Proctor : June 2017
26 PROCTOR | June 2017 Ethereum: More than ‘the new Bitcoin’ “[Blockchain] is to Bitcoin what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.” – Sally Davies, Financial Times technology reporter Off the back of a highly successful 2016 for Bitcoin, Japan has recently recognised it as a legal method of payment. Some 4500 Japanese stores already accept Bitcoin, with a further 700,000 outlets using other modes of digital payments. This is part of a growing legal recognition of blockchain technology. In the United States, the state of Delaware has announced amendments to its Delaware General Corporate Law which would recognise ‘distributed ledger shares’ as a legitimate method of managing company stock. This could enable shares to be bought, held, and sold entirely via blockchain.1 A Bill was recently passed by the Arizona House of Representatives to recognise signatures and records secured through blockchain technology under that state’s law on electronic transactions. The Bill, HB 2417, also ensures that smart contracts cannot be denied legal effect simply because of their status as smart contracts. 2 However, the public perception of blockchain, a complex and multifaceted tool, is still dominated by Bitcoin. This parallels its predecessor in technological innovation, the internet, as Sally Davies suggests in the quotation above. The Harvard Business Review has described email as the ‘killer app’ of the internet – even though the internet has many uses, it was email that brought people to it. Similarly, the Harvard Business Review suggests that Bitcoin is the ‘killer app’ of blockchain, which is the technology used to track ownership of digital currency.3 New kid on the blockchain However, Bitcoin isn’t alone. Rival blockchain technology Ethereum, which is fuelled by the Ether digital asset, grew by more than 300% in March 2017 and prompted Blockgeeks CEO Ameer Rosic to ask whether it was the ‘the new Bitcoin’, even though in reality it is capable of so much more. 4 Rather than merely tracking ownership of currency, Ethereum can be used to pay for transaction fees and services on the Ethereum network, and, unlike Bitcoin, includes the addition of a smart contract (Ether). The smart contract allows Ethereum to be traded only if certain conditions, say, a defined period of time or execution by all parties, are met. In its most basic form, Bitcoin has limited functionality – to provide for a peer-to-peer electronic currency system which can store and transfer value without the need for a bank or other third party. Bitcoin has significantly disrupted the finance sector and will continue to. In the legal sector, Ethereum is shaping up to be the key disruptor. Ethereum is based on the same principles as Bitcoin, but allows developers to build multiple applications on the one platform, as opposed to creating a new blockchain for each new functionality. Practical implications and opportunities of Ethereum The direct impact Ethereum will have on day-to-day legal practice is the introduction of ‘smart contracts’. This allows for the platform to store a set of rules based on an ‘if:then’ code – that is, if X then Y – as opposed to merely storing transactions. Smart contracts essentially will be able to self-execute and enforce the management, performance, and payment of that contract.