Blockchain & Tokenization of Business

www.dlapiper.com 0March 16, 2018
TOKENIZATION OF EVERYTHING
COMPUTATIONAL LAW & BLOCKCHAIN FESTIVAL
Mark Radcliffe, DLA Piper, Silicon Valley Office

“Blockchain technology, which underlies cryptocurrencies, is
revolutionary and likely to have many applications.”
“The current incarnation of cryptocurrencies is unlikely to
persist, but we expect central bank digital currencies to prevail”.
Goldman Sachs: Overview

 Many fundamental Internet protocols of the Internet are two decades old and were developed by
academic institutions/governments
 SMTP
 TCP/IP
 Open vs closed in social media: RSS vs. Twitter/Facebook
 Closed won in social media because they had the money
 Enable participants in networks to share in the value of the “networks” as compared to “closed networks”
like Facebook and Twitter
 “Open” approaches now has new tools to fund development
 Like investing in “Linux” rather than companies
ICOs: Opportunity to Invest in Protocols (a16z)

Outsourced processing power – each transaction (a block) is validated by third party “nodes” in the
network before it is added to the ledger (the chain) in POW
Transactions require consensus mechanism, no intermediaries (“trustless”) for “permissionless chains”
and different mechanisms for “permissioned” chains
Transactions are anonymous
Highly secure – complex cryptology, significant stake to be a validator or miner
Transactions are immutable, irreversible once on the blockchain after certain number of blocks
What is blockchain?
 Blockchain is a “distributed ledger” technology – a ledger maintained by the consensus of a
network of unrelated parties who are rewarded for their efforts.
 Key features of blockchain technology are:

Blockchain Explained...
BLOCKCHAIN
Business
Network
Ledger
Digital
Assets
• Customers, suppliers, banks, partners, government institutions. Cross geography & regulatory boundary
• Wealth is generated by the flow of goods & services across business network
• Creating Markets; Public (fruit market, car auction) or Private (supply chain financing, bonds)
• Anything that is capable of being owned or controlled to produce value
• Tangible, e.g. a diamond, car, house
• Intangible, bond [Financial], patent [Intellectual], music [Digital]
• Ledger is THE system of record for a institution.
• Transaction – an asset transfer onto or off the ledger
Contract – conditions for transaction to occur
• A shared ledger technology allowing any participant in a business network to securely transact directly,
with accountability and with higher resistance to malicious tampering.

Blockchain Explained... Before
... Inefficient, expensive, vulnerable
Multiple Views of “Truth”
Party A’s
records
Party B’s
records
Bank
records
Auditor
records
Party
D’s
records
Party
C’s
records
Reconciliation
BLOCKCHAIN
Business
Network
Ledger
Digital
Assets

Blockchain Explained... After
Distributed
Ledger
... Consensus, provenance, immutability, finality
Single Views of “Truth”
BLOCKCHAIN
Business
Network
Ledger
Digital
Assets
Party A’s
records
Party B’s
records
Bank
records
Auditor
records
Party
D’s
records
Party
C’s
records

A New Style of Blockchain; For Business
Append-only distributed
system of record shared
across business network
Business terms embedded
in transaction database &
executed with transactions
Shared
Ledger
Smart
Contracts
Permissions
Consensus
Ensuring appropriate
visibility; transactions are
secure, authenticated &
verifiable
All parties agree to
network verified
transaction
Key Concepts
Reduce
Risks
Removes
Costs
New Business
Models
Transaction time from
days to near instantaneousBenefits
Data loss, Tampering,
fraud, cyber crime
Overheads and cost
intermediaries
Reduce Time
IoT Integration into supply
chain

Blockchain is Here!
Japanese
Stock
Exchange
Identity management
Crédit
Mutuel
Arkéa
Carbon Credits China Food Safety
Global Trade Digitization
CLS
Group
FX NettingPrivate Equity Diamond provenance
Identity Verification Credit Default Swaps
Low liquidity securities
trading & settlement
IBM
Global
Financing
Channel Financing
Health Data Exchange

 Tool in a business context to record, implement and execute complex transactions.
 Ensure that conditions/covenants are met, consequences executed.
 Trace tangible and intangible assets, their origin and chain of title
 Authentication of objects (diamonds, valuables etc.), replacement of authentication certificates
 Record collateral/security agreements
 Work in tandem with governmental databases and governmental registries
 regulatory restrictions can be enforced automatically, reducing implementation burden
 Insurance: Connect with Internet of Things (IoT), e.g. weather sensors
– Potentially disruptive for many professions?
Applications for Blockchains

 Individual blockchains may be offered and used worldwide
 But world does not have an overarching unified single legal system
– About 200 different jurisdictions in the world
– UN and In addition, regional legal systems: EU, NAFTA, other trade pacts
 World is splintered / fragmented into various and separate legal systems and there are different
and sometimes contradictory:
– legal approaches
– contract laws
– levels of regulatory burden for financial companies
– levels of data protection laws
– levels of consumer protection
Multijurisdictional Challenges I

