Blockchain & Cryptocurrency Wadih Pazos Justin Wales Senior VP, WhiteOwl/PaperSave & Chair of Blockchain & Digital Currency Practice, Principal, MBAF Carlton Fields
Introduction Justin Wales • First became involved in Bitcoin in late 2010. • Became a First Amendment attorney upon graduating from law school in 2012. • As the industry grew, practice became more transactional and regulatory. • Founded and became Chair of Carlton Fields’ Blockchain and Virtual Currency Practice in 2017. • Represent: – Exchanges, Wallets, Token issuers, Traders – Advises institutional clients (logistics, healthcare, insurance, telecommunications, etc.) on adoption of new technologies.
Introduction Wadih Pazos • Software Architect specializing in Business Process Automation • Envisioned PaperSave, a leading Document Management & Workflow product providing solutions in Accounts Payable Automation, Donation and Donor Management, Contract Management, Collaboration and more. • Have followed blockchains, bitcoin, and cryptocurrencies since 2011 • I believe that this innovation has made and will continue to make an impact on information technology and the many industries that rely upon it
What is a Blockchain?
What is a Blockchain? • A vast, global ledger or database running on millions of devices • Accessible to anyone, but insulated from hacking or alteration by its redundancy on myriad devices • Provides an accounting and repository of currency, titles, deeds, identities • Votes can be verified, moved, stored, and managed securely and privately
What is a Blockchain? Continuation • Trust is assured through mass collaboration and clever coding, rather than through intermediaries susceptible to intrusion and corruption, e.g., governments and banks • All parties have a copy of the ledger in a blockchain and can confirm the status and authenticity of the transaction in real time • Distributed ledgers and consensus algorithms prevent the tampering of data making the ledgers immutable
How is data stored and transmitted on the Blockchain? • Participants in a blockchain can generate unlimited unique addresses (accounts) • When you record the transfer of an asset from one of your addresses to another address, it is broadcast to the blockchain as a pending transaction • The transaction is confirmed through consensus algorithms that end in the permanent recording of a block in the blockchain
Visualizing the Blockchain The ledger is a chain of blocks! Each block is created with a pointer to the previous block creating a blockchain.
VISUALIZING THE The ledger is copied and distributed amongst nodes.
Visualizing the Blockchain The nodes reach consensus on a new block after the miners verify the validity of a new set of transactions and include those transactions in a new block.
Why Should We Care? • A blockchain allows for trustworthy transactions among multiple parties. • Or, more importantly, it allows transactions without trust of a third-party intermediary.
What Can Blockchains Do? • Be applied to any multi-step transaction that requires traceability and visibility. • Build supply-chain networks to govern all phases of trade transactions. • Take the friction out of settling securities transactions. • Reduce financial services industry compliance costs by providing hack- resistant means to self-verify and authenticate transactions. • Address the piracy, control, and monetization issues that plague the music industry in the digital age. • Record real estate deeds securely, executing and recording financial transactions over the internet.
Why is it important? • Healthcare – manage patient medical • Finance – effectuate stock trading data • Estate Planning – manage ownership • Voting – reduce and possibly eliminate of assets and wills voter fraud
What Can Blockchains Do? • Hacking a blockchain is computationally (and therefore economically) prohibitive • By current estimates, to hack the bitcoin blockchain, you would have to purchase over $1.5B of computer hardware • Cost to run it perpetually would be $2.8M per day • Redundancy is created because the transaction ledger is stored across a distributed network of computers • There is no central point vulnerable to failure
Public vs. Private Blockchains
Main Differences • Who can participate in the blockchain • Governance – who manages the nodes • Monetary incentives for network operation • Visibility, immutability, security, privacy
Blockchain property or function Public Private Decentralized and operates over a peer to peer network Facilitates the transfer of data between network participants (addresses) All information is appended to the ledger and synchronized across nodes through consensus Difficult to modify or tamper with the data on the blockchain due to consensus requirement Fault tolerant - All nodes on the blockchain hold copies of the ledger Participation is open to the public Authentication/authorization is required for participation Monetary incentives for network operation/consensus Ledger is completely open, transparent, and immutable Managed permissions for viewing data and or blockchain history Immutability is governed by the network operator
Smart Contracts
Smart Contracts • Smart contracts are a type of address on a blockchain containing code • Contract code can execute when assets transfer into the address to automate the enforcement of terms in a real world contract • The smart contract code can perform any action based on conditions including forwarding an asset to other addresses, storing an asset in the contract address (escrow) and more • Do not replace legal contracts, but automate their execution
Smart Contract Example Car Leases in the Future? • Car company uses a blockchain to accept digital payment • Customer sends their monthly payment into a smart contract address that automates terms in their lease agreement • The code within the smart contract can also be triggered if payment has not been received into the contract address by the monthly due date • The smart contract can safely deactivate the car remotely due to non- compliance with the terms of the lease • Sending in a payment + appropriate late fees into the contract address triggers the smart contract to reactivate the car
Blockchain Applications
Decentralized Applications (dApps) New Intermediaries • Decentralized applications (dApps) run on blockchain. • Enabled through decentralized consensus and trust protocols. • Authority and trust are transferred from central authorities to the blockchain. • Data is managed and maintained by the blockchain and not by a central authority. • Fees and rewards for supporting consensus are used to monetize the operation of blockchain.
Cryptocurrency Public dApps Disrupting Centralized Banking • Crypto transfers are done without an intermediary and is recorded on the respective crypto’s blockchain • Each address owner holds record of all of the crypto transferred to his / her address (account) and controls the ability to transfer their crypto to other addresses • Node operators are compensated for consensus and data storage with rewards and transfer fees • Immutable and irrefutable transaction history that is publicly available
Challenges
Is Blockchain Ready? Significant Challenges • Underdeveloped ecosystem • Quality of project ideas infrastructure • Critical mass of users • Lack of mature applications • Quality of startups • Scarcity in developers • Venture capital • Immature middleware and tools • Not enough qualified individuals • Scalability • Costs issues • Legacy systems • Few best practices • Tradeoffs with databases • Unclear regulations • Privacy • Government interferences • Security • Compliance requirements • Lack of standards • Hype • Moving assets to the blockchain • Taxation and reporting
Cryptocurrency & Regulations
Regulating New Technologies • Regulators are trying their best but are in a difficult position. – On the one hand, they are being asked to adapt quickly to new technologies that they may not understand in order to protect the public – On the other hand, overregulation or uninformed regulation can either prevent innovation or create ineffectual laws • Early challenges in regulating crypto: – Bitcoin/Crypto/Smart Contracts are often lumped into one category, so proposed regulations often lack the nuance necessary to create practical regulations – So no one really knows how to describe these things
Source of U.S. Legal Concerns • Federal Laws & Regulations – Securities & Exchange Commission – Commodities Futures Trading Commission – Internal Revenue Service – Financial Crimes Enforcement Network • State Laws & Regulations – State money transmission regulations – State frameworks – i.e., New York’s Bitlicense
Battle Royale • FinCEN – View at least some crypto as a currency • IRS – Views at least some crypto as property • SEC – Views at least some crypto as a security • CFTC – Views at least some crypto as a commodity • States – Views at least some crypto as a currency, property, security, or commodity
Recommend
More recommend
