Tag:Blockchain

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Blockchain Fuels Crypto Valley Zug
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Blockchain’s Smart Contract Solution Wins EY Startup Challenge
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Blockchain 101 for Asset Managers
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Will Blockchain in Healthcare Inform Fintech?
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Blockchain–powered contract management and outsourcing
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The politicization of encryption: party “platforms” or “platitudes”?
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Digital Cash Settlement Systems Advance
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DLT for the OTC
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Increasing investment in blockchain initiatives
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Blockchain… A Threat to Safety, Soundness & Resiliency?

Blockchain Fuels Crypto Valley Zug

By Susan P. Altman

Blockchain startups are fueling growth of innovative companies in the small canton of Zug, Switzerland, dubbed the “Crypto Valley” (and yes, it’s written as “CryptoValley” in German, and not translated into “CryptoTal”). This approximately 20-mile valley between Zurich and Zug is home to the Ethereum Foundation and more than a dozen other blockchain technology companies. Crypto Valley has a long way to go before it catches up to blockchain investment levels seen in Silicon Valley or the other top investment countries of UK, Israel, Sweden, Germany and Argentina. What is driving Crypto Valley’s growth?

CoinDesk reports that the laissez-faire philosophy that makes Swiss banks so valuable is the same philosophy driving the development of Crypto Valley. Switzerland, with its deeply decentralized government, appears to be a fertile environment in which innovation can flourish. For instance, Zug’s local government is experimenting with permitting citizens to pay for government services up to 200 Swiss francs (just over USD 200) with bitcoin. Switzerland has a host of other advantages for blockchain innovation: a stable, neutral political system, low taxes (especially in Zug), a renowned culture of financial privacy, and an available talent pool. It will be interesting to watch whether and how the decentralized political and economic environment of Switzerland accelerates the decentralized promise of blockchain technology.

Blockchain’s Smart Contract Solution Wins EY Startup Challenge

By Susan P. Altman

The world is abuzz with news about blockchain development and technology lawyers need to understand the implications. The rise of smart contracts, or automated implementation of portions of real-life contracts by transferring assets between parties, is one of those interesting implications. A smart contract is neither smart, nor a contract, but can be regarded by lawyers as a technological solution that automates some transfer between parties to a contract, such as payment or release of information, upon the occurrence of a triggering event. At its most basic, a smart contract consists of fixed program code, a storage file and an account.

Recent news about a startup company making headway with smart contract technology development is worth noting. Adjoint, Inc., based in Boston, is trying to market a solution where financial transactions are automated through smart contracts and work with many proprietary interfaces. The solution provides a consensus protocol (a protocol used in blockchain to get all the processes to agree on a specific value for verification) that allows companies to deploy and analyze a network of smart contracts on top of a mathematically verified distributed and encrypted ledgers.

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Blockchain 101 for Asset Managers

By C. Todd Gibson and Tyler Kirk

Over the last two years, it has been difficult to attend any asset management-related event or seminar without hearing the term “FinTech,” and in particular, “robo-advice” and “blockchain.” What is apparent, though, is that many industry participants have little understanding of what blockchain technology is and how it works. This understanding is important in order to identify creative ways of leveraging this technology to increase efficiency.

In the October 2016 edition of The Investment Lawyer, K&L Gates partner Todd Gibson and associate Tyler Kirk published an article intended to give those with a limited understanding of blockchain a baseline of knowledge and to provide an update on current trends with respect to the use of blockchain by fund managers and their service providers. In case you missed it, the full article can be found here.

Will Blockchain in Healthcare Inform Fintech?

By Susan P. Altman

Blockchain is now a focus of the financial industry, but the technology could become widely used in the healthcare industry too, according to an article in Becker’s Health IT and CIO Review.  Bruce Broussard, CEO and President of Humana, believes blockchain will become the next big healthcare technology innovation, particularly with respect to payments and payer contracts.  Because the parties to those kinds of contracts (healthcare provider on one side and healthcare payer (such as a health insurer) on the other) may now have a safe and reliable way to share information without going through cumbersome central databases, information, as well as contractual processes, would be automatically verified and authorized.  The end benefits may include lower administration costs, faster claims processing and less fraud.  These are similar to the benefits that may arise from the use of blockchain in the financial industry.

 

Another healthcare application of blockchain may realize the holy grail of sharing health information across many healthcare systems by eliminating the middleman holding the central database and providing formerly disconnected parties with a safe information network. As with the financial industry, eliminating the middleman will have tremendous ripple effects throughout the healthcare industry.  If the healthcare industry successfully implements blockchain, it stands to reason that innovations in healthcare technology will loop back to further push innovations in fintech.

Blockchain–powered contract management and outsourcing

By Susan P. Altman

Add outsourcing services to the long list of industries that face disruption directly attributable to blockchain, which list already includes financial services, supply chains, IoT, risk management, digital rights management and healthcare. It is well-known that blockchain technology, that is, technology enabling distributed ledgers with continuously maintained and verified blocks of records, promises huge savings and disruption in the financial services industry. IBM has now partnered with the Bank of Tokyo-Mitsubishi UFJ (BTMU) to apply blockchain technology to the design, management and execution of contracts between businesses. IBM and BTMU are piloting a blockchain project to test its usefulness in automating business transactions for which one party has contracted with the other to provide goods or services. Initially, the technology will be used to monitor delivery and usage of equipment with a sensor that embeds information into the blockchain. The information will then automate invoicing and payment processes between the two companies.

