Guest post by Raphael Grossman - Solicitor at Lehman Walsh Lawyers
Blockchain technology has been utilised for almost a decade and has propelled the cryptocurrency Bitcoin into ubiquity after its creation in 2008. However, even after all this time, we have barely scratched the surface of what blockchain technology is capable of bringing to the digital age. The colossal success of Bitcoin has led to a technological race to find the most lucrative and efficient ways of utilising blockchain technology in various industries. The legal profession is perfectly poised to reap the benefits of blockchain both as an integrator and as an advisor on the murky legal issues that will no doubt arise.
You may be wondering what exactly is a blockchain and why there is so much interest all of a sudden. The essential characteristics of blockchains are:
• A network of systems or computers each hosting and storing the same duplicated database.
• Constant reconciling of the database over the network of computers. This prevents corruption of the data.
• No centralised location of the database.
• Each new transaction is recorded as a new block, so all past blocks remain a historical record of transactions.
The nature of blockchains makes them nearly impossible to corrupt. For example, imagine in a network of 100 computers that all have a record of a $100 transfer last Friday. If one of the computers had its record altered to show a $50 transfer, this would be reverted back to $100 when reconciled with the records of the 99 other computers.
This makes it almost impossible to hack a blockchain network of millions of computers. You would need to simultaneously hack and alter the same block on the majority of the computers on the network. Blockchain technology is, therefore, very appealing to the financial, legal and security industries where information needs to remain secure.
The Future of the Blockchain
As a result of the Bitcoin boom and the many potential uses of blockchain technology, many programmers and developers are learning and mastering blockchain coding. These forward thinking coders will be positioned to take advantage of the inevitable prevalence of blockchain technology in the future of the digital age. The legal profession should follow suit so that it is in a position to anticipate and adapt to the regulation of the technology.
A prevalent problem caused by Bitcoin stems from the anonymity it provides as a cryptocurrency. Unlike other currencies, there is no way of tracing the users of transactions. The underworld has used this anonymity to fund illegal dealings such as selling narcotics, money laundering and even the hiring of hitmen. This has led to the regulation of Bitcoin usage in some countries and specifically in Australia Bitcoins are treated as personal assets and subject to Capital Gains Tax. The Australian government has shown an intention to further regulate Bitcoins to curb their use in illicit activities.
The cryptocurrency is seen as an intangible property rather than a money instrument under existing laws that dictate a double tax on digital currency-based payments.
However, Australia’s 2017 federal budget is (finally) putting an end to the double taxation of digital currencies like bitcoin as a part of a wider FinTech-forward agenda by the government.
In the legal industry, understanding and utilising Blockchain technology will be very advantageous. Drafting contracts and other legal documentation will likely find blockchains very useful for efficiency and cost savings. This will present an opportunity to for lawyers to offer significantly lower costs to business clients and provide lawyers with more time to deal with more complex matters.
In today’s world, where digital technology is more prevalent than ever for businesses and consumers alike, Blockchain technology looks like the next revolutionary technology so get on board the Blockchain train before it leaves the station.