Blockchain — we’ve all heard about it, and also heard that it will certainly disrupt the financial, legal and public sector worlds near you.
The real questions surrounding the future of blockchain, however, relates to the evolution of its virtual ledger technology and the ways it will change the way we do business — regionally, nationally and globally.
Financial professionals wonder how this digital ledger will impact their day-to-day activities such as regulatory compliance or combating money laundering. Legal professionals are asking how blockchain will revolutionize their practices. Public sector employees want to know how to incorporate blockchain to improve security and efficiencies.
However, the overarching question pertaining to blockchain, no matter what industry you work, is whether or not we trust the technology.
For answers, Legal Executive Institute spoke to Thomson Reuters Technologist and Futurist, Joseph Raczynski, who recently was a featured panelist at the three-city, 2018 Thomson Reuters Public-Private Partnership Forums (P3) which held its first event in New York City on March 7.
Raczynski also recently interviewed Judith Alison Lee, a partner in the Washington, D.C. office of Gibson Dunn & Crutcher and Co-Chair of the firm’s International Trade Practice Group, about the nuts and bolts of blockchain and cryptocurrencies. (You can hear Part 1 and Part 2 of that interview here.)
Legal Executive Institute: In the financial services industry, blockchain is now touted as the future infrastructure of the industry. Clearly, this could be disruptive to traditional banking operations, but also may also enhance the way anti-money laundering (AML) professionals and regulators do their job. How do you see blockchain changing the way financial institutions reduce losses from economic crimes?
Joe Raczynski: There is tremendous promise with this technology in the banking industry. Its core strength is to create permanent, immutable, redundant ledgers, which are auditable. This is the Holy Grail of an accountant or anyone who wants to see a chain of events or track money.
There are some significant challenges. Currently, virtual currencies or cryptocurrencies like Bitcoin are unregulated, there is not a central authority that can dictate or control this, as by its very nature, it is decentralized. So, I could send $1 million in cryptocurrency to someone in Iran or North Korea in about 20 minutes, and that could pose problems for some governments. Another major issue that lies ahead are the anonymous virtual coins or tokens that are becoming more popular.
With these, any bad actor could use this to store or launder money without traceability. For the AML world this is probably its biggest challenge in the near term with blockchain technology.
Legal Executive Institute: Financial institutions spend tens of millions of dollars complying with regulations related to Know Your Customer (KYC) rules, as well as due diligence. What impact will blockchain have on KYC or other due diligence procedures?
Joe Raczynski: Fortunately blockchain has the possibility to create structured, yet decentralized data on people and businesses. These stores of information will be permanent ledgers of information. They will be another tool in the ongoing saga to identify people that investigators should be able to rely on.
Legal Executive Institute: Let’s turn to law firms for a moment. As blockchain technology matures, it seems likely we will continue to see applications impacting the legal profession. What role will blockchain play in contract form and estate planning? Should legal professionals be worried their jobs may become obsolete due to smart contracts or self-executing contracts?
Joe Raczynski: Lawyers should not be worried about their jobs becoming obsolete in the near future. However, in time, when smart contracts begin to truly take shape, it will make the drafting and execution of these documents more automated. In the majority of situations, you will have web forms that ask questions, anyone can fill out the answers, and then the document is drafted. Once the document is completed, it is stored on a blockchain. If there are contingencies — for example, sell all shares of a stock upon the death of Person A — the contract will do this. A “Smart Contract” is essentially a few pieces of code that executes or does something based on some perimeter. It is essentially an “if/then” statement.
Thomson Reuters’ Joseph Raczynski
Legal Executive Institute: Blockchain has a lot of potential to change the way government agencies work, both in the immediate future and with a long look ahead. How do you see blockchain changing the way public records are kept and maintained, such as census data or even birth and death records? Could you see these impacting day-to-day functions such as land conveyances and tile registries?
Joe Raczynski: The State of Illinois is already producing birth certificates on a blockchain. Delaware is moving all corporate records to a blockchain. This is happening now. Dubai plans on having all government records on a blockchain by 2020. In time, all public records will be on a blockchain, which should make it easier to track and interact with the files.
It will also provide higher levels of security and transparency and should be more efficient. As people start to use tokens for all assets that they own, tracking this via a blockchain will become even more important.
Legal Executive Institute: Will blockchain or cryptocurrencies change the way government works with the private sector?
Joe Raczynski: It is possible that some of the traditional models of records keeping which were once maintained by the government will become more open and not run through those traditional central authorizations but will be exchanged through private hands. The safeguard is that these transactions would be auditable as the chain of title will be transparent on the blockchain. It is feasible that you will not have government agencies involved in the oversight of this as they have in the past, instead, a nebulous network that all parties have insight into will evolve.