Distributed Ledger Technologies (DLT): businesses and everyday life
Ι. Preamble
In a previous article we referred to the 4th Industrial Revolution, the technologies that constitute it, the cosmogonic changes it is bringing. We also mentioned the fact that there is no proper institutional framework in place, as well as the need to introduce one to welcome and utilize those technologies, aiming to the sound development of both businesses and the country.
Distributed Ledger Technology is uniquely placed among the technologies constituting the 4th Industrial Revolution. The implementations of this technology are countless, “the number of which is immeasurable”, to copy the Old Testament (Psalm 103,25). With that admission in mind, a simple article could of course not sufficiently cover them all, even more so if said article is written by a non-expert.
It is, though, true that these technologies, their implementations and their benefits, do not only regard the experts.
They regard all of us.
None excluded.
ΙΙ. Distributed Ledger Technology (DLT) and blockchain
We have already mentioned (in the aforementioned article) that “Distributed Ledger Technology is a database which, instead of being kept in a central location, it is distributed in a network of computers. The users of the computers with access to the network, depending on the licenses they hold, are able to access the information and/or add data. The most common DLT is the blockchain technology. Blockchain is the most common type of Distributed Ledger Technology.” We have also mentioned, regarding blockchain, that “The “chain” is protected in its entirety by complex mathematical algorithms, aiming to ensure the integrity and safety of the data. This chain is a complete recording of all the transactions recorded in the database. The most known application of blockchain is the creation and circulation of cryptocurrencies, as well as the accommodation of transactions entailing cryptocurrencies. Blockchain is said to be bringing changes more significant than those of the creation and broad use of the internet.
ΙΙΙ. The actions taken by the European Union
Given the severity and magnitude of the issue, as well as the expansion and utilization of DLT on a global level, EU is taking many actions, especially with regards to blockchain. Unfortunately, though, the technology is “running” too fast. In most cases so fast that most of us are unable to follow it – not even sufficiently.
A few days ago was the one-year anniversary of the passing of a very interesting text. The European Parliament resolution of 3 October 2018 on distributed ledger technologies and blockchains: building trust with disintermediation (2017/2772(RSP)). This text (hereafter the “Text”) entails several and specific statements. It also offers specific directions to the European Commission for the utilization of DLT applications within the European Union.
IV. The advantages in using DLT applications
Using DLT has important advantages. Indicatively:
(a) DLT and blockchain can prove to be tools that offer to their users the ability to control their own data. To decide which data will be included in the distributed ledger and which will not, who will be able to see them and who will not.
(b) DLT can minimize transaction costs. Middle men prove to be unnecessary, and so are the fees they charge. The final cost of services and products ends up being lower, benefitting not only the businesses, but the consumers as well.
(c) DLT, can, through the necessary encryption and control mechanisms, as well as by establishing a relevant electronic model, contribute to the improvement of transactions’ safety and trust.
(d) DLT promotes the pseudonymization but not the anonymization of its user. (That is the point that kicked off a big discussion regarding the compatibility of DLT and GDPR.)
(e) DLT can provide a framework of transparency and reduce corruption, detect tax evasion. Also: it can track unlawful payments and appropriate assets, facilitate anti money laundering policies.
(f) Adopting DLT renders ensuring data integrity and security possible.
(g) Cyberattacks seem to not have such a big effect on DLT applications, since they have to successfully target an unidentified number of servers, not just one.
Simultaneously, the dangers of DLT applications, seem, at least for now, insignificant.
V. Distributed Ledger Technologies (DLT), decentralization and applications
It is unclear how many applications DLT has. It seems that they won’t be exhausted – at least not in the foreseeable future.
The ability to create an environment of trust between transacting parties and the lack of need for third parties to mediate a transaction completely reverses today’s transacting reality. This fact can limit (and, eventually, completely eradicate) the “old ways” of conducting business and transactions in general. It can also improve the services offered and achieve a significant, in some cases, deduction of costs -in a broad spectrum of sectors.
