Cryptocurrency 2018: When the Law Catches Up with Game-Changing Technology
Starbucks – a trust legitimiser for blockchain?
By Cameron Abbott and Samantha Tyrrell
In a recent quarterly investor call, Starbucks’ Chairman Howard Schultz discussed the possibility of incorporating blockchain technology into Starbucks’ impressive digital repertoire.
Starbucks’ commitment to being a first mover when it comes to disruptive technology has already resulted in the hugely successful implementation of its mobile payment app, launched in 2015. The app allows users to order, pay and accrue rewards remotely and now accounts for nearly one third of Starbucks’ US transactions. According to Schultz, these figures may warrant a move towards integrating some entirely cashless stores throughout the US.
K&L Gates Becomes One of First Major Law Firms to Implement Own Private Blockchain
Contact: Jeffrey J. Berardi
K&L Gates has undertaken plans to establish an internal, private and permissioned blockchain to assist in the exploration, creation, and implementation of smart contracts and other technology applications for future client use.
“We are hearing from our lawyers globally who are excited about getting hands-on experience working with blockchain applications,” commented K&L Gates Global Managing Partner James Segerdahl. “By investing in this technology that is expected to significantly impact the practice of law, K&L Gates is committed to finding practical and timely solutions that benefit both our clients and the firm.”
Meet us at Money20/20!
K&L Gates is excited to be a part of Money20/20, the largest global event focused on payments and financial services innovation! Join us from October 22nd – 24th in Las Vegas, U.S.
We have several exciting events and programs taking place during the conference.
Blockchain for the humanitarian sector
A network of global charities has begun using blockchain to provide costs savings and transparency to donations. Organisations including Oxfam, Save the Children, Mercy Corps and Christian Aid are three of the 42 members of the Start Network, which trialled the use of blockchain in humanitarian projects last year. The group will work on the project with start-up fund management platform Disberse.
Disberse uses blockchain, which records all transactions in a distributed digital ledger, to try to ensure that less money is lost on exchange rate fluctuations and traditional banking fees. It will also help charities to fight fraud, by tracking all transactions. The ultimate aim would be to track every dollar in aid, from original donor to each individual assisted.
European Commission to set up a blockchain observatory
By Giovanni Campi and Jonathan Lawrence
The European Commission recently announced that it is working on setting up an EU blockchain observatory. This will be a pilot project to build up technical expertise and regulatory capacity on topics related to blockchain and distributed ledger technology (DLT).
The EU blockchain observatory is being developed under the framework of the European Commission’s Task Force on FinTech, which was established following the adoption by the European Parliament of an own-initiative report on virtual currencies on 26 May 2016. Co-chaired by the European Commission’s Directorate Generals on Financial Services (DG FISMA) and on the Digital Single Market (DG CONNECT), the Task Force was set up in November 2016 to explore policy responses to FinTech. It is expected to deliver its final recommendations in the course of 2017.
U.S. Government Accountability Office Issues Long-Awaited Report on Fintech Industry
By Judith Rinearson and Eric A. Love
The U.S. GAO has issued a long-awaited report on the fintech industry, which focuses on the regulation of marketplace lenders, mobile payments, digital wealth management platforms and distributed ledger technology (“DLT” – often referred to as blockchain). For each of these fintech industry “subsectors,” the GAO report details the nature of the subsector and how it operates, as well as its potential benefits and risks. Moreover, the GAO report addresses industry trends, regulation and oversight for each subsector.
Marketplace lenders. The GAO report indicates that marketplace lenders may provide expanded and quick access to credit at lower cost than banks, although the report also notes risks related to loan term transparency and certain protections for small business borrowers. Read More
Blockchain Has a Perception Problem
By Tyler Kirk
The International Monetary Fund (“IMF”) just wrapped up a panel on “FinTech and the Transformation of Financial Services” here in Washington, DC. Presenting 4 propositions, the IMF invited the panelists and the audience to vote on whether they agreed or disagreed with each. Following the panel’s discussion on each proposition, the votes were compared. To the exclusion of all other Fintech topics, there was an almost singular focus on blockchain in each panelist’s response to the propositions. This focus by itself is illuminating, however the audience and the panel diverged dramatically on one proposition, whether FinTech will help rather than hinder regulation of AML and combatting the financing of terrorism (“CFT”). The panel agreed, 92% to 8%, that FinTech would assist with AML and CFT efforts. The audience was essentially split, agreeing 57% to 43%. Similarly, 40% of the audience believed FinTech posed a threat to financial stability while only 17% of the experts shared that view. The takeaway here is that, while those of us who are intimately familiar with this technology clearly understand its benefits, the general electorate does not. So, does Congress? Financial regulators? Now is the time to engage counsel and shape public policy.
FCA discussion paper on distributed ledger technology
By Jacob Ghanty
The FCA has published a discussion paper (DP) on the potential uses of distributed ledger technology (DLT) in financial services. The purpose of the DP is to start a dialogue on the risks and opportunities in relation to DLT. The FCA has gained exposure to DLT through its Regulatory Sandbox initiative.
The FCA describes DLT as “a set of technological solutions that enables a single, sequenced, standardised and cryptographically-secured record of activity to be safely distributed to, and acted upon by, a network of varied participants.” It states that industry efforts to investigate DLT have become especially concentrated over the past 24 months and, in the second half of 2017 into 2018, it expects to see firms moving on from “Proof of Concept” to “real-world” deployment of this kind of technology.
Some Limits on Smart Contracts
Amid the excitement about the promise of smart contracts comes a wet towel over their use. Milos Dunjic argues that the Capabilities of Smart Contracts are Overblown because most people misunderstand the fundamental properties of smart contracts and propose ideas that are not implementable on a practical level. Dunjic addresses the scalability and privacy issues presented by smart contracts.
As for scalability, smart contract code must produce the identical outcome in every node that executes it. Dunjic questions whether a large number of distributed nodes all hitting a “funds transfer” API at the same time might look like a self-inflicted DDOS attack on the API. Would each call to the API receive exactly the same response from the API? Reliability must be absolute in a smart contract.
As for privacy, replicating and storing data on each blockchain participant’s computer does not look like the best way to prevent data breaches. The reality of decentralized networks is that they expand the opportunities for breach. Not surprising, Dunjic’s conclusion is that smart contracts should be used mainly for management of transactions with one database and that interaction with external environments and services should be avoided. For another viewpoint on the privacy problem with suggestions for partial solutions, see Privacy on Blockchain. We’ll watch how the smart programmers address these issues.