 Chain of transactions and chain of title well documented via a blockchain
 How to prove initial power to act and proper title in a given asset?
 Permissionless open blockchains vs. permissioned ! closed blockchains
 Internet of Things and Oracles
 How does the world of facts (and changing facts) enter into a blockchain?
 Issue: real life ("RL") can be messy and not entirely predictable
– a party who used a blockchain for a transaction may, by law, not have legal permission to transfer
certain assets, or lose such permission later
– a party who already promised to transfer an assets via a blockchain may be legally empowered or at
least be legally capable to transfer such assets to someone else outside of the blockchain
– acquisition in good faith
 General IT considerations still apply, e.g. "garbage in = garbage out"
Blockchain Uses

 Blockchains may offer an improved substitute for public registers, for instances commercial /
company registers and land registers
 Does it have to be blockchain?
– Blockchain as a catalyst for innovation and digitization
 Statutory law often mandates that certain legal benefits can only be obtained if the
governmental public register is used
 Going forward, it can be expected that some countries will update their public registers for
better interaction with blockchains or even replacement
 Some jurisdictions add specific bureaucratic / formalistic requirements for certain contracts that
a blockchain cannot fulfill:
– notarization requirements
– public trust of land register
– power of attorney with public trust via registration in commercial register
Public Registers / Statutory Burden

 "When smart people hear the term "smart contracts", their imaginations tend to run wild"
 A self-executing contract written in computer programs that automatically execute the
transaction if certain conditions under the programs are met
 Can be used for many kinds of contracts: escrow, capital markets trading, real property and IP
transfers, insurance claim processing, supply chain management and so on
 A classic example of contracts similar to “smart contract”: vending machine (if coin is inserted,
then automatically provides soda)
– Issue: many contracts are not as simple as that
Smart Contracts I

 Proper drafting of contracts is already an issue for "normal contracts"
 Interpretation: In case of ambiguities or gaps in the contract, not the understanding of the
blockchain counts, rather, the viewpoint of the actors using it
Smart Contracts II

 Application of classic doctrines of contracts
 Privacy and data protection issues
 Evidence: Value / availability of Blockchain entries as documentary evidence and proof to be
used in lawsuits not yet resolved by courts
 Cost of Shift
 Technology risk of open ledger technology
Smart Contracts III

 Underlying law may change. Can the smart contract be updated, and what if not?
 Laws are meant to stabilize the expectation of future actions by persons and corporations but is
also subject to change in the future and thus potentially unstable
 Solution: These are not new issues and there is experience with how do address these issues
Smart Contracts IV

 Is data on a blockchain property?
– Question whether there can be a property right in information itself, but compilations of data in a
database may be protected by intellectual property rights
 Protecting blockchain intellectual property, patent law considerations.
 Warranties, representations, service levels
 Due diligence on blockchain technology
– Transactional lawyers tasked with performing due diligence need to understand blockchain technology
and the emerging business models based on the technology.
– questions of intellectual property ownership of blockchain-as-a-service offerings operating on open
source blockchain technology platforms.
Further Issues

 Filecoin – decentralized storage network
– Miners earn Filecoin by providing open hard-drive space to the network
– Users spend Filecoin to store encrypted files in the decentralized network
– Raised ~$188M in ~60 min, more than ~$250M
 Brave – web browser that blocks trackers and ads
– Advertisers pay publishers for the actual attention of users
– Users earn BAT for looking at ads, pay BAT to avoid them or buy content
– Brave raised ~$35M in ~30 seconds selling BAT Tokens
 doc.ai – artificial intelligence for human biology
– Users earn NRN tokens for sharing anonymized personal health data
– Users/researchers spend NRN tokens to gain health analysis
 Raised $2.5M in advisor sale, public pre-sale launched Sept. 7
ICO Examples

 What can you use a ledger/network for?
– Ownership records, verifying identities and attributes of persons, tracking assets
 Rubric for corporate lawyer’s to think about blockchain:
– Business Problem: What business problem is being addressed?
– Technology Match: Is blockchain the best technology to solve it?
– Outsourced processing power
– Removal of intermediaries
– Anonymity
– Cryptographic security
– Immutability
– Network Effect: Is there a virtuous cycle being created (creating customer “stickiness”)?
What can you use Blockchain for?

