A recent report from the World Economic Forum predicted that Bitcoin’s underlying technology, blockchain, will soon occupy a central place in the global financial system, with 80% of banks predicted to start blockchain projects by 2017, and $1.4 billion invested in the technology in the past three years.
“Rather than to stay at the margins of the finance industry blockchain will become the beating heart of it,” Giancarlo Bruno, head of financial services industries at the World Economic Forum said in a statement. “It will help build innovative solutions across the industry, becoming ever more integrated into the structure of financial services, as mainframes, messaging services, and electronic trading did before it.”
For those not familiar, blockchains—also called distributed ledgers—are databases where all digital currency transactions are recorded and stored. They are updated and maintained by a network of users, rather than a single company or government. This technology could offer a way to move money and track transactions across borders in a more secure and efficient way, experts said.
However, the report noted, before full adoption is possible, several factors must be addressed, including an uncertain regulatory environment, lack of standardization efforts, and the need for a formal legal framework.
Enter international law firm Steptoe & Johnson, which last week announced the expansion of its blockchain practice into a multi-disciplinary practice designed to help clients in all industries manage application of the blockchain in their businesses. In addition, the firm will soon accept Bitcoin as payment for fees itself.
The firm’s expanded practice is led by Jason Weinstein, who led the Department of Justice’s cybercrime enforcement efforts, and Alan Cohn, the former Department of Homeland Security assistant secretary.
“With this expansion of our practice, we are taking the next step from being counsel to the Bitcoin and blockchain industry, to being counsel to companies across all industries who will be affected by the many applications for blockchain and distributed ledger technology,” Weinstein said. The firm anticipates a range of companies across many different industries, including financial services, insurance, energy, transportation, and telecommunications.
Since Bitcoin is the currency in which many companies transact business on the blockchain, accepting it as payment is an important way for the firm to become part of the Bitcoin and blockchain ecosystem, Weinstein said. It will also help the firm better understand the problems associated with Bitcoin and therefore better counsel clients on using it, he added.
Blockchain’s growing importance
Bitcoin and its underlying blockchain technology were introduced in the midst of the 2007 financial crisis. The value of the currency grew by more than 1,000 fold in the past five years, according to a June ARK Invest report. This means that a person who invested $1,000 in Bitcoin at the start of 2011 would now be a millionaire.
Roughly seven million people worldwide hold a material amount of Bitcoin, ARK estimates. Meanwhile, over 500 million people hold stocks directly or indirectly.
“We see blockchain and distributed ledger technology being as important in the future as the internet is today,” Weinstein said. “In essence, the blockchain is the internet of value, and enabling transactions of value in the same way that we currently exchange communications and data enables not only advances in value transfer but also helps unlock the potential of other innovations like the Internet of Things.”
Steptoe & Johnson is currently representing companies in investigations by the US Department of Justice and the Commodity Futures Trading Commission, and advising financial institutions on anti-money laundering compliance issues related to digital currencies.
The firm also co-founded the Blockchain Alliance, a coalition of 25 blockchain companies and 25 regulatory and law enforcement agencies including Interpol, Europol, the Securities and Exchange Commission, and the FBI. The alliance’s goal is to educate enforcement agencies about digital currencies and the blockchain.
Techies, criminals, and businesses
Bitcoin’s journey can be summed up in three general stages, said Chris Burniski, blockchain analyst and products lead at ARK Investment Management. First, the technology people who were amazed by the way it could serve as money over IP. Then, the rise of the Silk Road and using Bitcoin as a means of exchange for internet and often black market transfer.
“Now, we’re seeing it exiting that stage and becoming more mainstream,” Burniski said. “While its reputation has remained as being this dark market currency, really the ways in which it’s being used now are far past that.”
According to Weinstein, businesses looking to adopt blockchain technology should as themselves the following three questions:
- Are the needs of your industry and your company best served by the public blockchain, a private or permissioned blockchain, or a hybrid of the two?
- What are the key legal, regulatory, and public policy implications of adopting blockchain technology for your company and in your industry?
- What specific steps_operational, technical, and legal—will you need to take to effectively experiment with, and ultimately adopt, blockchain technology for your business?
Companies should also seek out a reputable merchant that is well-funded and has a good track record, Burniski said. It’s also imperative that they have strong security systems, especially in light of the Bitfixnet attack earlier this month, in which hackers stole nearly 200,000 Bitcoins from the exchange firm, worth about $70 million.
“Bitcoin is decentralizing trust in the transfer of value,” Burniski said. “It allows us to connect with global communities much more directly and for lower cost, often more quickly than we would be able to otherwise. It opens up more channels for trade and ultimately leads to wealth creation.”
The 3 big takeaways for TechRepublic readers
- Blockchain, Bitcoin’s underlying technology, will soon become a central system in the global finance market, according to a Friday report from the World Economic Forum.
- International law firm Steptoe & Johnson announced last week the expansion of its blockchain practice into a multidisciplinary practice, in which they help clients in all industries manage application of the blockchain in their businesses.
- Experts in the field advise businesses looking to transition to Bitcoin to seek out a reputable merchant with a strong track record and good security practices.