Successfully reported this slideshow.
Your SlideShare is downloading. ×

Blockchain and Smart Contracts (Series: Blockchain Basics)

Blockchain and Smart Contracts (Series: Blockchain Basics)

Blockchain is a tool. Samson Williams likens blockchain to a group text message, in which each participant receives a distributed, time-stamped, tamper-resistant (and encrypted) record of data transactions. Each group text has these characteristics. Everyone in the group “sees” the data, and none can change or gainsay any group message. Smart contracts are computer code put on the blockchain (how, exactly?) that establishes self-executing terms and conditions of a transaction. Are smart contracts smart? If certain data comes in and fulfills a pre-set term or condition, then rights and responsibilities are formed, terminated, modified, or shifted among the parties. Ah certainty and transparency, but also ah garbage in and garbage out. Are some contractual terms not amenable to smart contracting? And are smart contracts necessarily contracts? If not, can they still be useful? If a smart contract is a contract, what is the governing document? Is it the words business people and lawyers use, or is it the code that is supposed to reflect the words?

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/blockchain-smart-contracts-2019/

Blockchain is a tool. Samson Williams likens blockchain to a group text message, in which each participant receives a distributed, time-stamped, tamper-resistant (and encrypted) record of data transactions. Each group text has these characteristics. Everyone in the group “sees” the data, and none can change or gainsay any group message. Smart contracts are computer code put on the blockchain (how, exactly?) that establishes self-executing terms and conditions of a transaction. Are smart contracts smart? If certain data comes in and fulfills a pre-set term or condition, then rights and responsibilities are formed, terminated, modified, or shifted among the parties. Ah certainty and transparency, but also ah garbage in and garbage out. Are some contractual terms not amenable to smart contracting? And are smart contracts necessarily contracts? If not, can they still be useful? If a smart contract is a contract, what is the governing document? Is it the words business people and lawyers use, or is it the code that is supposed to reflect the words?

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/blockchain-smart-contracts-2019/

More Related Content

Related Audiobooks

Free with a 30 day trial from Scribd

See all

Blockchain and Smart Contracts (Series: Blockchain Basics)

