BLOCKCHAIN: THE INTERSECTION OF EMERGING TECHNOLOGY AND AN EVOLVING LEGAL LANDSCAPE
Woods Rogers Offices: Roanoke │ Charlottesville │ Lynchburg │ Richmond P. 800-552-4529 │ www.woodsrogers.com 1
BLOCKCHAIN & VIRGINIA ETHICS THE RULES
• Amendments to Rule 1.1 and Rule 1.6 of the Virginia Rules of Professional Conduct require all lawyers to exhibit and display competence in technology.
• In particular, Rule 1.1 now provides that: “[6] [t]o maintain the requisite knowledge and skill, a lawyer should engage in continuing study and education in the areas of practice in which the lawyer is engaged. Attention should be paid to the benefits and risks associated with relevant technology.” BLOCKCHAIN 2
BLOCKCHAIN – WHAT IS IT? BLOCKCHAIN
Blockchain is a list of records – called blocks – that are linked using cryptography.
Dictionaries define blockchain as “a type of decentralized database system based on linking together previous records in secure blocks of information”
Each block is “secured, unable to be altered, and timestamped.”
Source: https://www.dictionary.com/e/tech- science/blockchain/?itm_source=parsely-api BLOCKCHAIN
Rather than stored in one single data base – the entire chain is distributed across a series of computers – nodes.
Source: https://www.dictionary.com/e/tech- science/blockchain/?itm_source=parsely-api BLOCKCHAIN
TRADITIONAL MODEL BLOCKCHAIN
Before a block is added to the chain, there is a “challenge” issued – where the nodes begin attempting to solve a complex problem.
The “miner” – the node – who solves the problem is given a reward and is the winning block. BLOCKCHAIN
The block is then added to the existing blockchain – and the next block is built using the existing blocks – specifically using the hash of the accepted block as the previous hash. BLOCKCHAIN BLOCKCHAIN
Source: https://bitcoin.org THE MYSTERY THE MYSTERY BITCOIN BITCOIN
Source: https://bitnodes.io/dashboard/ BITCOIN BITCOIN
Source: https://bitnodes.io/dashboard/ BITCOIN BITCOIN BITCOIN BITCOIN BITCOIN
Source: https://www.coindesk.com/bitcoin-double-spend- that-never-happened/ ETHEREUM
51% of nodes manipulated
Source: https://www.coindesk.com/ethereum-classic- undergoes-likely-51-attack-with-3693-block-chain- reorganization ETHEREUM
“If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains.” - Satoshi Nakamoto
Source: https://blog.coinbase.com/ethereum-classic-etc-is- currently-being-51-attacked-33be13ce32de BITCOIN
“Mining is a distributed consensus system that is used to confirm pending transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all the subsequent blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively to the block chain. In this way, no group or individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.”
Source: https://bitcoin.org/en/how-it-works CRYPTOCURRENCIES
1. Bitcoin (BTC) 2.Litecoin (LTC) 3.Ethereum 4.Bitcin Cash 5.Ethereum Classic 6.Zcash 7.Stellar Lumen 8.Bitcoin Satoshi’s Vision CRYPTO CURRENCIES
January 22, 221 7:17 AM Cryptocurrency Current Values
Source: https://coindesk.com BLOCKCHAIN NOT JUST $
Source: https://www.cbinsights.com/research/organizations- corporates-test-blockchains-distributed-ledgers/ FRUIT AND CARS
Source: https://www.cbinsights.com/research/organizations- corporates-test-blockchains-distributed-ledgers/ CARS
Source: https://www.zdnet.com/article/bmw-ford-back-vehicle- birth-certificates-built-on-the-blockchain/ PINEAPPLES
Source: https://www.ibm.com/downloads/cas/EX1MA1OX LOCAL-CHAIN
Source: https://cs.vt.edu/blockchain.html Source: https://healthpayerintelligence.com/news/cigna- sentara-healthcare-join-payer-blockchain-initiative 3
BLOCKCHAIN AND THE LAW CORPORATE RECORDS
Ledgers, capitalization tables, minute books . . . DELAWARE
“Any records administered by or on behalf of the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device, method, or 1 or more electronic networks or databases (including 1 or more distributed electronic networks or databases), provided that the records so kept can be converted into clearly legible paper form within a reasonable time, and, with respect to the stock ledger, that the records so kept (i) can be used to prepare the list of stockholders specified in §§ 219 and 220 of this title, (ii) record the information specified in §§ 156 , 159 , 217(a) and 218 of this title, and (iii) record transfers of stock as governed by Article 8 of subtitle I of Title 6. Any corporation shall convert any records so kept into clearly legible paper form upon the request of any person entitled to inspect such records pursuant to any provision of this chapter. When records are kept in such manner, a clearly legible paper form prepared from or by means of the information storage device, method, or 1 or more electronic networks or databases (including 1 or more distributed electronic networks or databases) shall be valid and admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided the paper form accurately portrays the record.”
