blockchain - afdit dec 2016/2016 12 02 l b... · • general understanding is a strong barrier to...

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Blockchain

PRACTICAL IMPLICATIONS AND LEGAL ISSUES

Brussels / Düsseldorf / Hamburg / London / Manchester / Munich / Paris / Shanghai / Silicon Valley / fieldfisher.com 2

Table of Contents

I. What is Blockchain?

• Intro : AXA Insurance: https://www.youtube.com/watch?v=PC0kG4XJNfQ

• How does blockchain works?

• Blockchain potential

• Blockchain limitations

• Public or private blockchain

II. Use cases of blockchain

III. Blockchain and the law

https://www.youtube.com/watch?v=PC0kG4XJNfQ

https://www.youtube.com/watch?v=PC0kG4XJNfQ


I. What is Blockchain?


How does the Blockchain work? (1/2)

8 commonly used blockchain terms to better understand Blockchain

1. Blockchain = big, free and open account books, that anybody can read, on which everybody can write, but whose writings are immutable and that you cannot destroy (Jean-Paul Delahaye).

2. Blocks = Blockchain is literally a chain of blocks, filled with data; blocks are a congregate of transactions sent by user of the blockchain (e.g.: X send Y to Z).

3. Bitcoin = The oldest (2009) and most well-known blockchain. It primarily allows for the exchange of bitcoins between users (cryptocurrency).

4. Ethereum = a new blockchain technology with a strong momentum, because it allows for the execution of “smart contracts” on the blockchain.


How does the Blockchain work? (1/2)

5. Smart Contracts = Smart contracts are software code implemented in the blockchain. Smart contracts automatically runs on blockchain, taking into account all the conditions and limitations that had been inserted into the contract.

6. Nodes = Blockchain works with a network of computers (called « nodes »), which participates to the Blockchain.

7. Miners = Nodes that bring their computing power to the network. Thanks to this work, the database is gradually filled and duplicated, and consistent transactions are processed. The miners are compensated for their participation through the grant of a cryptocurrency.

8. Oracles = Service that pushes information from outside the blockchain in a smart contract in order for them to be correctly executed.


Blockchain potential


Blockchain limitations

• General understanding is a strong barrier to entry

• Technical fundamentals

• Identity: public blockchains are pseudonymous

• Regulations: The lack of regulation is a blocker, particularly in the FS sector

• Governance: Governance of the public blockchains is largely misunderstood


Public or private blockchain?

Public Private

Characteristics Open, public and accessible. Private and accessible only to selected participants.

Operation Operated by unknown individuals. trust is created by the anonymous actors collaborating to make the blockchain work.

Operated by specified actors, collaborating with a specific objective.

Incentive to participate

Economic, through the cryptocurrency

Common objective (cost efficiency notably),

Immutability Guaranteed by the great number of actors, and the fact that nobody can change the content arbitrarily.

Has to be guaranteed by trusted actors. Some actors can change the content of the blockchain (administrators).


II. Blockchain Use Cases


Use Case Example 1 : Intellectual property protection & payment

Issue : Broken systems for the remuneration of artists and producers • Opacity of the financing schemes • Opacity of the remuneration schemes

Idea : • Use the blockchain to finance and track the IP related to artistic work. • Central database on which all the actors could agree.

Benefit: Immutability, openness, automatic payments through smart contracts. Ongoing Projects: • Ujo: Management of the IP related to music, automatic distribution of

revenues between all the actors in the field.

• SNGULAR DTV: Decentralized production and distribution of media content. Raised 7m$ in an ICO in September.


Use Case Example 2 : Death Insurance

Prototype by AXA Insurance


Use Case Example 3 : Digital Funds Distribution

Prototype by BNP with AXA Investment Managers participation Objective The objective is to integrate blockchain for the subscriptions and redemption processes of mutual funds which could significantly accelerate the mutual funds purchase process. In addition to that it opens up new digital sales channels. Frame & Scope the problem: today investor onboarding is painful, lengthy, confusing and costly to the point that this is viewed as a very negative experience by investors sometimes leading to loss of business. How does it work? It works by leveraging blockchain technology to digitize the account opening process as well as the maintenance and trading experience rendering it as fast and as frictionless as possible. - Share same information – solution will be accessible from both ends - End-to-end platform – from identification to payment - Secure and full transparency through block-chain Not a new concept but tech is now available.


II. Law and Blockchain


Relationship between Law and Blockchain technology

• There is no blockchain law!

• "Code is Law“: transactions always run as they were programmed to.

• Proof of concept trials are conducted most frequently in the finance sector.

– UK and Singapore created specific "sandbox" regimes

– French initiatives with respect to the use of blockchain as a proof of ownership

– The US IRS issued a John Doe summons to Coinbase

• Existing law applies to aspects of blockchain – but new law needed


• A smart contract IS NOT a contract – it is code: immutable, executed by the blockchain (analogy: Excel macro)

• Smart legal contracts refers to a specific use case of smart contract code – using blockchain to combine code and legal contracts – an enhanced form of contract.

• How would this look in practice?

What is a “smart contract” – code or law?


Different use cases pose different legal questions

1. Cryptocurrencies

2. Blockchain used as a register / proof of existence / proof of transfer

3. Complex use case using smart-contracts

4. Private blockchains. Private blockchains pose specific questions as they involve parties that agree on using a specific support.


Liability and other legal issues

• Liability: Who is liable?

– No intermediaries which validate transactions

– No liability of blockchain creators/developers?

– What about the poor coding of a smart contract? Is the developer responsible?

– What about the theft of a private key? The private key is the identity of the user.

• Territoriality: which law will apply?

• Legal formalism and legal enforcement

• Tax: Who pays taxes on income generated on blockchain and how? How is this income qualified? Which state can tax?


Intellectual property rights and data

Intellectual property rights and ownership

What protection of the intellectual property rights to the blockchain and to the data present in this technology? The intellectual property of the blockchain itself? Who owns the blockchain?

• In private blockchains: property rights are protected by the body / person in charge of developing the blockchain.

• In public blockchains: open source and availability of the blockchain technology to any interested party.


Regulations?

Shall the blockchain be regulated?

Conformity with :

– Regulations applicable to contract with an uninformed individual : consumer, KYC rules, securities law, etc.

– Regulations applicable in specific sectors (finance, privacy, health, IP, etc.).

Two laws in 2016 came into force to regulate the use of the blockchain in France:

• The Ordinance for the modernization of cash certificates: issuers of mini-coupons may use the blockchain as the place of issue and sale of these securities.

• Amendment to the Sapin II law: non-listed securities issuers may use the blockchain as a title register on a blockchain.

When? How? by sector: energy, finance, transport, insurance, etc.

Worldwide/European or national level?


Questions ?

blockchain - afdit dec 2016/2016 12 02 l b... · • general understanding is a strong barrier to...

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