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To Blockchain or not to Blockchain

For most people blockchain technology is synonymous with bitcoin and often the mere mention of either results in a glazed expression and derision. After all, who can forget Silk Road? Well, if the latest media hype is anything to go by, blockchain technology is not just here to stay, it’s also the single biggest potential market disruptor. The question is, does anyone understand it enough to use it and more importantly, is it really relevant to your business?

What is blockchain technology?

In its simplest terms, blockchain technology provides a digital platform for users to transact directly, in real time, with no intermediary, no risk of default or 3rd party manipulation, and with no additional costs. It is freely accessible, virtually entirely confidential and maintains a record of all dealings in perpetuity. A global ledger. A key aspect is the programmable smart contract: code stored on the blockchain that automatically executes when certain conditions have been met. Whilst all transactions on the blockchain are visible, all user information and transaction detail is encrypted (the best example is to think of it like your home address. You can publish your home address publicly, but that doesn’t give any information about what your home looks like inside. You need a private key to enter your private home, and since you have claimed that address as yours, no one else can claim the same address as theirs). Sound appealing? It should.

In its current format, most blockchain transactions are bitcoin related, but the opportunities are endless as there is no monopoly on the technology. If you can imagine it, chances are it can be run through a blockchain. And it is not just tech companies that are getting involved, even Governments are investigating the technology: Honduras is using blockchain to handle land titles while the Isle of Man has begun testing the technology with a registry of companies on the island. In the US, the NASDAQ has already implemented a blockchain for record keeping within its Private Market where pre-IPO trading (before a company goes public) activities happen more often. The record keeping through blockchain tracks who owns shares of a given company, and how much they own. In other words, no more paper certificates.

Imagine a world where you can make payments globally without having to transact through banks or central clearing systems, imagine no deeds registry and seamless property transfers, imagine real time settlement of trades, instantaneous cross border transactions and cheap, secure business solutions. Sound too good to be true? Not necessarily.

Why should you consider blockchain technology in your business?

Whilst there are still many regulatory hurdles that need to be overcome before the technology becomes mainstream, one only has to look at what is happening around the world to understand the significance of blockchain technology.

For big banks, insurers and other financial institutions scrambling to modernise their often outdated IT systems in the face of increased pressure from regulators, digital challengers and cyber criminals, blockchain represents an opportunity to rethink much of what they do. Not to mention increased efficiency and scalability. The ability of the technology to provide an unforgeable record of identity, including the history of an individual’s transactions, is one area that should be being eagerly explored.

Life insurance and financial services giant John Hancock has begun work on multiple blockchain proofs-of-concept (1) designed to show how distributed ledger technology could reinvent established insurance industry processes and (2) aimed specifically at making the company more transparent and more efficient.

In trying to deal with blockchain developments, banks have taken various approaches: some have developed in-house models, such as Citigroup’s creation of their own digital currency, Citicoin. Barclays recently announced it would provide the UK infrastructure to a Goldman Sachs funded FinTech company, Circle Internet Financial (based in Boston), which aims to use an app to allow customers to transfer money with messages and emojis, and make currency transfers between pounds and dollars. The Commonwealth Bank of Australia has teamed up with open source software provider Ripple to build a blockchain system for payments between its subsidiaries. UBS and Microsoft are both working with blockchain start-up Ethereum, which runs a similar open source technology, and allows for the smart contracts that can execute trades automatically. In 2015, R3CEV, a blockchain technology company, was formed by a consortium of 42 global financial companies in research and development of blockchain usage in the financial system. On March 3, 2016, R3CEV announced that it had completed a trial involving 40 banks held in the last two weeks of February, testing the use of blockchain solutions to facilitate the trading of debt instruments.

In other words, blockchain technology is not just being disregarded.


As innovation grows and different use cases arise in utilising the blockchain, regulation needs to be flexible enough to allow for that innovation.

To date many jurisdictions are still grappling with this technology and how to regulate it. If at all. Many are following the Uber example i.e. wait and see what happens. Some more conservative states have banned it altogether, whilst most are looking for ways to incorporate the technology within the system, a means of “if you can’t beat them, join them”. Or rather, if the very system itself may be under threat, better to be on the side of influence than be caught left behind.

For example, the Bank of England in studying blockchain technology said in a recent paper that “it may be possible in the future — in theory, at least — for the existing infrastructure of the financial system to be gradually replaced by a variety of distributed systems”.

In recent events, the Washington D.C. based Chamber of Digital Commerce, along with three of the world’s leading digital blockchain trade organizations, namely the Australian Digital Currency & Commerce Association, the UK Digital Currency Association and the Association of Crypto-Currency Enterprises and Startups, Singapore, announced the launch of the Global Blockchain Forum, an international body whose mission is to help shape international blockchain policy. The lack of unified policies between jurisdictions can be costly for startups particularly where transactions are occurring globally. It is for this reason that the Forum was established – to create rules and regulations, standards and best practices that are somewhat the same in each jurisdiction.

Whilst South Africa has been slow in its adoption of blockchain technology, there has been some innovation in this space: all South Africa’s leading financial institutions have some proof-of-concept or early stage technology related to the blockchain, according to Ross A. Mauri, general manager at IBM’s z Systems. As Lorien Gamaroff, CEO of Bankymoon states: “I am convinced that soon local businesses will feel the pressure of being left behind and will become motivated to act…”

Blythe Masters, formerly from JPMorgan and now leading the blockchain start-up Digital Asset Holdings in the US told an audience: “You should be taking this technology as seriously as you should have been taking the development of the Internet in the early 1990s. It’s analogous to email for money.”

Whether or not you believe this statement, the hype around blockchain will likely continue to grow, especially as new experiments come to market. It may well be time for your business to take a closer look at what blockchain technology has to offer. While there is no regulatory framework for this as yet, any developments in this space will need to be considered carefully within South Africa’s current legislative and regulatory environment.

Taryn Hirsch

Taryn has a BA and LLB and was admitted as an attorney is 2003 after having completed her articles at Deneys Reitz (now Norton Rose Fulbright). She rose to the level of director at Deneys Reitz’ banking and financial services department by 2007, before moving to Allen and Overy in Tokyo for a year. On her return, she joined Allan Gray where she has worked in various legal advisory positions until joining Caveat Legal in 2016.

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