A possible utilization of DLT will have a significant impact on public governance and the role of government institutions. Papers studying possible scenarios of adoption of DLT public networks are expected to come out soon. The European Parliament has directed the European Commission to do so.
It is a given that the spectrum of possible DLT applications is significantly broad. The economy and, if not all, most of its sectors will most likely be affected.
Indicatively:
(a) Energy and environment friendly applications
Utilizing DLT applications in the energy field can have multiple benefits. It can contribute to the production of “green” energy – even at household level, to energy exchanges and energy donation. It can contribute to a more efficient integration of renewable energy and to its use as an electric vehicle power supply. It can also contribute to the precise tracking of renewable or carbon energy certifications and to the creation of new opportunities in circular economy, by providing motives for recycling.
(b) Transport
In transportations, DLT can contribute in the processes of registration and administration of vehicles, verification of driving distances, smart insurance and charging of electric/electronic vehicles, among others.
(c) Healthcare sector
In this sector, the utilization of DLT applications is most likely going to be significant. It is possible (and is logically expected) that DLT will promote:
- The improvement of the efficiency of data in clinical study reports.
- The digital exchange of data between public and private institutions, with the approval of the interested patients.
- The improvement of the efficiency of healthcare, thanks to the interoperability of electronic health data.
- The verification and confirmation of a drug’s identity and the facilitation of medicine distribution.
It is of extreme importance to stress that DLT technology ensures the privacy of sensitive, health-related personal data and allows data subjects to control, by themselves, their data of that nature. This means that they can choose which health data of theirs will be offered and to whom, and to give their permission for their use by insurance companies and healthcare providers.
(d) Supply Chains
DLT can:
- Contribute to the improvement of supply chains,
- Facilitate the tracking of the goods and their origin, their ingredients or components,
- Improve transparency,
- Offer guarantees for the compliance with sustainability and human rights protocols in a product’s place of origin.
By utilizing it, the risk of illegal (or unauthorized) interferences of products in the supply chain minimizes. Consumer protection is also ensured, along with healthy entrepreneurship and, of course, government revenue. DLT can be used as an important tool in the hands of custom officials when checking for counterfeits.
(e) Education
With reference to specific cases, some of which were presented before the courts, while others were not, cases which have become public during the past year, a big discussion has started. A discussion regarding the ethical and legal contempt and the consequences the one falsely declaring of a degree faces or should face.
When using DLT, the certification of academic qualifications, higher education degrees and knowledge and skill certification, proves very easy. Specific education and certification organizations have already adopted this technology. By doing so, they ensured a secure connection between a specific degree or knowledge and skill certification with a specific person.
In this regard, we should be expecting from the European Commission (after the relevant order by the European Parliament) a study on the possibility to create a European network (utilizing DLT) in order to share data and information, aiming to a more efficient recognition of academic degrees. In this same regard, we should be expecting relevant initiatives from the member-states, as well as from the education and certification institutions concerning the qualification degrees they issue.
If such a system was generally adopted, one could not really be tempted to claim they hold a title that they do not. The result? More transparency and meritocracy, while the relevant authorities and parties involved and will not bother with such cases (cases like the aforementioned).
(f) Creative industries and copyrights
Utilizing DLT can securely authenticate and help manage copyrights, related rights and patents. It can facilitate their protection. Identifying ownership and (moral and economic) intellectual property rights could prove to be fairly easy through an open public ledger. And, if that was possible, the need for intermediaries to receive, on behalf of the creators, the relevant payment for their creative content, would eliminate.
(g) Financial sector
The international financial sector is probably leading, on a global level, the effort to detect and utilize DLT applications. And this makes sense – DLT is very valuable to this sector. It is very valuable in the field of (innovative) financial intermediation. In the improvement of transparency. In minimizing transaction costs and indirect expenses – and all that thanks to the rationalization it offers and to the better (and safer) data management.
