When Satoshi Nakamoto (pseudonym for unknown author) created the cryptocurrency Bitcoin on October 31, 2008, he envisioned the possibility of transacting payments without the need of a third party authenticator or government entity and international payments free of conversion rates. This new, decentralized system of recording transactions marked a disruption for traditional banking, because cutting out the need for a trusted third party removed banks from the transactions altogether. Nearly eight years have passed since its inception, and to the delight of bankers everywhere, Bitcoin has not been as widely-adopted as previously anticipated. Out of Bitcoin’s creation, though, has come a promising new technology that has vast applications: Blockchain.
In the practice of Bitcoin, blockchain acts as a giant shared ledger of all the transactions made with each Bitcoin and who owns it. The “blocks” of transaction information are “chained” together, providing a verified history of transactions and preventing any Bitcoin from being spent multiple times, traditionally a weak point of other online currencies. While traditional bank ledgers for physical currency can be altered by a single bank or government, Bitcoin blockchain requires rewriting the thousands of copies held by “miners”, the other parties adding transaction records to Bitcoin’s public ledger of transactions. To falsify any record of transaction, over 50% of those very records would need to be changed to agree on that bogus transaction. While this is not necessarily impossible, the computing power needed to overwhelm the system makes it incredibly secure, proven by the history of numerous failed cyber-attacks.
Blockchain, also known as distributed ledger technology (“DLT”), has numerous applications outside of Bitcoin. New applications for DLT are popping up daily, with one of the most ambitious crypto-ledger projects, Ethereum, attempting to apply it to “smart contracts.” This contract would simply be verified if each party satisfied its side of the contract. The technology is still in its infancy though, and increased funding and investment will be necessary to launch it to its full potential. With untold functions, the disruptive future capability of blockchain to the current norm is almost a certainty.
Delaware Governor Jack Markell announced his support at the May 2016 Consensus Conference in New York for legislation to allow companies to distribute corporate share ownership through DLT. Simultaneously, the Governor’s office created a blockchain Initiative. This project is highlighted by (as spelled out on the Global Delaware website):
- the assurance that virtual currency and blockchain businesses will not face new proscriptive regulation in Delaware;
- the Governor’s support for the amendment of Delaware law to accommodate distributed ledger shares;
- the appointment of Andrea Tinianow as the state’s Blockchain Ombudsman to spearhead the effort, and the state’s Legal Ambassadors (the Blockchain Technology Team at Pillsbury Winthrop Shaw Pittman); and
- the launch of a proof-of-concept with Symbiont – a blockchain technology provider – to develop distributed ledger solutions for archival records.
Blockchain and DLT currently have two large legal challenges slowing their adoption in Delaware. The first is the state does not have laws governing the use and practice for distributed ledger shares. The second is more ambiguous: settlement finality of blockchain is unproven. Since settlement finality is described as the moment when ownership is transferred and irrevocable, the practice of trading custody of blockchain and verifying it through majority voting may not be concrete enough. Luckily for blockchain proponents, Governor Markell’s support marks one of the first government-backed attempts to make distributed ledgers more common.