Bitcoin speculation and initial coin offerings got plenty of attention in the past year.
But those high-profile issues aren’t the only, or even most important, developments in blockchain, the distributed ledger technology behind bitcoin that could also eliminate friction in other transactions.
While its role in cryptocurrency gets most of the attention, blockchain technology could have a major impact in industries from energy to real estate, Dan Nossa says, an attorney with the Houston office of Steptoe & Johnson who is an expert on blockchain.
In a recent interview, we spoke with Nossa about the hottest news in blockchain over the past year, and some of the ways he sees the technology having widespread impact on businesses in the coming years. Here are excerpts from that conversation.
What’s been drawing the most attention to blockchain in the past year?
Nossa: The explosion and then the subsequent decline in the price of bitcoin and other cryptocurrencies in 2017 and the beginning of 2018 received tremendous attention. It provided a lot of focus on cryptocurrencies and brought it into the mainstream, both the good and bad news around the price volatility.
There’s also a surge in interest in this new fundraising mechanism called an ICO, or initial coin offering, in which startups would raise millions and in some cases billions of dollars to purportedly fund the development of their technology by selling coins to investors that would serve as the native currency for their respective products.
Some of those ICOs turned out to be outright frauds. That was a really big story in the last 12 months, the growth of that ICO market. The massive rise in the crypto prices and both the good and bad activity in the ICO space drew the attention of regulators in both the U.S. and abroad. Regulators in some countries outright banned ICOs.
Regulators in the United States took a more nuanced approach of initiating enforcement actions and prosecuting the bad actors while putting the entire industry on notice that ICOs would be subject to existing securities regulations. More recently, attention has been focused on institutional investor interest in both the blockchain and the crypto space. Venture capital funds, angel investors, family offices, have continued to invest in promising blockchain projects.
What equally-important developments haven’t drawn as much attention?
Nossa: As important as funding and speculation may be for a nascent technology, it often distracts from the actual technological development, much like the internet boom in the late ’90s. In the last year, thousands of new blockchain projects globally have been launched, building the components of the blockchain ecosystem, including private blockchains for industry specific use, exchanges and wallets to facilitate digital asset transactions, public blockchains upon which thousands of decentralized applications are being built for use cases in finance, energy, gaming, healthcare, insurance, data storage, governance, real estate and digital identity, to name a few.
The game changers are going to be coming out of these projects, which will still take time. As the blockchain infrastructure develops, we will see killer apps that will affect the masses. We’re just not at that stage yet of people using blockchain on a daily basis.
Having said that, there are current developments that can be used in the near to medium term that can begin to impact businesses and investors.
What are some of those near-term use cases?
Nossa: Probably one of the earliest use cases we will see will be the tokenization of ownership interest in private companies, like limited liability companies or limited partnerships.
The state of Delaware, for example, amended their corporate code last year to enable Delaware corporations to keep their stock registry on a blockchain. Enacted on August 1st of this year is an amendment to the LLC Act, the Limited Partnership Act, in Delaware that will enable LLCs and limited partnerships to keep their records on a blockchain. They’re doing that with the future in mind. They anticipate that companies will be moving a lot of their transactions onto blockchains. Books and records and proof of ownership could be stored in a blockchain.
There are companies who are developing platforms that will facilitate that process for existing businesses as well as new startups. What I find especially interesting is that existing businesses can use it relatively soon.
What are the benefits of using the blockchain for private company ownership?
Nossa: It would create a more liquid market for these private ownership interests. The average person won’t necessarily be able to invest. They’d be targeted toward accredited investors. But even with the pool of accredited investors, that could still be substantial enough to create more liquidity in that space.
A lot of that can be standardized through these processes that these various platforms are building in which they actually vet investors. They can confirm that they are accredited investors. They meet the sophistication and net worth requirements and then once they’re vetted they can participate in this market.
It creates a great opportunity for both the companies and the investors. It can also create a more global market as well. It’s being driven by startups. A lot of these startups are being backed by major venture capital firms. They obviously believe it has a lot of promise. Otherwise you wouldn’t have the large venture capital funds back them.
Steptoe & Johnson PLLC is a U.S. law firm with core strengths in energy, labor and employment, litigation and transactional law, serving clients from its 13 strategic locations across the nation.
Kent Bernhard is a freelance writer for The Business Journals.