  1. 1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 1
  2. 2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2
  3. 3. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 3
  4. 4. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: Chris Cahill – Lowis & Gellen LLP Panelists: Nelson Rosario – Smolinski Rosario Law John Servidio – Goodwin Procter LLP Matt Wolf – Antonym 4
  5. 5. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: Blockchain Basics Blockchain is a very tactile name for a certain assortment of code -- which is credited by some as the gathering place of a revolution in finance (and beyond). Blockchain was created to solve the problem of establishing a stable crypto-currency system that does not rely on banks or central parties to keep the ledger of transactions and accounts. Instead the ledger is distributed among network participants. A single consensus-driven and immutable ledger facilitates rapid settlement of transactions because all parties have the same view of the information. No bank? No custodian? No title company? No trusted intermediary? The implications are broad. But what is block and what is chain? And is the thing secure? We offer an introductory discussion. 5
  6. 6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: Blockchain and Smart Contracts Blockchain is a tool. Samson Williams likens blockchain to a group text message, in which each participant receives a distributed, time-stamped, tamper-resistant (and encrypted) record of data transactions. Each group text has these characteristics. Everyone in the group “sees” the data, and none can change or gainsay any group message. Smart contracts are computer code put on the blockchain (how, exactly?) that establishes self-executing terms and conditions of a transaction. Are smart contracts smart? If certain data comes in and fulfills a pre-set term or condition, then rights and responsibilities are formed, terminated, modified, or shifted among the parties. Ah certainty and transparency, but also ah garbage in and garbage out. Are some contractual terms not amenable to smart contracting? And are smart contracts necessarily contracts? If not, can they still be useful? If a smart contract is a contract, what is the governing document? Is it the words business people and lawyers use, or is it the code that is supposed to reflect the words? 6
  7. 7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: Blockchain Basics 2019 In Dr. Strangelove, a party created a “doomsday machine” that would automatically destroy all life if the machine detected a nuclear attack on that party. There was no override, and, well, let’s just say that the film is hilarious but probably not a comedy in a conventional sense. There, if the “network” received certain information, the device would activate. Like a smart contract on a blockchain. The problem in Dr. Strangelove was that the party that created the doomsday machine activated it before telling its adversary (i.e., the other network participant). That “smart contract” was critically not smart. Blockchain smart contracts (with much smaller but still meaningful stakes) are computer code designed to adjust automatically the rights and obligations of network participants based upon the inputting of information to the network, with such information visible to all and inputted per means and procedures agreed upon by all before the contracts become effective. And thus paper-intensive, multi-step and multi-party transactions, like securities sales, supply chain coordination, and supply chain finance, might proceed with greater ease and security. Costs could be lowered, transactional speed quickened, and litigation simplified or evaded entirely. We will examine these areas of promise. 7
  8. 8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 8/23/19 Episode #1: Blockchain and Smart Contracts 9/20/19 Episode #2: Blockchain and Supply Chain 10/18/19 Episode #3: Blockchain and Trade Finance Tech 8 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.
  9. 9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Episode #1: Blockchain and Smart Contracts 9
  10. 10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS BLOCKCHAIN? • a ledger • not stored in any one place • composed of a decentralized network of nodes • new data on the blockchain must be verified by a majority of nodes • verification occurs by executing energy-intensive cryptographic calculations • once validated, a block of data is added to the chain • blocks may never be removed or edited 1 0
  11. 11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS BLOCKCHAIN? • Decentralized – data on the blockchain is not stored in any single place but distributed across many nodes • Immutable – once data is added to the blockchain, it cannot be removed, edited or backdated 1 1
  12. 12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF BLOCKCHAINS • Public Blockchains (permission-less) • Private Blockchains (permissioned) 1 2
  13. 13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe FROM CENTRALIZED LEDGER TO DECENTRALIZED Blockchain establishes a decentralized ledger, by contrast to the familiar centralized ledger, with a custodian or administrator being trusted to process monetary transactions and manage the transfer of property See the two diagram on the following pages, from David Sneyd, “Blockchain solutions to ESG problems” (BMO Global Asset Management, Oct. 2018) 1 3
  14. 14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TITLE Content 1 4
  15. 15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW DOES BLOCKCHIAN ESTABLISH A DECENTRALIZED LEDGER? Participant makes an entry, i.e., creates a new block Proposed transaction is broadcast to each participant on the network Validity of the new block is subject to pre-set criteria and a complex algorithm called “proof of work” A majority of miners conclude that transaction is valid New block is created and time-stamped All are provided with an updated version of the ledger: 1 5
  16. 16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe 1 6
  17. 17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SOME COMPONENTS OF A BLOCKCHAIN Each block contains: -- a “hash,” which is a digital fingerprint or unique identifier -- time-stamped batches of recent valid transactions -- and the hash of the previous block The previous block hash links the blocks together and prevents the past form being altered or rewritten Each subsequent block strengthens the verification of previous blocks (and the entire blockchain) 1 7
  18. 18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SOME COMPONENTS OF A BLOCKCHAIN, 2 Proof of work requires high computational capacity, provided by “miners” Miners supply the network with computing power, to allow the updating of the database A majority of mining power must be able to confirm the new blocks by decrypting the data Once a “block” (a record of a purchases and sales created by miners by solving a mathematical puzzle that validates the transactions) is added to the network ledger of older transaction (the “chain”), such record on the blockchain can’t be changed or reversed (i.e., the transaction is immutable) Thus a blockchain, to be non-falsifiable, must not have any operator holding at any time more than half of the computational power of the chain 1 8
  19. 19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SO WHAT IS GAINED BY GOING FROM A CENTRALIZED TO A DECENTRALIZED LEDGER? If a bank or credit card company keeping a centralized ledger is hacked, then other participants lose access to their data With a decentralized ledger, all participants keep a copy of the data With a decentralized ledger, there is no extra cost of (or litigation from) efforts to synchronize records kept by counterparties to a transaction 1 9
