A Lawyer’s Primer to and Smart Contracts

October 12, 2018

12:00 p.m. – 1:30 p.m.

CBA Law Center

New Britain, CT

CT Bar Institute Inc.

CT: 1.0 CLE Credits (General) NY: 1.0 CLE Credits (AOP)

No representation or warranty is made as to the accuracy of these materials. Readers should check primary sources where appropriate and use the traditional legal research techniques to make sure that the information has not been affected or changed by recent developments.

Page 1 of 20 Lawyers’ Principles of Professionalism

As a lawyer I must strive to make our system of justice work fairly and Where consistent with my client's interests, I will communicate with efficiently. In order to carry out that responsibility, not only will I comply opposing counsel in an effort to avoid litigation and to resolve litigation with the letter and spirit of the disciplinary standards applicable to all that has actually commenced; lawyers, but I will also conduct myself in accordance with the following Principles of Professionalism when dealing with my client, opposing I will withdraw voluntarily claims or defense when it becomes apparent parties, their counsel, the courts and the general public. that they do not have merit or are superfluous;

Civility and courtesy are the hallmarks of professionalism and should not I will not file frivolous motions; be equated with weakness;

I will endeavor to be courteous and civil, both in oral and in written I will make every effort to agree with other counsel, as early as possible, on communications; a voluntary exchange of information and on a plan for discovery;

I will not knowingly make statements of fact or of law that are untrue; I will attempt to resolve, by agreement, my objections to matters contained in my opponent's pleadings and discovery requests; I will agree to reasonable requests for extensions of time or for waiver of procedural formalities when the legitimate interests of my client will not be In civil matters, I will stipulate to facts as to which there is no genuine adversely affected; dispute;

I will refrain from causing unreasonable delays; I will endeavor to be punctual in attending court hearings, conferences, meetings and depositions; I will endeavor to consult with opposing counsel before scheduling depositions and meetings and before rescheduling hearings, and I will I will at all times be candid with the court and its personnel; cooperate with opposing counsel when scheduling changes are requested; I will remember that, in addition to commitment to my client's cause, my When scheduled hearings or depositions have to be canceled, I will notify responsibilities as a lawyer include a devotion to the public good; opposing counsel, and if appropriate, the court (or other tribunal) as early as possible; I will endeavor to keep myself current in the areas in which I practice and when necessary, will associate with, or refer my client to, counsel Before dates for hearings or trials are set, or if that is not feasible, knowledgeable in another field of practice; immediately after such dates have been set, I will attempt to verify the availability of key participants and witnesses so that I can promptly notify I will be mindful of the fact that, as a member of a self-regulating the court (or other tribunal) and opposing counsel of any likely problem in profession, it is incumbent on me to report violations by fellow lawyers as that regard; required by the Rules of Professional Conduct;

I will refrain from utilizing litigation or any other course of conduct to I will be mindful of the need to protect the image of the legal profession in harass the opposing party; the eyes of the public and will be so guided when considering methods and content of advertising; I will refrain from engaging in excessive and abusive discovery, and I will comply with all reasonable discovery requests; I will be mindful that the law is a learned profession and that among its desirable goals are devotion to public service, improvement of In depositions and other proceedings, and in negotiations, I will conduct administration of justice, and the contribution of uncompensated time and myself with dignity, avoid making groundless objections and refrain from civic influence on behalf of those persons who cannot afford adequate legal engaging I acts of rudeness or disrespect; assistance;

I will not serve motions and pleadings on the other party or counsel at such I will endeavor to ensure that all persons, regardless of race, age, gender, time or in such manner as will unfairly limit the other party’s opportunity disability, national origin, religion, sexual orientation, color, or creed to respond; receive fair and equal treatment under the law, and will always conduct myself in such a way as to promote equality and justice for all. In business transactions I will not quarrel over matters of form or style, but will concentrate on matters of substance and content; It is understood that nothing in these Principles shall be deemed to supersede, supplement or in any way amend the Rules of Professional Conduct, alter existing standards of conduct against which lawyer conduct I will be a vigorous and zealous advocate on behalf of my client, while might be judged or become a basis for the imposition of civil liability of recognizing, as an officer of the court, that excessive zeal may be any kind. detrimental to my client’s interests as well as to the proper functioning of our system of justice; --Adopted by the Connecticut Bar Association House of Delegates on June 6, 1994 While I must consider my client’s decision concerning the objectives of the representation, I nevertheless will counsel my client that a willingness to initiate or engage in settlement discussions is consistent with zealous and effective representation;

Page 2 of 20 Table of Contents Program Description and Agenda ...... 4 Faculty Biography ...... 5 A Lawyer’s Primer on Blockchain and Smart Contracts ...... 6

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A Lawyer’s Primer to Blockchain and Smart Contracts

ABOUT THE PROGRAM

Discover what , smart contracts, ICOs, and are all about. How can attorneys use blockchains and smart contracts to change their everyday practice of law? Find out how the rule of code and the rule of law will intersect and change society as we know it.

