Recognizing Potential Blockchain Projects: A Quick Guide for Lawyers

When is it appropriate to mint a blockchain? What factors must you consider? Many lawyers will need to learn how and why businesses and individuals use blockchain technology to answer these questions for their clients.

The US GAO’s March 2022 report to Congress includes a flowchart for guidance on when blockchain may be most helpful. Let’s look at how the chart leads us to consider blockchain’s most popular features, such as transparency, immutability, and decentralization, along with its weaknesses and risks.

Blockchains are a Shared Database:

Blockchains store data of all types, including transactional information related to digital assets, supply chains, finances, personal identities, legal contracts, and more. When more than one party needs to contribute information to a project, that’s a trigger for considering a blockchain.

Blockchains are Transparent:

A public blockchain serves as a verified record of events that all contributors and the public can view. This transparency is one way blockchains eliminate the time and cost of needing intermediaries to provide and verify details.

Though the stakeholders can remain anonymous, consider whether it makes sense for every party and the public to know every detail of the project’s transactions. When confidential information is involved, you may opt to mint a private blockchain—versus the public variety—to limit the number of people who can access the record. (At least until additional privacy measures are implemented.)

Records are Tamper-proof and Irreversible:

A blockchain is highly tamper-proof, and its record cannot be altered without consensus from all parties. Even then, changes result in the generation of a new block on the chain that clarifies what was changed, when, why, and by whom.?

This makes blockchains a breeze to audit and ideal for governance projects and proving compliance. However, the inability to delete prior information can run afoul of the many privacy regulations being put in place.?

Decentralized Security and Trust:

Blockchain stores information in a decentralized manner. The Blockchain Council says, “Decentralization alludes to the transfer of supervision and decision-making from a centralized association (individual, corporation, or group of people) to a dispersed network.”?

This aspect solves trust issues as each party enjoys the same level of input and access to a project. Security also improves when there’s not a single authority that can be hacked. A malicious actor must attack every block in a chain to compromise a project.

Blockchain Weaknesses and Risks:

Blockchains can automate data exchanges between systems, sometimes relying on trusted third parties (aka “oracles”) to provide input a blockchain needs to trigger actions. Oracles are highly efficient, but they can also be hacked.

And though the blockchain is trustworthy and transparent, the people who mint or contribute to them can lie about their identities, ownership stakes, and intentions.

Nevertheless, blockchain technology continues to revolutionize the financial sector and supports a growing number of non-financial use cases as well.??

Amicus Capital is committed to helping lawyers keep up with the rapidly changing technology landscape. Call me at 877-926-4287 to discuss ways we can help you assist your clients with blockchain technology solutions.