  20. 20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACTS Smart contracts are “self-executing contracts with the terms of the agreement between [a] buyer and seller being directly written into lines of code. Once a smart contract has been created, computer transaction protocols will execute the terms of a contract automatically based on a set of conditions.” Rensel v. Centra Tech, Inc., 2018 WL 4410110 at *10 (S.D. Fla. June 14, 2018). The promise re smart contracts: *self-executing *additional parties not needed to monitor the transactions *greater cost efficiency and faster transaction speed To determine whether contractual conditions are met, smart contracts use “oracles,” which are agreed-upon real-tme data providers which confirm triggering events 2 0
  21. 21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe “SMART CONTRACTS”: WHENCE? In 1996, computer scientist Nick Szabo defined a smart contract as “a set of promises, specified in digital form, including protocols within which the the parties perform on these promises” 2 1
  22. 22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe “SMART CONTRACTS”: “A SET OF PROMISES” • Such promises may be contractual or non-contractual • Such promises may consist fo contractual terms or rules-based operations designed to carry out business logic, or both 2 2
  23. 23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe “SMART CONTRACTS”: “WITHIN WHICH THE THE PARTIES PERFORM ON THESE PROMISES” • Automated performance is at the heart of a smart contract • When hosted by blockchain, smart contracts are usually regarded as irrevocable • Once initiated, the outcomes for which a smart contract is encoded to perform cannot typically be stopped (unless an outcome depends on an unmet condition) This definitional discussion is derived from “Smart Contracts: 12 Use Cases for Business & Beyond,” published by the Chamber of Digital Commerce (Dece. 2016) (Smart) 2 3
  24. 24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW MUCH CODE? • A smart contract may consist entirely of code, or • Consist of code with a separate natural language version, or • Consist of a natural language contract with encoded performance, or • Consist of a natural language contract with an encoded payment mechanism 2 4
  25. 25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACT: MORTGAGES • Automated release of liens form land records when note is paid in full • Visibility of servicer records to all intersted parties, enabling payment verification and tracking • Fewer manual process, fewer errors, reduced costs • Requires interface among contract, mortgagor payment account, and real estaet title record service • Adoption of public key infrastructure among mortgagor, mortgagee, and other parties 2 5
  26. 26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACT: LAND TITLE RECORDATION •Higher confidence in identity of parties, streamlined processes, reduction in auditing and assurance costs •Reduce land title conveyance fraud •Automated notifications, incorporation of record integrity protections •Enhanced liquidity 2 6
  27. 27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe SMART CONTRACT: SMART INVOICES • Euler Hermes has provided trade credit insurance for over 100 years, and is looking at blockchain-based “smart invoices” (to help manage transaction for which it provides insurance) • I experimented with having companies upload their invoices onto the Ethereum “Smart Contract” blockchain • When a supplier’s invoice is uploaded, the smart contract “reads” it to learn payment due date, amount, and the purchaser’s identity • Smart contract then identifies the network of suppliers for that purchaser • If the supplier is not paid timely, the smart contract can “decide” (based upon rules coded into it), whether to send an alert (and what kind of alert) to the other suppliers in the network • PURPOSE: to forestall other payment defaults, lessen trading with insolvent purchaser, and lower risk of insurable events Pierre Sein, “Invoices on Blockchain at EHDA” (Medium, July 27, 2017) at https://medium.com/@pierresein/invoices-on-blockchain-at-ehda-85d03a929062 (visited Aug. 21, 2019) 2 7
  28. 28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THE FACULTY 2 8
  29. 29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Chris Cahill – ccahill@lowis-gellen.com Mr. Cahill is Head of the Bankruptcy and Restructuring Practice Group at Lowis & Gellen LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’ committees, potential purchasers and others through bankruptcy cases, out-of-court workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill has substantial mega-case experience representing very large debtors, and counsels and litigates on behalf of manufacturers and secured lenders in large and middle-market cases. Mr. Cahill also publishes frequently and speaks regularly on commercial insolvency issues. He is an executive editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2017) and is the host of Financial Poise Radio, a periodic broadcast for investors and other curious persons, on www.financialpoise.com. 2 9
  30. 30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe John Servidio – JServidio@goodwinlaw.com John Servidio is a partner in Goodwin’s Capital Markets and Digital Currency & Blockchain practices. Mr. Servidio represents banks, investment funds and issuers in structuring corporate derivative, equity and equity-linked capital market transactions. He assists clients with hedging structures involving equity, interest rate, foreign currency, energy and commodity derivatives. He also advises dealers, asset managers and corporate clients on resolving issues related to the Dodd-Frank Act, as well as Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) rules and regulations. In addition to transactions involving traditional commodities, securities and derivatives, Mr. Servidio advises clients on structuring investments in digital asset (cryptocurrency), distributed ledger (blockchain) and other financial technologies. Prior to joining Goodwin in 2018, Mr. Servidio was a partner at Winston & Strawn. His previous industry experience includes serving as assistant general counsel at a major bank and as an attorney in the legal department of another large investment banking firm. Before law school, Mr. Servidio was an analyst in the real estate group at a large commercial bank. He is a frequent author and speaker on swaps, derivatives and regulatory challenges facing banks and other financial institutions. 3 0
  31. 31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Nelson Rosario – nelson@smoroslaw.com Nelson Rosario is an intellectual property attorney whose practice is focused on working with technology companies to protect their property, manage their contracts, and deal with privacy issues. In addition, Mr. Rosario helps companies with legal issues related to blockchain and cryptocurrency, and he is an adjunct law professor at Illinois Tech where he teaches a class called Blockchain, Cryptocurrency and the Law. Mr. Rosario regularly writes and speaks on emerging technology issues relevant to attorneys and entrepreneurs, and his quotes and analysis have been featured in Law360, Coindesk, American Banker, as well as other publications. 3 1
  32. 32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Matt Wolf – matt@antonym.io Matt has over 15 years of experience working with emerging business models and strategic implementations at the highest level of both the public and private sector, internationally and domestic. Previously, Matt has worked with United Talent Agency, Warner Brothers, The Detroit Land Bank Authority, Thyssen Krupp, The Kingdom of Saudi Arabia, and The City of Detroit. 3 2
  33. 33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 3 3
  34. 34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT FINANCIAL POISE DailyDAC LLC, d/b/a Financial Poise™ provides continuing education to attorneys, accountants, business owners and executives, and investors. Its websites, webinars, and books provide Plain English, entertaining, explanations about legal, financial, and other subjects of interest to these audiences. Visit us at www.financialpoise.com. 3 4 Our free weekly newsletter, Financial Poise Weekly, educates readers about business, business law, finance, and investing. To receive it simply add yourself by going to: https://www.financialpoise.com/newsletter/ Email addresses are never sold to or shared with third parties.

×