A Beginner’s Guide to Blockchain Technology

Blockchain has become something of a buzzword, and the term is often thrown around. Within every corner of the internet, you will undoubtedly come across terms like “cryptocurrency” or “NFTs”. But what do these terms really mean and how will they ultimately affect the legal industry? Let’s go back to the basics – what is blockchain and how are all things connected?

Blockchain

Blockchain refers to a system capable of securely storing and recording information and transactions in a database, which can then be widely replicated and circulated. It is otherwise known as “distributed ledger technology.” Such technology can be made either public or private, depending on the needs and requirements of the ledger and those using it. It also records all possible transactions across a peer-to-peer network and serves as the overarching technology that enables the functioning of mechanisms such as cryptocurrency.

By using the blockchain network, transactions are confirmed and recorded without the need for an overarching central clearing authority. The secure, digital storage of information means that a wide range of industries can exploit and make use of this innovation. The uses of blockchain vary and include (among others) allowing individuals to transfer funds internationally, settle trades, supply chain logistics, voting and more.

We are seeing the growing global adoption of blockchain across a wide range of industries, with communities around the world taking active steps to increase their knowledge and understanding of this powerful innovative technology. Blockchain will truly change the world, and influential institutions such as governments and banks have already taken notice. Regulations in various jurisdictions, including Australia, are gradually developing around the implementation of blockchain and its implications. As a community, we should see reasonable regulation as a positive step towards the eventual expansion and adoption of blockchain in our society.

Cryptocurrency

Cryptocurrency, or “crypto” is another major disruption to the digital payments world. Cryptocurrency is a form of digital or virtual currency that is essentially secured using cryptography. This makes it almost impossible to duplicate or counterfeit, as it is based on a decentralized blockchain network. It is a digital resource that relies on a decentralized structure, which in turn allows for independent existence away from central authorities or entities such as governments, which often seek to control and regulate currency.

Cryptocurrency has a reputation as a disruptor, with Bitcoin (BTC) long known as the first of its kind. There are various advantages and disadvantages to the use of cryptocurrencies, some of which include the following:

• Positives — Cheaper and faster transfer of funds as decentralized systems do not collapse at a single point of failure, unlike centralized systems that rely on human-designed and potentially flawed systems. They also offer transparency and freedom from traditional financial infrastructure; and
• Negatives – price volatility, high energy consumption for mining operations and potential for criminal use and exploitation. There is also a lack of proper legal regulation in many jurisdictions around the world.

NFTs

Non-fungible tokens, or NFTs, are units of digital data stored on the blockchain. However, NFTs are quite different from cryptocurrencies, which are transposable and fungible. NFTs are unique in this respect, as they are not fungible.

NFTs essentially “live” on the blockchain, thereby providing verifiable proof of ownership, given that the blockchain tracks and records every movement. NFTs have grown in popularity with large, supportive communities backing them. Affiliation is fundamental to success in this niche, and the NFT community has done quite well in bringing the hype, creating some pretty ridiculous selling prices, which when Beeple sold ‘HUMAN ONE’ for $28.9 million.

NFT pros reject all claims that the growth in this sector is just a gimmick or will eventually die a slow death. Businesses, on the other hand, struggle to understand the real connection and impact NFTs can have. As the industry evolves, it will surely be made clear that NFTs are indeed here to stay, with global institutions simply forced to catch up.

How does this affect the legal profession?

Blockchain technology has the ability to disrupt many industries, including the legal industry. It is already expected that this technology will be as revolutionary as the Internet. For centuries, the legal industry has been resistant to change, rather embracing archaic practices and quickly rejecting any sign of transformation.

As more and more businesses implement blockchain into their system, the greater the need for lawyers to understand how it works and the problems that can arise. Blockchain technology is expected to change how law firms typically serve clients, as well as how they are run in general.

The use of blockchain has many advantages, including immutable storage of legal agreements, smart contracts, automated contract administration and reduction of the overall time spent on preparation. The transparent nature of blockchain also creates a seamless, predictable environment for all parties involved in a transaction, allowing everyone to better understand the agreement they are entering into.

Currently, blockchain is being leveraged by change-makers in the legal industry in various ways, including the following:

• Electronic signatures;
• Identification and storage of intellectual property;
• Property rights;
• Chain of Custody;
• Tokenization;
• Decentralized Autonomous Organizations (DAOs); and
• Independent organizations with limited liability (LAO).

Blockchain technology is making headlines, and those who utilize the technology are quickly becoming leaders in their field. The global market moves quickly and with blockchain the development is endless.

Christine Bulos is a lawyer at Allied Legal.