Tag: distributed ledger technologies

Blockchain & Businesses
Ι. Preamble

In 1956, American President Eisenhauer announced the US satellite program. Dr Richard Woolley, Astronomer Royal, rather hastily publicly characterized the discussions made at the time about space travel as “utter bilge!”. On 4.10.1957, the Soviet Union launched “Sputnik1”.

Could blockchain be “utter bilge”?

ΙΙ. 4IR, DLT & Blockchain

We are at the age of the 4^th Industrial Revolution (4IR). As analyzed in a previous article, 4IR emerged as the answer on how to boost production. The main idea behind it was to render factories “smart” and, as a result, more functional and effective. Soon enough, 4IR broke through those limits and started affecting most aspects of our lives.

4IR has already blurred the boundaries between the natural, biological and digital world.

We have already talked about the technologies constituting 4IR, among which is the Distributed Ledger Technology/DLT. As far as DLT is concerned, we came to the conclusion that it is “a database which, instead of being kept in a central location, it is distributed in a network of computers. The users of the computers with access to the network, depending on the licenses they hold, are able to access the information and/or add data.”

We also saw that the most common DLR is the, widely known, blockchain. We understood that this “chain” “is protected in its entirety by complex mathematical algorithms, aiming to ensure the integrity and safety of the data. This chain is a complete recording of all the transactions recorded in the database. The most known application of blockchain is the creation and circulation of cryptocurrencies, as well as the accommodation of transactions entailing cryptocurrencies.” We also understood that blockchain has revolutionized the safety of transactions.

And all that of course, even if they are hard to understand, seem (and are) extremely interesting. Especially for businesses. As long as the relevant questions are answered.

Among those:

What is the value of blockchain for businesses?

How is blockchain steadily rendering itself necessary and those who ignore it irrelevant?

Which are the opportunities to utilize it in order to achieve one’s business goals?

ΙΙΙ. Utilizing blockchain

Blockchain technology already applies in most sectors, private and public.

Gradually, more and more businesses and organizations are considering the benefits and possible applications of blockchain in various aspects of their operations. Pilot projects are running. Some, innovators, are enjoying blockchain’s applications and advantages.

The private sector is, at least for now, at the forefront when it comes to utilizing this technology.

With banks leading the way (mostly). Internationally.

Nevertheless, although hesitating at first, now steadily more and more states, public authorities, national and international organizations are coming to terms with the existence of blockchain and are starting to look forward to its benefits. With some of them already enjoying them.

IV. Blockchain and businesses

Businesses are set apart by their objects and way of operating. This is why a (possible) application of blockchain would differ, depending on the business applying it. It is a fact that businesses can utilize blockchain on many levels, thus rendering themselves innovators in their respective fields. The main goal always being turning this innovation into business profits. Blockchain can assist in this direction.

Attaining business profits can be achieved (mainly) in two ways:
- by incorporating blockchain in everyday operations of the business (in general or in specific aspects of its operations) -essentially by utilizing it as a business advantage.
(and, as far as those who specialize in this technology are concerned)
- by incorporating blockchain in the specialized services offered (e.g. offering advisory services to businesses for its utilization as a business advantage or offering tech support for incorporating it, as a tool, for the operation of the business).
Given the number of possible applications of this technology, it would be impossible to try to mention all of them. We will confine ourselves to only mentioning the most important ones.

V. Utilizing blockchain in business operations

Blockchain works as a decentralized ledger. It offers disintermediation, safe and fast transactions. Those advantages have nothing to do with specific fields or objects. All businesses can benefit.

Blockchain renders mediation and mediators unnecessary. The relevant expenses are no longer applicable. Blockchain minimizes final costs and bureaucracy. It substantially speeds up the conclusion of transactions.

Companies are now able to utilize blockchain for recording any data. Especially the data that they consider to add value to their product or service, as well as data verifying that said products or services originated from them. This application is available because any asset (financial, physical or virtual) can be digitalized and depicted in a blockchain ledger.

