Spring International Conference | May 2-4, 2016

LISBON

Digital Currency Out of the shadows and into the spotlight

TAGLaw Spring International Conference in Lisbon

Panel members

•  Tom Maher – DQ Advocates, Isle of Man

• Basil Bielich – Browne Craine & Co, Isle of Man

•  Sibina Eftenova – Popov & Partners, Bulgaria

• Erin Fonte – Dykema Cox Smith, USA •  Sinead O’Connor – DQ Advocates, Isle of Man

Does Bitcoin exist?

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Introduction to digital currency

• Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

Bitcoin Foundation

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Introduction to digital currency

• Bitcoin is two things ▫  A digital currency ▫  A network

•  https://www.youtube.com/watch?v=ycT2Spnc788

Is digital currency still in the shadows?

•  16 million Bitcoin wallets forecast by 2016

•  150 thousand merchants accepting

• Coinbase see international users grow to over half of total user base

•  Silk Road • Mount Gox •  Increasing use in

cyber ransom attacks •  Still the domain of the

criminal

Who’s embracing it and why?

• Not the banks

• What about the regulators?

•  Is it easier to embrace the blockchain?

• What is the blockchain? ▫  https://www.youtube.com/watch?v=Tn0Jr-

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Tax and accounting implications

• Basic accounting

• Auditing

•  Tax implications

Business opportunities

“The progress of mankind is marked by the rise of new technologies and the human ingenuity they

unlock”

• Main opportunity coming from blockchain linked technology/distributed ledger

• How does law and regulation keep pace?

Business opportunities •  Distributed ledger: ▫  an asset database shared across a network; ▫  all participants have their own identical copy; ▫  changes reflected in all copies in minutes/ seconds; ▫  security and accuracy maintained cryptographically; ▫  entries can be updated by one, some or all participants,

according to rules agreed.

“Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services” UK Government Office for Science 2016

Business opportunities Banking and Finance

ü  Intermediating function for transfers and exchanges of money ü  Various services – Santander InnoVentures claims 20-25 uses

Real Property

ü  Track changes in ownership of an asset ü  Replace domestic title registers like property title registries? - Honduras Creating Land Title Block Chain 2015

Intellectual Property

ü  Track ownership and licensing of intellectual property

Contract Law ü  Self-executed “smart-contracts”

Corporate Management

ü  “Decentralized autonomous organizations” - “corporations” run without human involvement?

Business opportunities •  Smart contract:

q  Computer protocol that facilitates, verifies or enforces the negotiation or performance of a contract:

q  conditional (IF/THEN) statements; q  information processing; q  value transfer (receives, stores and sends)

q  Proposing to embed contracts in all sorts of property that is valuable and controlled by digital means – Nick Szabo; q  Benefits: certain, self-executing, quick and cost-saving; q  Legal issues: privacy and identification, jurisdiction, etc.

Might lawyers need to become familiar with creating and advising on Blockchain contracts?

Business opportunities Contract terms (Event agreed)

Value

Event

Settlement

Shared, Replicated Ledger Shared, Replicated Ledger

•  Counterparties establish obligations and settlement instructions/ conditions for execution (“If…then…”) •  Value put under custody of smart contract

•  Agreed event triggers contract execution •  Event can refer to: ü  transaction initiated ü  i n f o r m a t i o n received

•  Terms of contract dictate movement of v a l u e b a s e d o n conditions met

•  For assets represented off the chain, accounts o f f - c h a i n m a t c h settlement instructions •  Changes to accounts will be reflected on ledger

•  Value transferred to intended recipient as dictated by contract terms •  For digital assets on chain accounts contracts are settled automatically

Value transfer

Concluding remarks