YOU WILL LEARN

• How blockchain and smart contracts have created “trustless” decentralized applications and organization that rely on cryptographic proof rather than relying a trusted centralized party, such as notaries, attorneys, large internet companies such as .

• How smart contracts and blockchain are currently being used, exploring Bitcoin, Ethereum. The benefits and limitations of smart contracts.

• Current and future applications and use cases of smart contracts and blockchain for attorneys.

WHO SHOULD ATTEND

New and experienced attorneys who want to learn what blockchains and smart contracts are and how it is already changing the practice of law.

SPEAKER:

Michael Chan, Attorney and Legal Engineer Open Law (A Consensys spoke), New York, NY. Consens

Resides: Trumbull, CT

PROGRAM AGENDA

TIME TOPIC

12:00-12:05 Speaker Introduction

12:05-12:30 Intro to Blockchain Technology: What is a blockchain and how does it work? Introduction to various platforms: Bitcoin, Ethereum, etc.

12:30-1:00 Smart Contracts as Legal Contracts: How and what are they currently being used for? Benefits and limitations of smart contracts.

1:00-1:20 Future Applications of Smart Contracts and Blockchain: decentralized organizations, automated governance. Future of regulation.

1:20-130 Question and Answer

Page 4 of 20

Faculty Biography

Michael C. Chan is a Legal Engineer/ developer with OpenLaw.Io, a spoke of Consensys. Consensys is a world leader in developing blockchain applications and decentralized software. Michael has long been interested in smart contracts and making the law more accessible through technology. Michael is a founding partner of the intellectual property law firm Melwani and Chan LLP. He has also worked at a clean tech start-up in Shanghai, China. He was formerly Corporate Counsel at East West Bank, a publicly traded California based bank (NASDAQ: EWBC), where he advised the bank on capital raises, SEC investigations, shareholder lawsuits, regulatory compliance issues, and distressed debt sales. Michael started his legal career with the hip-hop entertainment law firm Anthony Arther &Associates in New York City. Michael is licensed to practice law in New York and Connecticut. He received his Juris Doctorate from Yeshiva University’s Benjamin N. Cardozo School of Law in New York City and his B.S. in Anthropology from the University of Wisconsin-Madison. Prior to law school he worked as an archeologist in Wisconsin and on the Aleutian Islands, located off the tip of the Alaskan Peninsula, where he helped excavate a 3500 year-old Aleut fishing village.

Page 5 of 20 A Lawyer’s Primer on Blockchain and Smart Contracts

Michael Chan michael.chan@.net

What is a Blockchain? ● The blockchain is like a huge, global, decentralized spreadsheet. ● It keeps track of who sent how many or Ether to whom, and what the balance of every account is. ● It is stored and maintained by thousands of people (miners) across the globe.

Blockchain Networks Examples Public Blockchains ● Bitcoin ● Ethereum ● ●

Private/Permissioned Blockchains ● Qourom ● ● Corda

Blockchain inspired ● Ripple ● Stellar

Page 6 of 20 What is a Blockchain?

Blockchains have unique characteristics: ● Global and transnational ● Resilient and tamper resistant data ● Transparent and non-repudiable records ● Pseudo anonymous ● Incentive Mechanism

What is a Blockchain?

A blockchain works by having the entire decentralized network users(miners) publicly verify every single transaction via a series of complex math problems.

These transactions remain public and traceable, because each transaction constitutes a step in the blockchain.

What is a Blockchain?

Nobody owns the Ethereum or Bitcoin platforms.

