Lexpert Magazine

June 2018

Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.

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64 LEXPERT MAGAZINE | JUNE 2018 mond sales. On another front, market capi- talization of cryptocurrencies — of which 1565 different kinds were available on the Internet as of April 2018 — already exceeds US$500 billion. Looking further ahead, proponents of blockchain say it will threaten many of the go-betweens who stand between buyers and sellers, including this era's corporate behemoths and innovators: aer all, Uber, Amazon, iTunes and Ticketmaster are just a few examples of companies whose pros- perity comes from being conduits to con- sumers. "As time goes on, people will find more and more uses for distributed ledger technology," Druzeta says. "Everything from housing registries to confirming the authenticity of artwork will be affected in one way or another by this new paradigm." According to statista.com, a statistics portal, the market for blockchain technol- ogy worldwide is expected to grow from US$210.2 million in 2016 to $2.3 billion in 2021. Bloomberg reports that interest in the technology is so intense that when beverage company Long Island Iced Tea changed its name to Long Blockchain Corp. in 2017, its stock price rose almost 300 percent in one day even though it had yet to actually be involved with blockchain. Governments worldwide have taken no- tice. In June 2015, the Canadian Senate's Committee on Banking, Trade, and Com- merce released a report that explained why governments should embrace blockchain technology. Later this year, the federal gov- ernment will publish regulations that gov- ern virtual currency exchanges. In the US, the National Conference of Commissioners on Uniform State Laws have released a dra of the Regulation of Virtual Currency Business Act. e US, Australian and Estonian postal services are looking at ways that blockchain tech- nology can improve their financial prod- ucts like money orders and international money transfers. Jurisdictions as dispa- rate as the State of Vermont and Hon- duras are looking into the opportunities, and the Linux Foundation, the nonprofit organization that enables mass innova- tion through its open-source approach, is spearheading a collaborative effort to advance blockchain technology. Law firms have hopped on the bandwag- on enthusiastically. Fasken, for example, is a founding member of the Global Legal Blockchain Consortium, a non-profit or- ganization aimed at setting operating and governance standards for the adoption of the technology in the profession. Mean- while, Gowling WLG has formed a strate- gic alliance with Toronto-based Decentral Inc., whose founder, Anthony Diiorio, co- founded Ethereum, an open-source, public, blockchain-based distributed computing platform and operating system that gener- ates the popular cryptocurrency known as ether. e alliance is intended to "optimize the many commercial and legal applica- tions of blockchain technology" and to "fuse their expertise on a number of signifi- cant initiatives — from engineering practi- cal smart contract technology and draing foundational legal precedents documents, to helping regulators establish frameworks that encourage the responsible growth of Canada's thriving blockchain sector." The implications for legal depart- ments, then, arise from a myriad of legal, regulatory and business perspectives."In- house counsel better understand what the issues are because many of their companies will have to adapt," says eodore Ling, Dan Logan's colleague at Baker McKenzie in Toronto. "Once they have identified the issues, they need to do the proper due dili- gence and analysis on the steps their clients are taking to confront the blockchain chal- lenge, identify the potential risk and move to mitigate." Doing so is a formidable endeavour, however, largely because it's difficult to envision the legal implications of block- chain without understanding its underly- ing technology — which can be confus- ing. "e complexity comes from the fact that the technology is not identical in all its myriad applications," Logan says. "So in-house lawyers, who are generally not experts in tech-related matters, can be deal- ing with different kinds of blockchain to address different kinds of transaction, with each giving rise to disparate legal issues." Legal implications may vary, also, de- pending on the type of transaction that is the subject of the distributed ledger. "If the contract embedded in the blockchain is a trade, you could be drawn into the entire body of securities law to understand how it applies," Logan explains. "And if you're looking at obtaining information from the distributed ledger, you could be drawn into things like privacy concerns." Finally, access to the network that sup- ports the blockchain could also vary, rang- ing from allowing access from only a few identifiable participants to a completely open system that requires no identifiers other than an IP address. "Blockchain is not one-size-fits-all," Logan says. "Anyone analyzing a platform will have to familiar- ize themselves with all these variables." Recognizing what appears to be the im- pending ubiquity of the technology and its intricacy, the University of Ottawa Faculty of Law has opened a new research lab fo- cused on blockchain and will be offering a new course in 2018-19 entitled "Block- chain Law and Society" concentrating on legal technology issues. The importance of understanding the technology underlying blockchain be- comes apparent on examination of the legal issues surrounding the ICO (initial coin of- ferings) phenomenon, which raised about | BLOCKCHAIN TECHNOLOGY | USMAN SHEIKH > GOWLING WLG Blockchain, bitcoin and other cryptocurrencies could create very widespread disturbance because they are horizontal technologies that will affect a multitude of vertically-integrated industries. It is only the rare industry that will be immune.

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