Contenu connexe Plus de Financial Poise (20) Blockchain and Smart Contracts (Series: Blockchain Basics)1. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™
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Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
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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
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MEET THE FACULTY
Moderator:
Chris Cahill – Lowis & Gellen LLP
Panelists:
Nelson Rosario – Smolinski Rosario Law
John Servidio – Goodwin Procter LLP
Matt Wolf – Antonym
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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.
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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?
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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.
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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
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.
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Episode #1:
Blockchain and Smart Contracts
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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
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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
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TYPES OF BLOCKCHAINS
• Public Blockchains (permission-less)
• Private Blockchains (permissioned)
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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)
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TITLE
Content
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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:
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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)
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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
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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
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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
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“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”
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“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
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“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)
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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
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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
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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
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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)
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ABOUT THE FACULTY
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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.
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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.
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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.
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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.
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QUESTIONS OR COMMENTS?
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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.
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