For 18% of the readers of this article, it will turn out to be the most important thing you read this year…
While the claim in the subtitle is speculation and it remains to be seen how accurate I am with the percentile, it does give an indication of the gravity of this subject. The importance of this article can be compared to the first time you came across an article about the “internet” back in the nineties.
This is the first in a series of articles on the blockchain, intended to be an eye-opener into the most exciting development to come out of the tech space in recent times. It is the technology and methodology behind the much talked about Bitcoin, which we will touch on at a later stage. If your work is even remotely of a transactional nature (one party giving to another receiving party) then this publication has to stick with you like velcro.
Simply defined, the blockchain is “a communal distributed ledger” and its function is “to enable a database to be directly and safely shared by entities that do not necessarily trust each other, without requiring central administration”. In this article we will explore some of the game changing functions for the blockchain, as this is one of the best ways to grapple with and understand the concept. I will elaborate on how the blockchain works in a subsequent article.
When I consider blockchain scenarios I picture a piece of code similar to a string of DNA. The giving party and receiving party come together to exchange something (sometimes conditional upon simple or complex criteria) and then ‘unzip’ once the transaction has been verified and completed. While this isn’t a technically perfect analogy I do find it helps me conceptualise such a novel concept.
The benefits of this seemingly infallible concept are:
- safer, verified digital transacting;
- faster, more cost efficient administration;
- reduction in fraudulent transactions;
- less bureaucracy;
- fewer errors and ensuing disputes;
- significantly less paperwork;
- routine transaction processing jobs are done away with.
You will note that much of this has to do with the removing of the intermediary who traditionally authenticated transactions.
My favourite example of the use of the blockchain is sending funds to a relative in the UK.
A traditional scenario is something along the lines of the following:
You approach your bank in South Africa where your funds are banked. You instruct your bank to transfer a sum of money to your relative in the UK. Your bank confirms you have sufficient funds and approaches the UK bank with the mandate. Once the two banks have ‘got chatting’ the SA bank converts the Rands to Pounds and transfers the funds to the UK bank. The UK bank then deposits the funds in your relative’s account in the UK, which should then be available for withdrawal. All in all a rather inefficient, time- and resource intensive exercise…
A theoretical blockchain scenario is slightly more streamlined:
You place the relevant funds (albeit it in a digitized form) on the blockchain. All parties verify the transaction (ensuring a safe, transparent transaction) after which your relative in the UK then receives the funds.
Similarly, you would apply this principle to the millions of other financial transactions that take place daily, both simple and of a more intricate nature.
Most of the large stock exchanges around the globe, spearheaded by the likes of the NASDAQ, are investigating the feasibility of blockchain technology for their share exchanges. There is huge potential value in replacing their inefficient processes for transferring dematerialised shares from buyers to sellers on bourses, to much simpler, quicker blockchain technology. This would in essence render the exchanges redundant, but being the adaptive, progressive entities that they are they are taking the initiative by exploring such future realms such as blockchain exchanges.
Imagine being able to do away with deeds offices and the layers of conveyancing costs when it comes to transferring immovable property such as residential or commercial property. Instead of paying thousands of rands to have attorneys track down and transfer physical title deeds you could have the buyer and seller directly conclude the transfer of the (digitised) title deed on the blockchain.
Most, if not all of the global financial institutions are paying a lot of attention to blockchain technology, spending millions of dollars confronting, experimenting and adopting it. Accordingly, my advice for the moment is to listen intently when you hear blockchain being discussed in your local bar or when it features in your daily newsletter. The blockchain has already arrived – the onus is now on you to keep abreast.
In upcoming articles subjects such as the (vital) trust element, the importance of authentication, legal regulation and smart contracts will be explored.
Michael Van Breda
Michael has a BAcc and LLB from Stellenbosch and was admitted as an attorney in 2012 after completing his articles at Webber Wentzel. He practiced as an associate in Webber Wentzel’s corporate commercial department until 2013, when he left to focus on consulting work. Michael joined Caveat Legal in 2014.