In this regard, any business can blindly trust the data stored in a blockchain. Since data can be verified in no time, no one could really successfully claim something untrue in a blockchain world. The authenticity of a product, the country of its origin and the conditions under which it was manufactured could not be disputed in case a blockchain was used for keeping all the relevant information. The consumer, when they are confident about the criteria they used for making their choice, would much rather buy a product from a company with this “seal” than from a company without one.

The authenticity of a certification of knowledge or of a degree is easily ascertained when the one issuing it has recorded it in a blockchain. This certification (or degree) is more prestigious and has an advantage compared to the ones not stored in a blockchain. In this regard, any employer will have no reason to doubt the authenticity of the titles submitted by a (prospective) employee, when those titles are stored in a blockchain and have a (unique and easily verifiable) “hash value”.

VI. Cryptocurrencies and businesses

Cryptocurrencies are digital currencies based on an open source software. The most popular cryptocurrency with the highest circulation is bitcoin.

Cryptocurrencies allow for the transfer of value between transacting parties, eliminating the need for the mediation of a central authority (e.g. a Bank or a State). Being digital, those currencies do not take a physical form. All cryptocurrency transactions are confirmed by the users of the decentralized monetary system and are recorded in a blockchain. Cryptocurrencies resist inflation. And, with the technology that currently exists, it is impossible to forge them. The characteristics described render all transactions taking place with cryptocurrencies cheaper, faster and safer compared to transactions that take place using traditional currencies and payment networks.

In general, most of us had a negative reaction when we first heard about the use of cryptocurrencies. The facts that those currencies are not issued by any government authority and they do not correspond to any other asset were enough. Additionally: they cannot be deposited in any bank, which would in turn verify their existence and ownership status. And besides, it was common knowledge that transactions conducted with cryptocurrencies where “shady”: either completely illegal or not so clearly legal.

Cryptocurrencies are still treated with caution, maybe even fear. Ignorance is what will lead one down that path.

Nonetheless, it is a fact that businesses can benefit on many levels from the use of cryptocurrencies. Some are already benefitting. In reality, there are many wallets holding a considerable number of cryptocurrencies. The ability of some businesses to transact with the owners of those wallets is already giving the first an advantage compared to their competition.

The number of businesses accepting cryptocurrencies (mainly bitcoins) in our country is increasing rapidly. What is more interesting is the range of services and products offered. One, for example, could easily receive services offered at vehicle roadworthiness centres, web hosting services or services offered by a lawyer or a dentist and pay for them in cryptocurrencies. It is as easy for someone to buy toner, medical equipment and/or medicine from a drugstore and pay in bitcoin. Also, to pay off tuition fees to the University of Nicosia.

A simple search at the world wide web gives the full picture.

Regardless of a business’s day to day operations (sale of products, offer of services, profit-making) cryptocurrencies can be of a significant value when pursuing the corporate goals. Through, for example, a process of raising funds. And that, in some cases, may be more important.

A business’s need for capital support can arise either at the stage of the establishment of a company or during the time it operates. It is well known that, on a national level, there are several platforms getting perspective investors and interested companies in touch.

Cryptocurrencies offer companies the ability to raise funds (with incurring close to no expense and really fast) from international investment pools. Using blockchain and cryptocurrencies, crowdfunding no longer needs a third party to mediate investments.

And even more so: businesses can raise funds that are useful for their operation, via issuing their own digital coins.

VII. Smart contracts and businesses

Smart contracts can most effectively operate in a blockchain environment. Smart contracts are concluded between two or more parties, but they are not reflected on pieces of paper. They are “written” and “signed” digitally by the contracting parties, in encrypted algorithm software codes.

They are self-executed contracts and contain terms agreed upon by the contracting parties. It is obvious that businesses can replace most, if not all, contracts (i.e. employment contracts) with a smart contract.