The subversion of the “ruling” class, resulting from the use of DLT applications on specific procedures, as a means of perusing cost-effectiveness, managing human resources, is already a fact. And let’s not forget cryptocurrencies, probably the most recognized application of DLT. The effects on global economy and the dangers that may be hiding have not yet been estimated.
The inability of the global financial system to prevent the use of cryptocurrencies does have an interesting result: the (necessary) accepting of their existence and the effort to incorporate them in the European settlement system.
VI. Smart Contracts
Technology is the enemy of those who cling (or, futilely, try to cling) to past habits.
What has history taught us? That technology is the one which will, eventually, win all such battles.
We, lawyers, are bound to be the first ones to fight smart contracts (those contracts that all one needs to draft, enter and implement them is a few lines of code and an “enter”). It is also a given that smart contracts will win this battle.
Despite the fact that we still haven’t even familiarized ourselves with this term, the use of smart contracts seems to be inexhaustible. And all that thanks to DLT applications.
What is the bigger issue, though? The lack of legal certainty.
Smart contracts are mostly unregulated: as far as the liability of and the risks undertaken by the transacting parties, the applicable law, the competent courts… One thing is certain: smart contracts will gradually prevail over regular ones. And as long as the validity of a digital, cryptographed signature enhances legal certainty, the use of smart contracts will keep getting more “user friendly”, prevailing over regular contracts.
And even more important: We should take it as a given that technology will start (little by little) to replace us lawyers and remind us that we are not as important as we would like to think.
VII. Policies for the promotion of DLT technologies in Europe
The fact that the European Parliament accepts that DLT is unregulated is quite significant. At the same time, the European Parliament has adopted the position that the European Union should not, for now, regulate DLT, but it should try to eliminate all the obstacles in the way of blockchain applications.
The European Parliament has also accepted that the European Commission should valuate and develop a European legal framework which will resolve possible jurisdiction issues. Such issues would be those that could potentially arise in case of fraud or criminal matters relating to transactions realized in a DLT framework. It has also been proven that the European Commission and the competent national authorities are those that will provide for the prompt emerging of technical expertise and regulatory capacity, which will allow for a fast legislative or regulatory action when deemed necessary.
DLT can be best applied if certain requirements are met. Additionally, it would have to “go through” certain actions taken by the European Commission and member-states. And not just those.
The awareness and training of citizens, businesses and public authorities is completely necessary, in order to facilitate the understanding and integration of this technology. The broadening of DLT research is essential as well, and so is the undertaking of the relevant studies, investments on this field, funding research initiatives and development and promotion of strategies for training and retraining on digital skills. These are only some of the actions that are expected to decisively contribute to the active and unrestricted participation of the European community on the necessary shift of perceptions and practices.
VIII. In conclusion
Distribution Ledger Technologies (DLT) already have multiple applications (“the number of which is immeasurable”) on many sectors of the economy. We should all take as a given that they will soon cover all its sectors -none excluded. And even more so: our lives and reality.
The European Union indeed has, according to the European Commission, “an excellent opportunity to become the global leader in the field of DLT and to be a credible actor in shaping its development and market globally”.
The European Union is expected to undertake initiatives to familiarize, promote awareness and train its citizens on those technologies. For tackling the interstate digital divide.
That should, respectively, happen in our country as well, as the digital divide between the Greek citizens proves wide. It should quickly close. A shining example for us to follow is that of Estonia.
The state, businesses and their unions should look for ways to utilize DLT applications, while there is still time. Those of the businesses that will quickly realize the new regime and will utilize the relevant opportunities will have a significant advantage compared to the rest.
And we, on our part, as active citizens, have a duty to pay a lot of attention to what tomorrow will be our reality.
To listen!
To study!
To collect all relevant information! Not because it will somehow be mandatory to be familiar with such applications and technologies, but because they will, very soon, prove entwined into our own existence and reality.
Those of us who will chose to turn a blind eye to the “next day” will certainly find ourselves marginalized and isolated.
The monks of Mount Athos have already, very consciously, made their choice.
What about the rest of us?
Stavros Koumentakis
Senior Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 13th, 2019).
