments and cut costs.

Cybersecurity

In 2016, Guardtime, the world’s largest blockchain company by revenue, headcount, and customer deployments, successfully secured all one million of the nation of Estonia’s health records on the blockchain. Governments and industry are turning to blockchain to improve cybersecurity infrastructure. This is because of the decentralized aspect of blockchain that ensures there is no single point of failure. Creating peer-to-peer consensus mechanisms with blockchain will reduce fraud and mitigate data tampering. Even more importantly, however, utilizing the blockchain removes the Achilles heel of cybersecurity reliability: human error. Security experts have long argued that humans are the real weakness of an otherwise strong, centralized security infrastructure. They were most recently proven right by the Equifax data compromise. Remove that risk factor from the equation, and you could solve the growing cyber security threats spreading across the globe.

File Storage

Storing files on a decentralized ledger mitigates the chances of losing data from hackers or disruptions to an individual’s access to the network. As the information is distributed throughout the network, the benefits, ranging from convenience to security, are clear.

and many, many more. The innovations have only just begun.

While, the Internet changed the world by drastically improving productivity in almost every sector of the economy, consider blockchain to be the Internet 2.0. The future of blockchain does not belong solely on the platforms of cryptocurrencies, such as Bitcoin and Ethereum. While blockchain’s future is just beginning to unfold, the endless potential applications of this technology will change the world dramatically in the next five years. The next phase of the Age of Information is upon us, presenting businesses with the unique opportunity to be pioneers of this new technology. I encourage you to visit Michael Best and Michael Best Strategies’ new Blockchain, Digital Currencies & Smart Contracts practice, and our blog, Blockchain + The Law, to learn more.

On a final note, if this blog piece was not persuasive enough for you, consider what blockchain founder Satoshi Nakamoto once said regarding Bitcoin: “It might make sense just to get some in case it catches on.”

Bio Link Patrick has been very active in politics since his time with the Talbot County Democratic Forum, where he volunteered for President Obama’s re-election as a high school student. While in college, he volunteered for Monty Mason for Delegate of District 93 in Williamsburg, VA; served as a campaign strategist for Virginia’s 1st District congressional candidate, Norm Mosher; and interned on the Hill for Senate Majority Leader Harry Reid in 2014. Expertise: Tax, Financial Services, Environment, Agriculture, Blockchain, Cryptocurrency, and Energy
Bio Link Anne’s work involves providing strategic planning, policy advice, and representational services to major corporations on federal and state legislative and regulatory issues in the financial services industry, tax and trade, healthcare, infrastructure, and budget policy areas. Expertise: Tax & Finance, Healthcare, Mortgage, and Bond Insurance