When it comes to bitcoin and blockchain, what is the difference between a “fork in the road” and a “hard fork?” The former suggests a casual detour; the latter connotes a creation of two permanent paths that share a common history until the split.
On August 1, 2017, a small minority of the bitcoin community created a hard fork to accommodate a “block” size increase and what they say will facilitate transaction capacity growth. That fork created “Bitcoin Cash,” a cryptocurrency that is distinct from the main “core” bitcoin blockchain. Another hard fork was announced on August 16 and is now scheduled to occur on bitcoin block 494,784, which is estimated for generation in November. Thus, we may soon witness the birth of a third bitcoin blockchain, with yet another version of the cryptocurrency.
The reaction of those who comprise the community of industry startups, bitcoin miners, and technologists to the first fork has been underwhelming, with starting shares of the new Bitcoin Cash (or “Bcash,” a moniker some are using for clarity) dropping from over $400 before the fork to $300 as of today. Fortune called the fork a “dangerous trick” and suggested the value [of bitcoin cash] will likely dip below $100.”
So why are bitcoin and blockchain relevant to the legal community and your practice, in particular? There are several answers. The easiest one is that practitioners need to understand what bitcoin and blockchain are in order to stay abreast of recent and important practice trends. AmLaw 50 is already deeply invested. A review of Goodwin Proctor’s website discusses a number of deals they have handled involving bitcoin. But big firms are not the only ones at the forefront of this technology. Zoe Dolan, a well-known solo criminal defense attorney with a bi- coastal practice, has begun a new practice area which she describes as “blockchain and cryptocurrency representation.” As a newly-minted member of the Digital Currency and Ledger Defense Coalition, which one can join as a Participating Lawyer, Dolan provides representation “ranging from the nuts-and-bolts business and tax question to token sales, liability issues, and beyond.” Clearly something is happening here. We need to pay attention.
The purpose of this post is not to explain bitcoin or blockchain, other than to say that, taken together, they have culminated in revolutionary, decentralized, transparent currencies already in use worldwide for legal and illegal transactions. Many have read, for instance, about the recent jail-house suicide of Alexandre Cazes, the American CEO of a bitcoin exchange allegedly feeding illicit consumer demands on the dark web for drugs, guns, and money out of Bangkok, Thailand, where Cazes was recently arrested. According to the authorities, his operation hosted anywhere from $600,000 to $800,000 a day in transactions. On the other hand, Japan recognizes and regulates bitcoin as a currency, with Australia to follow, and Zug, a municipality in Switzerland’s “Crypto Valley” allows citizens to pay for services in bitcoin. Here in the United States, financial services giant Fidelity recently debuted a service that shows customers’ cryptocurrency holding balances on the company’s website.
Dark side aside, there is great potential for leveraging these technologies to provide services and products in the legal profession. Can blockchain serve as a transparent, one-stop repository for everything involving legal vendors, including: work product from court reporters, graphics vendors, e-discovery, software, expert witnesses, jury consultants, recruiters, IT, messenger services, and even postal services? Maybe not, but many argue that this technology, with its distributed ledger, will provide a new way to create and automatically update contracts, track land deeds, and create indisputable records of intellectual property rights that are universally accessible. And as shown by Dolan, there is a growing potential for representational services in connection with this technology.
Unfortunately, there are serious problems with bitcoin and blockchain in their current forms. For one thing, the very virtue that makes them attractive as a decentralized currency also makes attorneys leery: transactional transparency. There is no way to hide bitcoin transactions, because the bitcoin ledger is available to all. Every transaction conducted using bitcoins is tracked, meaning that through the internet, bitcoin transactions can be identified and monitored, although savvy users of cryptocurrencies will argue they are just as anonymous as cash.
Eventually, these difficulties will be ironed out, however, and the use of decentralized cyrptocurrencies will rapidly grow. The current market cap of bitcoin (over $73B until it changes again!) now exceeds the M1 money supply of Israel, and the crypto market overall is at record highs, pushing $150B. The disruptive potential of bitcoin, blockchain, and their progeny, may lead to a much bigger fork in the road for the world’s monetary systems.