No venture investors backing. Borders are porous

Flat hierarchy. Interact with a Blockchain using an ‘address.” The address is based on Public-Private Key Cryptography

Page 7 of 20 In the Beginning there was Bitcoin

Bitcoin offered a kind of proof that you could create a secure database — the blockchain — scattered across hundreds or thousands of computers, with no single authority controlling and verifying the authenticity of the data. the work of maintaining that distributed was itself rewarded with small, increasingly scarce Bitcoin payments

Parties on the network validate transactions, currently through a brute force guessing game called “”

Miners collect a “block reward” -- an allocation of the that deprecates over time

Page 8 of 20 How do you use a blockchain? An address is how a user interacts with a blockchain.

My actual Ethereum Address (Feel free to send me Ether!)

0xad9b86640008f02d9f2f3f0702133cea4eecb18c

Ethereum address has elements of a bank account, an email address and a Social Security number all in one.

How do addresses work on a blockchain?

Addresses rely on Public - Private Key Cryptography.

Similar to a mailbox with a key. Anybody can drop mail inside. Only the person with the private key can unlock the mailbox. User owner and portable, as opposed to a Facebook profile.

Public-private key cryptography

Page 9 of 20 How do I obtain an address?

Metamask chrome extension (Very easy to make new addresses). https://metamask.io/

Download an Ethereum wallet, for example: https://kb.myetherwallet.com/ https://www.coinbase.com/

Database maintained by a network of computers (“miners”) and managed via a consensus protocol.

Copies of a blockchain redundantly stored across the globe

Page 10 of 20 Transactions organized in “blocks” that are cryptographically linked together

Why build a blockchain platform?

At first the Internet was a great equalizing platform. The promise of the early Internet was that the big and powerful would no longer have sole control over the dissemination of information.

To some extent this is true today, but most of our Internet traffic is routed and filtered through large centralized entities, such as FaceBook or Google.

In some cases, an entire country, such as China, filters the information available to the general public.

Why build a blockchain platform?

Current platforms for the most part based on monetizing user information, i.e. advertising.

Which means devolving to the lowest common denominator - clickbait articles based, quality is of secondary concern. Only clicks and generating ad revenue.

Page 11 of 20 Why build a blockchain platform?

A decentralized platform, such as Ethereum, can provide the infrastructure necessary to give all participants a stake, through a token economy.

Other open protocols examples: wikipedia, websites (http) email (POP, SMTP, IMAP) and location services (GPS),

Blockchain can provide open protocols for:

identity, community and payment mechanisms

Why build Blockchain: InterPlanetary File System (IPFS)

HTTP downloads web pages from a single location at a time and has no built-in mechanism for archiving the online pages.

Similar to BitTorrrent, Napster, IPFS allows users to download a page simultaneously from multiple locations and includes “historic versioning,” so that past iterations do not vanish from the historical record.

Everytime a file changes a new ‘hash’ is generated, so easy to see if a file/ document/video has been edited.

Good for combating fake news, posting evidence, resistant to censorship.

How Secure is a Blockchain

Blockchain itself is secure.

Very cheap to defend. Very expensive to attack. Would have to reverse the transaction on every single node.

Unlike, Equifax which is storing millions of users data, where one hack leads to a treasure chest of valuable data.

Market cap is in the billions. If someone could hack they would be the richest peson on the planent.

Current hacks are what happens when an exchange/company is storing the private keys of a user.

Page 12 of 20 CODE AS LAW Since a blockchain is not owned by any one person/entity, it is collectively managed by peer-to-peer network.

We can complete a secure transaction without any of the traditional institutions that we rely on to establish trust.

A trustless transaction allows the party to not care who the other party is on the other side of the transaction, because the code will serve as the law.

A “global world” computing platform. Right now a slow one.

Smart Contracts: Code facilitated via a blockchain.

Page 13 of 20 SMART CONTRACTS

Enable:

Global digital currency and asset transfers.

Highly resilient, authenticated, and tamper-resistant registries

Automoatic and/or autonomous excecution of code to transfer assets.

Can coordinate social and economic activity in a decentralized manner.

Page 14 of 20 SMART CONTRACTS

Smart contracts and decentralized applications promise to remove middleman and reduce friction in all types of property transactions.

By using self-executing code and the blockchain, decentralized applications can reduce fraud, prevent censorship, and third-party interference .

Universe of of Smart smart contracts is vast: Contracts● Legal agreements ● Machine-to-machine interactions ● Document management ● Rules to govern activityLegal Group Agreements Rules ● Structuring “decentralized” applications

Machine-to- Machine

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BLOCKCHAINS MANAGE ASSETS

A new data structure that creates a persistent record of who owns what at what time, including natively digital assets (bitcoin, ether, ERC-20/721 tokens) and other classes that are increasingly represented on a blockchain

© 2018 - Confidential & Proprietary

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SMART CONTRACTS MOVE BLOCKCHAIN- BASED ASSETS

These trustworthy computer scripts enable assets to be transferred in a matter of seconds and in complex ways.