The usefulness of smart contracts has proven (and will be further proven in the future) to be extremely important in business transactions. For example, businesses that trade with geographically remote buyers and suppliers, are able, by using blockchain technology and the traceability it provides, to certify the origin, integrity and agreed upon quality of their intermediaries or final products. Respectively, they can verify the same characteristics for products they acquire from the global market.

It is very important to stress that any violation in a smart contract is automatically identified. Such violation cannot be disputed. The consequences of both the execution of the contract (i.e. the payment of its price) and the violation of the obligations deriving from the contract (i.e. no execution of the contract) occur immediately. These facts lead to the rapid decrease of the cost of transactions, the avoidance of conflicts and of the necessity of extensive involvement by humans. The decrease of the relating costs if self-evident. Lawyers lose business, which is good for businesses…

VIII. Blockchain technology as a business activity

Many people claim that blockchain is a technological revolution more significant than that of the internet. It is a revolutionary technology, which full potential is yet to be discovered. And while its use is steadily, day by day, established, this technology has existed only for a few years. And just like anything new, it has a lot of room for improvement and development. A great number of sectors are suggested as sectors to which this technology could contribute significantly. Just to name a few of these sectors, blockchain could contribute to the economy, medical care, supply chains, education, creative industries and copyrights, transportation, maritime and energy (areas described in the European Parliament resolution of 3 October 2018 on distributed ledger technologies and blockchains: building trust with disintermediation (2017/2772(RSP)).

So, it is certain that the businesses that will get involved in utilizing, improving and expanding this technology will be looking towards a more promising future.

ΙΧ. The example set by Cyprus

Blockchain technology cannot function on its own. It might cause lawyers to lose part of their business, but other occupational sectors will benefit significantly. Blockchain requires technical infrastructure and skilled personnel.

Nonetheless, it is very important to understand that it is absolutely necessary for the proper legislative system to be in place and functional. Cyprus is already moving towards that direction.

The Republic of Cyprus has already announced, in May 2019, the “Distributed Ledger Technologies (Blockchain) – A National Strategy for Cyprus”. Its purpose is the optimal utilization of the potential of Distributed Ledger Technologies, of course Blockchain included. One of the actions taken is the preparation of a legislative framework for new technologies.

The Republic of Cyprus does not stop at planning the optimal utilization of blockchain in the public sector. It goes one step further by also considering the private sector and businesses. With that in mind, the National Strategy of Cyprus, brings legislative changes in the Companies’ Act, in income tax laws as well as in the Act regarding the prevention of the legalization of income deriving from illegal activities. It focuses on passing legal provisions regarding cryptocurrencies and smart contracts.

The National Strategy of Cyprus was drafted based on documents already signed by Cyprus. Among them: “The European Blockchain Partnership –EBP”, signed on the 4^th of June, 2018. Also, the “Southern Mediterranean Countries Ministerial Declaration on Distributed Ledger Technologies”, signed on the 4^th of December, 2018.

Despite Greece being among the countries that entered the Declaration, it hasn’t yet acted on them, contrary to Cyprus, in order to ease the application of blockchain and utilize it in the best possible way.

Χ. In conclusion

Poor Dr. Richard Woolley couldn’t imagine that one year after his infamous blunder regarding space travel (calling it “utter bilge!”-1956), such travels would have become a reality. Respectively, nobody would have possibly imagined (even in the early 1980’s), what a big part of everyday life internet would become.

No one can mock blockchain today. It is a fact that it constitutes a “revolution” more important than that of the internet.

The (fast) adaptation of businesses to the new era appears to be necessary. The first to adapt will benefit faster and enjoy more benefits. (The rest?)

At the same time, the establishment of a regulatory framework regarding blockchain appears necessary. The example of Cyprus is both recent and sufficiently instructive.

Further delays will only prove harmful.