Of especial interest to outsourcing lawyers is the announcement that IBM and BTMU will develop smart contracts on a blockchain to improve the efficiency and accountability of service level agreements in multi-party business interactions. It appears the technology is intended to be used in the increasingly common and complex environment of multi-party, multi-vendor services. Lawyers can expect to see more robust service level agreements with service providers within that complex environment, certainly in terms of accountability. However, it remains true that service levels are only as valuable as the relevancy of what is being measured. And that is still a decision that, for now, requires human input.

The politicization of encryption: party “platforms” or “platitudes”?

By Tyler Kirk

In the United States, the political stage is set for what may turn out to be one of the most infamous presidential elections in America’s history. As noted in an earlier blog post, the regulation of encryption by U.S. legislators and regulatory agencies may have a damaging impact on FinTech, and in particular, on the adoption of blockchain and other distributed ledger technologies. In this post, we look at the relevant Party Platforms to learn what, if anything, they say about encryption.

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Digital Cash Settlement Systems Advance

By Susan Altman

Four important players have just added their heft to efforts of Swiss bank UBS to develop a system to enable financial markets to make payments and settle transactions quicker and at lower cost using blockchain technology reports Reuters. Swiss bank UBS launched a “Utility Settlement Coin” (USC) as a digital cash equivalent of each of the major currencies backed by central banks last year.  Although the USC concept lacks a snappy name like bitcoin, the USC is fully backed by cash assets at a central bank, the lack of that backing being the major weakness of the decentralized bitcoin currency.  UBS and its technology platform provider, Clearmatics Technologies, have now been joined by BNY Mellon, Deutsche Bank, Santander and markets operator ICAP in further developing the potential of the USC.  The USC initiative is an opportunity for industry thought leaders to explore the possibilities of the digital cash technology through a series of short iterative phases and platform deployments increasing the number of market participants, broadening engagement, connectivity and network effect, according to ICAP.  The group intends to have active dialogue with central banks and regulators to ensure a robust and efficient regulatory structure within which the USC can be deployed.  The participants expect that the USC will unlock the benefits of distributive technology to the financial industry and ultimately, to customers, including by lowering costs and increasing transaction security.

DLT for the OTC

By Tyler Kirk

On June 21, 2016, some of Europe’s largest financial institutions announced they had entered into a memorandum of understanding (“MOU”) under which they would work together to develop a blockchain-based settlement procedure for over the counter (“OTC”) transactions. According to the MOU, several European legislators are concerned that small and medium-sized enterprises (“SMEs”) do not have adequate access to capital. The MOU seeks to solve such concerns by bringing together European exchanges and investment banks under a common mandate to reduce the cost for SMEs raising capital in the OTC market. Blockchain may be the solution they are looking for.

Generally, blockchain is a decentralized digital ledger, and its creation established a new class of digital ledgers called, distributed ledger technology (“DLT”). Unlike current financial settlement systems, DLTs are more efficient because all transactions are mathematically provable and do not require a multi-day verification process. DLT protocols use encryption combined with distributed copies of the ledger to replace the need for a third-party to serve as the ledger’s custodian. In short, DLTs create an immutable record of the truth arrived at through distributed consensus.

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Increasing investment in blockchain initiatives

By Jim Bulling

Over US$1B is likely to be collectively spent on bringing blockchain technology to capital markets in 2016, according to a recent survey of 134 global market participants. Of the businesses with bitcoin projects, 32% have an annual budget in excess of US$5 million, and 47% top US$2 million. This significant level of investment has been motivated by the various advantages presented by bitcoin technology and its potential to revolutionise global capital markets. Indeed, a majority of businesses surveyed predicted blockchain would create ‘meaningful change’ in capital markets within five years. Furthermore, the survey participants were mostly unconvinced that legal regulation would significantly impede blockchain adoption. As such, the nascent interest in blockchain use in capital markets seems likely to continue.

Public financial institutions are also getting involved. At a recent international summit of international bankers, the US Chairperson encouraged attendees to educate themselves on blockchain. In Canada, the central bank is working alongside private banks and R3 (a blockchain company). They are trialling a digital currency (Cad-Coin) and allowing limited participants to engage in interbank payments with blockchain technology. The Bank of England is also looking into possible applications of the technology, with the deputy governor raising the possible consequences of a digital pound in a recent speech.

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Blockchain… A Threat to Safety, Soundness & Resiliency?

By Tyler Kirk

On June 21, 2016, the U.S. Financial Stability Oversight counsel (“FSOC”) released its 2016 annual report. The purpose of the annual report is to summarize the FSOC’s current views on the U.S. financial system according to its mission to: (1) identify risks; (2) promote market discipline; and (3) respond to emerging threats. Notably, the 2016 report identified the use of blockchain as an emerging business practice requiring vigilant monitoring by financial regulators.

Since its establishment in 2010, the FSOC has issued six annual reports. This is the first time FinTech issues such as the blockchain have been identified as a potential risk to U.S. financial market stability. The FSOC noted that the use of blockchain protocols by financial institutions could positively impact the U.S. financial system by introducing efficiencies and reducing costs. However, according to the FSOC, “Market participants have limited experience working with distributed ledger systems, and it is possible that operational vulnerabilities associated with such systems may not become apparent until they are deployed at scale.”

Further, the FSOC cautioned that a “considerable degree of coordination among regulators” may be required given the distributed nature of blockchain networks. Noting that the U.S. financial system is constantly evolving, Treasury Secretary Jacob Lew advocated for regulators to remain vigilant in order to maintain the safety, soundness and resiliency of the U.S. financial system. Yet, beyond vigilance, the FSOC did not recommend any specific action on blockchain by regulators, preserving the current hands-off approach.

The FSOC 2016 report can be found here.

 

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