We’ve written frequently about the distributed ledger technology (DLT) and the blockchain—on the interesting variations of the technology, its ability to bolster other technologies and its potential applications on everything from team giveaways to trading platforms (be they for cryptocurrency or energy commodities). In “Blockchain-Based Tokenization of Commercial Real Estate,” colleagues Josh D. Morton and Matt Olhausen examine the real-world application of tokenization—the process of representing a fractional ownership interest in an asset with a blockchain-based digital token—in commercial real estate.
With bitcoin prices rocketing nearly 300% from trough to peak when COVID-19 lockdowns were announced in March 2020 and then relaxed in July 2020, I thought I would revisit a blockchain company we discussed earlier last year to see how it has progressed and been valued by the financial community: Overstock.
Joel Simon: While the world has been busy battling COVID-19, it has been making startling progress in an area that has held a lot of promise but was struggling at times to gain traction—digital securities and virtual currencies. What just a couple of years ago seemed like a Wild West of scams and frauds has quickly been evolving into a mature, efficient alternative of capital raising and trading, that has been embraced by traditional financial institutions and governments alike. With me today to chat about these developments is a leader of our FinTech practice and head of our Derivatives and Structured Products group, Daniel Budofsky.
Back in January, news of reversed transactions on the Ethereum Classic (ETC) blockchain (little brother to the main Ethereum blockchain) made headlines and raised concerns about blockchain security. The product of a “51% attack,” these transaction reversals allowed some ETC tokens to be spent twice, a cardinal sin in cryptocurrency called a “double spend,” and the exact problem blockchains were invented to solve.
The use of blockchain and cryptocurrency platforms continues to evolve and expand into new markets. We recently highlighted the new patent issued to tZERO covering blockchain-based methods and systems to trade “digital transactional items,” so it should be no surprise that another company—UK-based VAKT—has developed a blockchain platform for energy commodity trading.
With bitcoin prices rising from the dead over the last few weeks (up nearly 25% from a December 14 low), there’s a degree of renewed excitement regarding blockchain and cryptocurrency. But as general public interest rises and falls, the steady process of creating useful applications and systems for distributed ledger technology continues. The issuing of new patents is one observable part of this process, and as such, it’s worth noting that trading platform tZERO, a portfolio company of the e-commerce giant Overstock, was recently awarded a patent outlining how it may merge legacy trading systems with cryptocurrencies and digital asset technology.
The journey by which the blockchain and its underlying distributed ledger technology (DLT) becomes an everyday aspect of doing business is one of a thousand small steps, many of them legislative and regulatory. In “California’s New Law on Corporate Blockchain Use,” Riaz A. Karamali examines California’s recently signed SB-838, which amends Cal. Corp. Code § 204 (General Corporation Law) and Cal. Corp. Code § 2603 (Social Purpose Corporation Act) to allow certain corporations to use blockchain technology for certain corporate records. (Legislation triggering the formation of a “blockchain working group” that will evaluate the risks and legal implications associated with the use of the technology by state government and California-based businesses was also signed into law.)
As we approach 2020, distributed ledger technologies (DLT) appear likely to have a far-reaching, comprehensive impact on our global economy. But core components of that economy—intellectual property rights in particular—sit in tension with DLT. Copyright owners learned this lesson with the advent of BitTorrent. Patent owners will face similar threats from DLT-based computing platforms executing programs referred to as “smart contracts.” To date, less than 500 U.S. patents have issued with the term “blockchain” in a claim, and none appear to have been litigated. As such, many nuances of DLT patent enforcement have not yet manifested. Nonetheless, even a cursory review of current case law reveals the road to a decentralized utopia is laden with patent-law potholes.