On a business and national level.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (November 17th, 2019).
November 17, 2019
Distributed Ledger Technologies (DLT): businesses and everyday life
Distributed Ledger Technologies (DLT): businesses and everyday life

Ι. Preamble

In a previous article we referred to the 4^th Industrial Revolution, the technologies that constitute it, the cosmogonic changes it is bringing. We also mentioned the fact that there is no proper institutional framework in place, as well as the need to introduce one to welcome and utilize those technologies, aiming to the sound development of both businesses and the country.

Distributed Ledger Technology is uniquely placed among the technologies constituting the 4^th Industrial Revolution. The implementations of this technology are countless, “the number of which is immeasurable”, to copy the Old Testament (Psalm 103,25). With that admission in mind, a simple article could of course not sufficiently cover them all, even more so if said article is written by a non-expert.

It is, though, true that these technologies, their implementations and their benefits, do not only regard the experts.

They regard all of us.

None excluded.

ΙΙ. Distributed Ledger Technology (DLT) and blockchain

We have already mentioned (in the aforementioned article) that “Distributed Ledger Technology is a database which, instead of being kept in a central location, it is distributed in a network of computers. The users of the computers with access to the network, depending on the licenses they hold, are able to access the information and/or add data. The most common DLT is the blockchain technology. Blockchain is the most common type of Distributed Ledger Technology.” We have also mentioned, regarding blockchain, that “The “chain” is protected in its entirety by complex mathematical algorithms, aiming to ensure the integrity and safety of the data. This chain is a complete recording of all the transactions recorded in the database. The most known application of blockchain is the creation and circulation of cryptocurrencies, as well as the accommodation of transactions entailing cryptocurrencies. Blockchain is said to be bringing changes more significant than those of the creation and broad use of the internet.

ΙΙΙ. The actions taken by the European Union

Given the severity and magnitude of the issue, as well as the expansion and utilization of DLT on a global level, EU is taking many actions, especially with regards to blockchain. Unfortunately, though, the technology is “running” too fast. In most cases so fast that most of us are unable to follow it – not even sufficiently.

A few days ago was the one-year anniversary of the passing of a very interesting text. The European Parliament resolution of 3 October 2018 on distributed ledger technologies and blockchains: building trust with disintermediation (2017/2772(RSP)). This text (hereafter the “Text”) entails several and specific statements. It also offers specific directions to the European Commission for the utilization of DLT applications within the European Union.

IV. The advantages in using DLT applications

Using DLT has important advantages. Indicatively:

(a) DLT and blockchain can prove to be tools that offer to their users the ability to control their own data. To decide which data will be included in the distributed ledger and which will not, who will be able to see them and who will not.

(b) DLT can minimize transaction costs. Middle men prove to be unnecessary, and so are the fees they charge. The final cost of services and products ends up being lower, benefitting not only the businesses, but the consumers as well.

(c) DLT, can, through the necessary encryption and control mechanisms, as well as by establishing a relevant electronic model, contribute to the improvement of transactions’ safety and trust.

(d) DLT promotes the pseudonymization but not the anonymization of its user. (That is the point that kicked off a big discussion regarding the compatibility of DLT and GDPR.)

(e) DLT can provide a framework of transparency and reduce corruption, detect tax evasion. Also: it can track unlawful payments and appropriate assets, facilitate anti money laundering policies.

(f) Adopting DLT renders ensuring data integrity and security possible.

(g) Cyberattacks seem to not have such a big effect on DLT applications, since they have to successfully target an unidentified number of servers, not just one.

Simultaneously, the dangers of DLT applications, seem, at least for now, insignificant.

V. Distributed Ledger Technologies (DLT), decentralization and applications

It is unclear how many applications DLT has. It seems that they won’t be exhausted – at least not in the foreseeable future.

The ability to create an environment of trust between transacting parties and the lack of need for third parties to mediate a transaction completely reverses today’s transacting reality. This fact can limit (and, eventually, completely eradicate) the “old ways” of conducting business and transactions in general. It can also improve the services offered and achieve a significant, in some cases, deduction of costs -in a broad spectrum of sectors.

