Introduction to Distributed Ledger Technology or Blockchain


I’m attorney Laura Anthony founding partner
of Legal & Compliance, a full service corporate, securities, and business transactions law
firm. Today is the first in a LawCast series talking
about distributed ledger technology, or B;ochchain. On July 13, 2017, FINRA held a Blockchain
Symposium to assess the use of distributed ledger technology, or DLT, in the financial
industry, including the maintenance of shareholder and corporate records. DLT is commonly referred to as blockchain. The symposium included participation by the
Office of the Comptroller of Currency, the US Commodity Futures Trading Commission or
CFTC, the Federal Reserve Board and the SEC. FINRA also published a report earlier in the
year discussing the implications of DLT for the securities industry. Delaware, Nevada and Arizona have already
passed statutes allowing for the use of DLT for corporate and shareholder records. This is the first in many LawCasts that will
discuss DLT as this exciting new era of technology continues to unfold and impact the securities
markets. I will summarize the recent recent SEC investigative
report on initial coin offerings and conclusion that cryptocurrencies can be a security. I will also be completing a LawCast series
summarizing the state blockchain legislation to date, including Delaware’s groundbreaking
statute. Blockchain is an openly distributed database
which is used to continuously maintain a list of records, called blocks. Each new block is linked to prior blocks in
such a way the data cannot be retroactively changed in a prior block without changing
all blocks, which is virtually impossible, although technology is being developed to
correct prior transactions on the chain. A DLT ledger is shared among network participants,
instead of relying on a single central ledger. The blockchain technology could be used to
maintain shareholder records in a secure immediate form as well as to process capital markets
trades instantaneously. It is thought that stock ledgers and any transfers
would be updated instantaneously, effectively allowing for T+0 settlement of trades without
the need for intermediaries. A change of this magnitude in our trading
markets is many years away as effective regulation and consideration on market impacts will take
some time. However, many top transfer agents are already
developing blockchain systems for shareholder records and some will be available for testing
within a matter of months. The technology is already being utilized,
most notably by the cryptocurrency industry. At least one industry leader, Overstock CEO
Patrick Byrne’s t0 Technologies, has created a system that could form the basis for widely
used blockchain technology which disrupts the capital market trading systems. I don’t expect quick changes to trading
systems and settlement. Blockchain remains widely unregulated and
without consensus from top financial regulators, any change to capital market structures will
face roadblocks. However, I expect that the ability for public
companies to maintain stock ledgers using DLT technology will be forthcoming very soon. I’m securities attorney Laura Anthony, founding
partner of Legal & Compliance, and producer of LawCast. Should you have any questions about today’s
topic, please visit SecuritiesLawBlog.com and LawCast.com, or contact me directly. Inquiries of a technical nature are always
encouraged.

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