About DLA Piper
$2.47
Global revenue in
$USD billions for 2016
239K
Pro bono and community
engagement hours donated in 2016
40+
COUNTRIES
90+
OFFICES
8
GLOBAL
PRACTICE AREAS
Corporate
Employment, Employee
Benefits and Executive
Compensation
Finance and Projects
Intellectual Property and
Technology
Litigation and Regulatory
Real Estate
Restructuring
Tax
Energy
Financial Services
Food and Beverage
Government Contracting
Healthcare
Hospitality and Leisure
Infrastructure, Construction
and Transport
Insurance
Life Sciences
Manufacturing
Media, Sport and Entertainment
Mining
Real Estate
Retail
Technology
15
GLOBAL
SECTORS

Global and National Rankings
“The expansion is geared toward building a
greater global platform for clients that are
increasingly looking at investing throughout
Latin America, rather than within a single
country.” American Lawyer, December 2016
“The growth that the firm has seen in the 12
months has only strengthened its cross-
border and international capabilities, which it
has demonstrated across a wide range of
practice areas.”
Law360, June 2016
“Over five years, the biggest upward
movement in brand has come from DLA
Piper…”
Acritas, February 2016
DLA Piper has “led in listening
to clients and positioning itself as
a business-led law firm.”
Financial Times, October 2, 2015
“…2015 has seen the firm take major
steps toward forging a
long-planned presence across
the Americas.”
Law360, July 6, 2015
DLA Piper has “become really aggressive in
the thought leadership arena, and that is
really resonating with corporate counsel.”
Bloomberg BNA, April 24, 2015
In global M&A deal volume for the seventh consecutive year (mergermarket 2016)
Most active M&A law firm in the US and globally by deal volume (Pitchbook 2016)
Best in the world for Real Estate, Franchise and Entertainment (International Who’s Who 2016)
Among the most innovative law firms in the US for five consecutive years (Financial Times)
Corporate Venture Firm of the Year for 2 consecutive years (Global Corporate Venturing 2016)
Best International Firm for Women in Business Law (Euromoney 2016)
Law Firm of the Year (JUVE Awards 2016)
Best Firm for Pro Bono Work (Euromoney Asia Women in Business Law Awards 2016)
European Mid-Market M&A Legal Adviser of the Year (Mergermarket 2016)
Law firm for global reach and breadth of international work (Law360 2016)
In global middle-market transactions (Thomson Reuters 2016)
Best-branded Law Firm
(BTI Brand Elite 2017)
Most active venture capital law firm in the
US and globally by deal volume (Pitchbook
2016)
1
2
4
#
#
#
MORE
Law firm by revenue (The Am Law 100 2017)
Most powerful law firm brand in the United States (Acritas 2017)
For client service (BTI Client Service A-Team 2017)
5#
Most powerful law firm brand in the world (Acritas 2016)
Most active private equity law firm in the US and globally by deal volume (Pitchbook 2016)
3#

Emerging Growth and Venture Capital Practice
RECENT VC EXPERIENCE
 Named Law Firm of the Year in Corporate Venture (Global Corporate Venturing, 2015 and 2016)
 In 2017, completed 543 financings transactions totaling $11.7 billion – 504 venture capital and 39 private equity
 Over the past six years, completed over 3,400 financings transactions totaling $64.1 billion – more than 3,100 venture
capital and 364 private equity
 Over the past five years, general counsel to over 800 venture and private equity backed companies

Global Locations
Australia
Austria
Bahrain
Belgium
Brazil
Canada
China
Czech Republic
Denmark
Finland
France
Germany
Hungary
Italy
Japan
Kuwait
Luxembourg
Mexico
Morocco
Netherlands
New Zealand
Norway
Oman
Poland
Portugal
Qatar
Romania
Russia
Saudi Arabia
Singapore
Slovak Republic
South Africa
South Korea
Spain
Sweden
Thailand
Ukraine
United Arab Emirates
United Kingdom
United States
Angola
Botswana
Burundi
Colombia
Chile
Croatia
Egypt
Ethiopia
Ghana
Kenya
Mauritius
Mozambique
Namibia
Nigeria
Peru
Rwanda
Senegal
Tanzania
Tunisia
Uganda
Zambia
RELATIONSHIP FIRMSDLA PIPER OFFICES

 Background
– B.S. Chemistry, magnum cum laude, University of Michigan
– Harvard Law School (1981, awarded Distinguished Alumni in 1996)
 Practicing in Silicon Valley for over 30 years
 Corporate securities and intellectual property licensing
 US Private Sector Co-Chair (US Department of State/METI), US-Japan Innovation and Entrepreneurship
Council
 Chair, Corporate Venture Group
 Chair, International Startup Group
Mark Radcliffe

 Corporate securities
– ICOs
– Token offerings
– Corporate governance
 Regulatory practices
– Commodities (CFTC)
– Money transmitter
– Bank regulatory/insurance regulatory
 International tax
 Intellectual property
– Open source licensing
– Patent/trademark/copyright strategies
DLA Piper Blockchain Practice

Blockchain & Tokenization of Business

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Blockchain & Tokenization of Business

Similar to Blockchain & Tokenization of Business (20)

More from Mark Radcliffe

More from Mark Radcliffe (18)

Recently uploaded

Recently uploaded (20)

Blockchain & Tokenization of Business