A possible utilization of DLT will have a significant impact on public governance and the role of government institutions. Papers studying possible scenarios of adoption of DLT public networks are expected to come out soon. The European Parliament has directed the European Commission to do so.

It is a given that the spectrum of possible DLT applications is significantly broad. The economy and, if not all, most of its sectors will most likely be affected.

Indicatively:

(a) Energy and environment friendly applications

Utilizing DLT applications in the energy field can have multiple benefits. It can contribute to the production of “green” energy – even at household level, to energy exchanges and energy donation. It can contribute to a more efficient integration of renewable energy and to its use as an electric vehicle power supply. It can also contribute to the precise tracking of renewable or carbon energy certifications and to the creation of new opportunities in circular economy, by providing motives for recycling.

(b) Transport

In transportations, DLT can contribute in the processes of registration and administration of vehicles, verification of driving distances, smart insurance and charging of electric/electronic vehicles, among others.

(c) Healthcare sector

In this sector, the utilization of DLT applications is most likely going to be significant. It is possible (and is logically expected) that DLT will promote:
- The improvement of the efficiency of data in clinical study reports.
- The digital exchange of data between public and private institutions, with the approval of the interested patients.
- The improvement of the efficiency of healthcare, thanks to the interoperability of electronic health data.
- The verification and confirmation of a drug’s identity and the facilitation of medicine distribution.
It is of extreme importance to stress that DLT technology ensures the privacy of sensitive, health-related personal data and allows data subjects to control, by themselves, their data of that nature. This means that they can choose which health data of theirs will be offered and to whom, and to give their permission for their use by insurance companies and healthcare providers.

(d) Supply Chains

DLT can:
- Contribute to the improvement of supply chains,
- Facilitate the tracking of the goods and their origin, their ingredients or components,
- Improve transparency,
- Offer guarantees for the compliance with sustainability and human rights protocols in a product’s place of origin.
By utilizing it, the risk of illegal (or unauthorized) interferences of products in the supply chain minimizes. Consumer protection is also ensured, along with healthy entrepreneurship and, of course, government revenue. DLT can be used as an important tool in the hands of custom officials when checking for counterfeits.

(e) Education

With reference to specific cases, some of which were presented before the courts, while others were not, cases which have become public during the past year, a big discussion has started. A discussion regarding the ethical and legal contempt and the consequences the one falsely declaring of a degree faces or should face.

When using DLT, the certification of academic qualifications, higher education degrees and knowledge and skill certification, proves very easy. Specific education and certification organizations have already adopted this technology. By doing so, they ensured a secure connection between a specific degree or knowledge and skill certification with a specific person.

In this regard, we should be expecting from the European Commission (after the relevant order by the European Parliament) a study on the possibility to create a European network (utilizing DLT) in order to share data and information, aiming to a more efficient recognition of academic degrees. In this same regard, we should be expecting relevant initiatives from the member-states, as well as from the education and certification institutions concerning the qualification degrees they issue.

If such a system was generally adopted, one could not really be tempted to claim they hold a title that they do not. The result? More transparency and meritocracy, while the relevant authorities and parties involved and will not bother with such cases (cases like the aforementioned).

(f) Creative industries and copyrights

Utilizing DLT can securely authenticate and help manage copyrights, related rights and patents. It can facilitate their protection. Identifying ownership and (moral and economic) intellectual property rights could prove to be fairly easy through an open public ledger. And, if that was possible, the need for intermediaries to receive, on behalf of the creators, the relevant payment for their creative content, would eliminate.

(g) Financial sector

The international financial sector is probably leading, on a global level, the effort to detect and utilize DLT applications. And this makes sense – DLT is very valuable to this sector. It is very valuable in the field of (innovative) financial intermediation. In the improvement of transparency. In minimizing transaction costs and indirect expenses – and all that thanks to the rationalization it offers and to the better (and safer) data management.

The subversion of the “ruling” class, resulting from the use of DLT applications on specific procedures, as a means of perusing cost-effectiveness, managing human resources, is already a fact. And let’s not forget cryptocurrencies, probably the most recognized application of DLT. The effects on global economy and the dangers that may be hiding have not yet been estimated.

