Blockchain Technology: Why Law & Finance Won’t Look the Same in 5 Years (Part 1)

Topics: blockchain, Law Firms, Legal Innovation, Midsize Law Firms Blog Posts

blockchain

Distributed ledger technology — more commonly known as blockchain technology — is moving from theory and white papers to the prototyping stage, and in limited cases, real world implementation.

This transition from discussion to implementation is occurring at a much faster pace than most expected — including this author. Its adoption is being driven in large part by the prospect of greater efficiency and cost savings, which at scale can potentially be game-changing for several industry, including legal.

Beyond just its value proposition, however, the blockchain development community has grown from largely a collection of hobbyists and academics to some of the world’s largest technology companies, including IBM, Microsoft and Intel — all of whom are devoting significant resources to advancing blockchain technology. In addition to those developing the technology, the list of industry players deeply committed to adopting the technology has grown exponentially over the last couple of years, and now includes Banco Santander, Barclay’s and Nasdaq, just to name a few. This synergy of development resources and innovative financial giants has created the perfect environment for blockchain to reach mainstream use rather quickly.


Beyond just its value proposition, however, the blockchain development community has grown from largely a collection of hobbyists and academics to some of the world’s largest technology companies, including IBM, Microsoft and Intel — all of whom are devoting significant resources to advancing blockchain technology.


If you avoid being distracted by its granular technicalities, the technology itself is rather straightforward. As with operating systems for computers (e.g., Windows, MacOS and Linux), there are different variants of blockchains under active development, including Bitcoin, Ethereum and Hyperledger Fabric, again just to name a few.

The purpose of a blockchain is to maintain a ledger of information. In the case of Bitcoin, probably the best known example, its ledger is used to keep track of every Bitcoin transaction that has ever occurred.

However, Ethereum’s ledger is more robust than Bitcoin’s. While Ethereum can also be used to keep track of its native cryptocurrency (known as Ether), its ledger also doubles as a virtual computer that can run computer code to manipulate information stored in its ledger. Think of Ethereum as Excel on steroids. While capable of being implemented as a private ledger, both Bitcoin and Ethereum saw their technology developed as public blockchains.

Many other protocols under development today are targeting what are known as “permissioned ledger” use cases, where participants that have access to the ledger must be authorized. These permissioned ledgers are the predominant focus of the finance industry due to privacy and data security concerns.

In my next post, I will discuss the key attributes of a blockchain which make it so attractive.