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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62 LEXPERT MAGAZINE | JUNE 2018 | BLOCKCHAIN TECHNOLOGY | Martineau Dumoulin LLP (Fasken) and Gowling WLG were making no bones about the potential they saw in the new technology. "e demand for legal advice in this arena has grown exponentially in the last 12 to 18 months," says Mike Ste- phens, a corporate finance and mergers and acquisitions (M&A) lawyer in Fasken's Vancouver office. "But the growth has been steady since 2013, and moving in leaps and bounds for a few years now." Still, the frenzy surrounding the wild swings in the price of bitcoin over the last year and the speculation regarding the fu- ture of cryptocurrency in general has over- shadowed the potential of the underlying technology, known as blockchain, as a dis- ruptive force in the business world. "Blockchain, bitcoin and other crypto- currencies could create very widespread disturbance because they are horizontal technologies that will affect a multitude of vertically-integrated industries," says Us- man Sheikh in Gowling WLG's Toronto office. "It is only the rare industry that will be immune." All the more so because blockchain ap- plies to the world as we know it, operating on things that are already happening, as it were. "e magic is not that there's a new species of transaction, such as cryptocur- rency trades, taking place," says Dan Logan in Baker McKenzie LLP's Toronto office. "It's still a trade, but the distributed ledger that's at the heart of blockchain technology allows it to happen much more efficiently and transparently." at's why Stephens believes that busi- nesses that ignore blockchain will soon be running behind the train. "Every organiza- tion that has a visionary CEO is seriously looking at how to bring blockchain into their business model," he says. "Everyone, from parking lot companies to fish canner- ies, wants to talk to their lawyers about it." Certainly, general counsel (GC) and their legal departments are hearing a lot more from their clients about blockchain. If they're not, they should probably be ask- ing why, and perhaps leading the charge. "e question is whether a particular in- dustry and its counsel want to pivot their business to take advantage of or be ahead of the disruption or whether they will wait to follow others," Sheikh says. Some observers compare blockchain to Napster, the music-sharing technology. Both are virtual and peer-to-peer, in the sense that they do not require a central- ized server to function securely. In effect, the technology casts aside middlemen or conduits like financial institutions and re- places them with self-directed computer networks whose core is a transparent but unchangeable distributed ledger open to all members of the network. "Blockchain, like the Internet, will change transactions the way that the Internet has changed com- munications," says Christian Jacques in Fasken's Montreal office. Individual blockchain transactions are unique and identifiable. ey cannot be copied and can only be transferred once. Transfers occur when a holder signs a transaction with a private digital key and records it on the shared ledger. e transac- tions can be seen, but not altered, by any- one on the network. [See Tip Sheet] "Blockchain is a technology that revolu- tionizes the transmission of information, creating a fundamentally different way of recording and verifying transactions where multiple computers widely dispersed across the planet execute an algorithm initiated by one of them but confirmed by them all through an answer that is held in the block- chain," says Ross McGowan in BLG's Van- couver office. "It's very difficult to interfere in the process because someone trying to do that would have to get to all of the com- puters involved." Because blockchain focuses on elimi- nating the middleman, it can create a vast decentralizing effect to which business may find it difficult to adjust. "Blockchain has none of the hierarchies that we have be- come accustomed to in government and business," says Toronto-based Conrad Druzeta, co-head of Bennett Jones' block- chain and fintech group. "It requires a shi of thinking that replaces a central author- ity with a code of blockchain that will itself set the rules of the game." From a legal perspective, the "smart contract" aspect of blockchain technol- ogy may be of the most direct interest to in-house counsel and other lawyers. Here's how Don and Alex Tapscott, co-authors of Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World, describe the technology: "Smart contracts are a form of a program that gives certain conditions and outcomes to money. If there is a transaction between two people, this program can be used to help verify the product or service and whether or not it was fulfilled. Once it has been verified, it can then be transferred to the person's account." According to a report by Mark Walport, the United Kingdom (UK) government's chief scientific adviser, distributed ledger technology can reduce the cost of paper- intensive processes, including contracts. Smart contracts, Walport stated, can pro- vide "cryptographic certainty that the agreement has been honoured in the led- gers, databases or accounts of all parties." No surprise, then, is the Tapscotts' ob- servation that expertise in smart contracts "could be a big opportunity for law firms that want to lead innovation in contract law." e opportunity could be just as > ROSS MCGOWAN BORDEN LADNER GERVAIS LLP Blockchain is a technology that revolutionizes the transmission of information, creating a fundamentally different way of recording and verifying transactions where multiple computers widely dispersed across the planet execute an algorithm initiated by one of them but confirmed by them all through an answer that is held in the blockchain.