UK: Blockchain - The Ultimate Disruptor

Blockchain technology is changing the landscape in a major way. However, this innovative technology comes with highly complex laws and processes that require sophisticated legal and technical expertise, and an insider's understanding of the ever-evolving regulatory space. Our experts provide an introduction to Blockchain and its use across a wide variety of scenarios and sectors.

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Transcript

Michael Luckman: Hello, my name is Michael Luckman and welcome to this ThinkHouse podcast on blockchain, the ultimate disrupter.

Blockchain is very much a hot topic in the news and in business conversations, and when it comes to understanding the technology and how to make it work effectively for your business, there is a lot to consider. Today I am joined by David Brennan, Corporate Partner and co-chair of Gowling WLG's Tech Group and Jody Jansen, Head of Architecture and Innovation at Gowling WLG, who will both look more closely at what Blockchain is, how the technology works and where it can be used really successfully to add value. So, Jody, to take things back to fundamental principles, can you explain what Blockchain actually is?

Jody Jansen: Thank you Michael, yes, so to describe blockchain, in the simplest form, you would call it a ledger - a ledger that has multiple ledger holders called "nodes" in the blockchain. By having multiple ledger holders, it becomes decentralised, or distributed. Adding the benefit of cryptographic signing of that data in the ledger, it becomes very hard to change. It becomes immutable, and to put that in an example, you could think of a ledger that holds diamond information.

David would buy a diamond in a diamond shop and he is looking for a two carat diamond. The shop owner only has 1.8 carats, but funnily enough he knows me as the ledger holder of this diamond list. He asks me to change that information into two carats so when David asks me for the information on the diamond, I would show him a two carat diamond information sheet. Now if I the ledger had been copied 99 times and distributed to different people and David asks the same question to me and the rest of these ledger holders, I will come up with a two carat diamond and the rest of them will come up with 1.8 carats and that principle makes it immutable.

It's very important to understand that bitcoin is not blockchain, but bitcoin should be seen as an application that works on the blockchain. For example, to compare, we have the medium that is the internet and on that we can use the application called email or web browsing or, nowadays, your video doorbell.

Michael: So, blockchain really extends far beyond bitcoin and is a very clever tool that can deal with highly complex processes. For our in-house counsel audience, how do you foresee blockchain impacting on their roles day-to-day, David?

David Brennan: Thank you Michael. There are quite a lot of use cases for blockchain that would apply to general counsel and their day-to-day roles, but I will just highlight a couple. The first one is cyber security and the other one is regulatory compliance.

So, how does blockchain come in here? Cyber security is something that keeps most GCs awake at night. Security and protection of data is clearly key to businesses and the onus is on the general counsel these days to ensure that the checks and balances are in place to make sure that the data is as secure as it can possibly be.  Blockchains are supported by strong and complex cryptography, so they are less vulnerable to the actions of hackers.

Data can always be modified, but using blockchain technology enables that data to be signed with a digital signature and that digital signature, which is called a "hash" can then be stored on the blockchain ledger and therefore is incapable of being altered. This is something that's going to come in over the course of the next couple of years I think, in terms of how companies are looking at the issues they have with cyber and how they protect themselves more with the use of blockchain technology.

Regulatory compliance follows on the heels of that, especially around the KYC process. New regulations have come in since the 2008 financial crisis to ensure that a company's approach to reporting and risk data is structured and well defined and tasks that are often associated with KYC in a business day-to-day are repetitive, resulting in duplicate processes and inconsistent information and the security and the immutability of blockchain is something that is going to really be useful in the future to make the lives of in-house counsel a lot more straightforward when it comes to running their compliance teams.

Michael: There are clearly a number of growing trends that you've covered there. Looking at how blockchain is actually working in practice, what are some of the most successful examples you've seen, David, of its application within different types of businesses?

David: So Michael to answer that, we probably have to look to the bigger businesses around the world who have had the resources to take forward the blockchain technology and have been successful with adapting and adopting it. To give you some examples, BTL Group, which is a public listed company, has built a back office Interbit platform which has allowed a consortium of oil and gas supermajors and energy traders to deliver gas trading reconciliation. It is built on a blockchain platform which has really simplified the way that those energy companies can send and control the data.

Everledger is a company which specialises in supply chain and provenance, and to look back at what Jody mentioned earlier in terms of diamonds, it's actually possible now to track the diamond from the mine all the way to the jeweller's shop by ensuring that the record of the diamond is stored on the blockchain. Therefore there can be no issues around it being called into question that that diamond is not the diamond that it says it is. If we think about the onward implications of that around the insurance industry, just imagine what impact that could have on insurance premiums if the issues around fraud can be reduced.

Michael: There are lots of ideas and practices here that we can take away and consider. However, are there any myths you may wish to debunk about blockchain? One for you, Jody.

Jody: Yes, definitely and it's very important to understand that there are a few myths out there. I always mention the number one in my list - bitcoin is not blockchain. It's important to understand that bitcoin is just an application on the blockchain that it can be used for and also Blockchain is better than a traditional database. Blockchain has a very specific use case and in most cases this is because there are multiple parties involved that don't really trust each other and want to keep that as secure as possible.

We talked about blockchain being immutable and tamper proof. It is not 100% tamper proof, especially when you become the private blockchain with more than 51% of the 'hashing power', as that is a term in the blockchain, you can re-write the information.

Is blockchain 100% secure? No, especially for that reason I just mentioned before. You can tamper with it and you can put wrong information in the blockchain to start off with, so the information that you put in needs to be accurate, because otherwise you have a tamper proof false information.

And, the blockchain is a truth machine. It is not, again... for the information has to be right that's put in it.

Michael: And finally, what would you sum up as the key takeaways for boardroom conversations on this subject David?

David: I think there are a couple of things that would come to mind, Michael. The first point I would make is that there's a first mover advantage here. Do not be left behind. It's very easy to look at the hype around blockchain technology and think that it is just hype, but the number of businesses around the world that are adopting this technology, that are looking into what this technology might mean for them, makes it very clear that it's something that should be looked at and considered at board level.

The other thing I would say is don't think that as a business you have to jump in with both feet. This does not necessarily require a large investment in terms of capital and business risk. There are applications out there and there are companies out there that actually offer blockchain as a service and very similar to our cloud hosting services that exist at the moment. Amazon, IBM and others actually provide a platform for businesses to use as a springboard, so for companies perhaps dabbling with blockchain - boards, perhaps, interested in wanting to look at it a little bit more closely - this could be an option for general counsel to look at. It's a much easier way to have a look at Blockchain technology and certainly means that you don't have to approach the risks and indeed the capital injection that one would expect if you were building your own platform.

Michael: Thank you both, David and Jody. That has really helped bring blockchain a bit more to life for us all and provided food for thought.

We hope you found today's podcast useful and, of course, if you would like any further information on this or indeed any other of our ThinkHouse topics, please visit our ThinkHouse page on Gowling WLG or contact a member of the team.

Read the original article on GowlingWLG.com

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