The inability of the global financial system to prevent the use of cryptocurrencies does have an interesting result: the (necessary) accepting of their existence and the effort to incorporate them in the European settlement system.

VI. Smart Contracts

Technology is the enemy of those who cling (or, futilely, try to cling) to past habits.

What has history taught us? That technology is the one which will, eventually, win all such battles.

We, lawyers, are bound to be the first ones to fight smart contracts (those contracts that all one needs to draft, enter and implement them is a few lines of code and an “enter”). It is also a given that smart contracts will win this battle.

Despite the fact that we still haven’t even familiarized ourselves with this term, the use of smart contracts seems to be inexhaustible. And all that thanks to DLT applications.

What is the bigger issue, though? The lack of legal certainty.

Smart contracts are mostly unregulated: as far as the liability of and the risks undertaken by the transacting parties, the applicable law, the competent courts… One thing is certain: smart contracts will gradually prevail over regular ones. And as long as the validity of a digital, cryptographed signature enhances legal certainty, the use of smart contracts will keep getting more “user friendly”, prevailing over regular contracts.

And even more important: We should take it as a given that technology will start (little by little) to replace us lawyers and remind us that we are not as important as we would like to think.

VII. Policies for the promotion of DLT technologies in Europe

The fact that the European Parliament accepts that DLT is unregulated is quite significant. At the same time, the European Parliament has adopted the position that the European Union should not, for now, regulate DLT, but it should try to eliminate all the obstacles in the way of blockchain applications.

The European Parliament has also accepted that the European Commission should valuate and develop a European legal framework which will resolve possible jurisdiction issues. Such issues would be those that could potentially arise in case of fraud or criminal matters relating to transactions realized in a DLT framework. It has also been proven that the European Commission and the competent national authorities are those that will provide for the prompt emerging of technical expertise and regulatory capacity, which will allow for a fast legislative or regulatory action when deemed necessary.

DLT can be best applied if certain requirements are met. Additionally, it would have to “go through” certain actions taken by the European Commission and member-states. And not just those.

The awareness and training of citizens, businesses and public authorities is completely necessary, in order to facilitate the understanding and integration of this technology. The broadening of DLT research is essential as well, and so is the undertaking of the relevant studies, investments on this field, funding research initiatives and development and promotion of strategies for training and retraining on digital skills. These are only some of the actions that are expected to decisively contribute to the active and unrestricted participation of the European community on the necessary shift of perceptions and practices.

VIII. In conclusion

Distribution Ledger Technologies (DLT) already have multiple applications (“the number of which is immeasurable”) on many sectors of the economy. We should all take as a given that they will soon cover all its sectors -none excluded. And even more so: our lives and reality.

The European Union indeed has, according to the European Commission, “an excellent opportunity to become the global leader in the field of DLT and to be a credible actor in shaping its development and market globally”.

The European Union is expected to undertake initiatives to familiarize, promote awareness and train its citizens on those technologies. For tackling the interstate digital divide.

That should, respectively, happen in our country as well, as the digital divide between the Greek citizens proves wide. It should quickly close. A shining example for us to follow is that of Estonia.

The state, businesses and their unions should look for ways to utilize DLT applications, while there is still time. Those of the businesses that will quickly realize the new regime and will utilize the relevant opportunities will have a significant advantage compared to the rest.

And we, on our part, as active citizens, have a duty to pay a lot of attention to what tomorrow will be our reality.

To listen!

To study!

To collect all relevant information! Not because it will somehow be mandatory to be familiar with such applications and technologies, but because they will, very soon, prove entwined into our own existence and reality.

Those of us who will chose to turn a blind eye to the “next day” will certainly find ourselves marginalized and isolated.

The monks of Mount Athos have already, very consciously, made their choice.

What about the rest of us?

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 13th, 2019).
October 13, 2019

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