Blockchain is the latest buzzword in the FinTech world. This technology on which the Bitcoin network is built has the potential for numerous applications in the financial services and other industries, including smart contracts, clearing and settlement, trade finance, micro-lending and supply chain management.
What is a blockchain?
A blockchain is a public ledger or database of transactions, organised into blocks which cannot be deleted or changed. Blockchain technology enables:
- peer-to-peer transactions, without the need for the involvement of a bank or other central authority;
- de-centralised verification of transactions by all participants in the blockchain network; and
- the creation of an irrefutable record of verified transactions, grouped into blocks which are time-stamped and linked to the previous block in the chain.
Watch this video for an accessible explanation of how blockchain operates the Bitcoin network. Click here to see the Bitcoin network operate in real-time.
Why is blockchain important?
Blockchains have the potential to change the operational and financial models of many industries, because of their ability to save costs and streamline operational processes. Together with smart contracts or other software, they also enable automatic performance (for example, the release of money on fulfilment of a condition).
According to the CEO of NASDAQ, ‘Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole’. In December 2015, NASDAQ made the first share trade using blockchain technology. Over forty of the world’s largest banks, including South Africa’s ABSA Bank Limited, have joined the R3 consortium to design and build financial services blockchain solutions. Examples are appearing in the property, consumer markets, infrastructure mining and commodities, healthcare, transport and energy industries too.
Legal and regulatory considerations
Blockchain creates a number of legal and regulatory issues to consider, including:
- Contract: What is the legal effect of transactions concluded over the blockchain? Are smart contracts legally binding? Are digital signatures valid? How will disputes be resolved?
- Privacy: What are the privacy and identity concerns?
- Competition: Do blockchain networks increase the potential for excluding competition, collusion and exchange of commercially sensitive information?
- Intellectual property: How do participants protect their intellectual property and avoid infringing the intellectual property rights of others?
- Tax: Which tax authority has jurisdiction over a transaction concluded on a cross-jurisdictional blockchain?
These issues will be explored in our global legal and regulatory guide to blockchain technologies. The guide is being published in a series of chapters. Click here to read the first chapter, An introduction to blockchain technologies.