© 2018 - Confidential & Proprietary

SMART CONTRACTS HAVE LIMITATIONS 32

PRIVACY LIMITATIONS OF CODE

Blockchains leak information, ’s can’t represent every enabling the deanonymization of contractual promise, particularly those commercial activity facilitated that are not objectively verifiable through smart contracts

USABILITY SELF-EXECUTION

Smart contracts can be designed Blockchain-based applications are still to be autonomous, creating difficult to create and manage commercial risks

© 2018 - Confidential & Proprietary

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Smart Contracts on Ethereum 35

Ethereum is a the main open source software platform based on blockchain technology that enables developers to build and deploy decentralized applications

36 Smart Contract Platforms

Ethereum’s blockchain is designed for the creation of an entire decentralized internet: cryptocurrencies, smart property, smart contracts, and decentralized autonomous organizations (DAOs) can all be created by simply writing a few lines of code.

Other blockchains, such as Cardano aim to do the same, but are not nearly as popular with software developers

Page 17 of 20 37 DISTRIBUTED CRYPTOGRAPHICALLY SECURE There are many replicas of the Uses tried and true public / private blockchain database and no one signature technology. Blockchain applies participant can tamper it. this technology to create transactions that Consensus among majority are impervious to fraud and establishes a participants is needed to update the shared truth database

‘SMART CONTRACTS’ The Ethereum blockchain can store TAMPER-RESISTANCE both data and Smart Contract (“logic”) Blockchain is a write-once data in the blockchain structure so it records tamper-resistant records of every transaction that occurs

38 CORE COMPONENTS OF ETHEREUM

ETHEREUM VIRTUAL MACHINE (EVM) Turing complete software that runs on the Ethereum network and makes the process of creating blockchain applications much easier and more efficient

SMART CONTRACTS Computer code that facilitates the exchange of money, content, property, shares, or anything of value and automatically executes when specific conditions are met

ETHER (ETH) Native token Ether (ETH) is mined and used to pay for transactions and services on the network

39 CORE COMPONENTS OF ETHEREUM

TOKENS STANDARDS (ERC20, ERC223, ERC721) Ethereum pioneered token standards allowing businesses to create their own tokens that represent an asset or utility and interact with the Ethereum blockchain via smart contracts

DECENTRALIZED APPLICATIONS (DAPPS) Applications that serve some particular purpose to users made up of code that runs on a blockchain network and not controlled by any individual or central entity

Page 18 of 20 40 ADVANTAGES OF ETHEREUM

Formally specified security and Vendor-neutral Public – private blockchains Private, permissioned smart contract capabilities compatibility blockchains for enterprise and government use cases

Rapidly growing community Multi-billion dollars of value Enterprise Ethereum Alliance The dominant platform for encompassing 30,000+ protected on the public network (EEA) is the largest blockchain the 'token ecosystem’ developers consortium

Tokens Economy and Initial Coin Offerings

A token/coin is some software offered to users in exchange for using and improving the software platform of the application. Tokens can then be exchanged for services or resold on open market.

Price is still based on speculation, but the economic value is distributed among a much wider group than shareholders/executives in a company.

So instead of Facebook getting all the rewards from sharing user data and content, user’s address would earn tokens. That address is portable to any service and the tokens can be sold.

Tokens and Initial Coin Offerings (ICOs)

An ICO is similar to an IPO, except instead of shares you can buy coins/tokens.

ICOs have attracted SEC attention, due to scammers.

SEC made a sample scam website for ICOs. https://www.howeycoins.com/index.html

Page 19 of 20 ENTERPRISE 43 REQUIREMENTS THE RISE OF TOKENIZATION

Real-time Provenance Digital Permissions transactions & Tracking Identity

Performance

Micro-payments & Custody & Asset Escrow Security + Funding tokenization Throughput Automated Accounting & Rights execution Reconciliation management Privacy

links https://metamask.io/ https://anders.com/blockchain/ https://www.nytimes.com/interactive/2018/06/27/business/dealbook/blockchain-currencies.html https://ethereum.github.io/yellowpaper/paper.pdf https://bitcoin.org/bitcoin.pdf https://ipfs.io/ https://openlaw.io/

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