Delaware Code Title 8. Corporations § 224. Form of records (emphasis added) WYOMING
“(d) Records administered by or on behalf of, or maintained by, a corporation may be kept on, or by means of, or be in the form of any information storage device or method or any one (1) or more distributed or other electronic networks or databases provided that the records are kept in written form or in another form capable of conversion into written form within a reasonable time.”
WY Stat § 17-16-1601 (2019) WYOMING
“(a) Not later than December 31, 2021, the secretary of state may develop and implement an industry leading filing system through which all required filings, as defined in paragraph (c)(iii) of this section, may be submitted. The secretary of state shall endeavor to use blockchain technology and include an application programming interface as components of the filing system, as well as robust security measures and other components determined by the secretary of state to be best practices or which are likely to increase the effective and efficient administration of the laws of this state. The secretary of state may create a blockchain for the purposes of this section or contract for the use of a privately created blockchain.”
WY Stat § 17-16-1601 (2019) VIRGINIA
Study to “ (i) determine the kinds of blockchain technology that could be used to secure voter records and election results, (ii) determine the costs and benefits of using such technology as compared to traditional registration and election security measures, and (iii) make recommendations on whether and how to implement blockchain technology in practices affecting the security of voter records and election results.”
HJ 23 – 2019/20, Hala S. Ayala Sponsor - this bill was left in appropriations as of February 11, 2020. SMART CONTRACT
Source: https://intellipaat.com/blog/tutorial/blockchain- tutorial/what-is-blockchain-smart-contracts/ SMART CONTRACT
Source: https://blockgeeks.com/guides/smart-contracts/ 4
BLOCKCHAIN AND LEGAL ETHICS ETHICS / NEBRASKA
Nebraska has in an ethics advisory opinion and advised “lawyers to convert digital currency into U.S. dollars immediately upon receipt” – this is because of the “volatility of cryptocurrency prices, prompt sale of the cryptocurrency will ensure that the lawyer does not overcharge the client.” ETHICS / DC
It is not unethical for a lawyer to accept cryptocurrency in lieu of more traditional forms of payment, so long as the fee is reasonable.
A lawyer who accepts cryptocurrency as an advance fee on services yet to be rendered, however, must ensure that the fee arrangement is reasonable, objectively fair to the client, and has been agreed to only after the client has been informed in writing of its implications and given the opportunity to seek independent counsel. Additionally, a lawyer who takes possession of a client's cryptocurrency, either as an advance fee or in settlement of a client's claims, must also take competent and reasonable security precautions to safeguard that property.
https://old.dcbar.org/bar-resources/legal-ethics/opinions/Ethics-Opinion-378.cfm ETHICS / NC
Opinion rules that a lawyer may receive virtual currency as a flat fee for legal services, provided the fee is not clearly excessive and the terms of Rule 1.8(a) are satisfied. A lawyer may not, however, accept virtual currency as entrusted funds to be billed against or to be held for the benefit of the lawyer, the client, or any third party.
https://www.ncbar.gov/for-lawyers/ethics/adopted-opinions/2019-formal-ethics-opinion-5/ ETHICS / NYC
In the first of the three scenarios described above, the perhaps-unrealistic situation in which a lawyer agrees to provide legal services for a flat fee of X units of cryptocurrency, or for an hourly fee of Y units of cryptocurrency, the fee agreement entails a “business transaction” within the meaning of Rule 1.8(a).
This is not an ordinary fee agreement, such as one where the client agrees to pay a flat fee or hourly fee in U.S. dollars. It is one in which the lawyer and the client must negotiate potentially complex questions, and in which an unsophisticated client may therefore place unwarranted trust in the lawyer to resolve these questions fairly or advantageously to the client.
The variables associated with payment in cryptocurrency include the rate of exchange on any given day, any associated fees when converting cryptocurrency to currency, whether (and when) cryptocurrency must be converted into cash, the exchange to be used, the type of cryptocurrency being used (or whether the payment would be in a single cryptocurrency or a combination of cryptocurrencies), and how any dispute will be handled in the event of a disagreement between the lawyer and the client related to these issues. The New York City Bar 5
CONCLUSION BETH BURGIN WALLER CHAIR, CYBERSECURITY & DATA PRIVACY PRACTICE WOODS ROGERS PLC www.woodsrogers.com