Bertrand Fry, Co-Chair of Pryor Cashman’s FinTech Group, recently spoke with Enterprise.nxt about the evolution of Bitcoin and doing business via blockchain.

What is Blockchain?

A blockchain is an openly accessible but anonymized database of electronic transactions, similar to a ledger. Each transaction is time-stamped and reported to a shared database; each record is checked and added to a chain of data blocks that allow people see a history of each user’s transactions.

Blockchains can be used to establish a chain of trust for any transaction, from stocks to real estate, art and even medical records. With a cryptocurrency such as Bitcoin, the computation that authenticates the chain is performed by “miners,” who are paid in bitcoins. For blockchains with fewer transactions, a central authority might charge a transaction fee, usually called a “token,” to maintain and distribute the ledger, in addition to paying miners.

Bitcoin: An Experiment in Feasibility

“It looks to me like Bitcoin was sort of an experiment in feasibility,” Fry told Enterprise. “Can you create an authoritative ledger essentially by agreement of all the nodes on a distributed network? The answer that Bitcoin has provided us is yes.”

Take, for example, fine art sales and the problem of authentication. “The way people typically [authenticate the underlying asset] is to show the line of ownership. Then if you can show the chain of control, you can be comfortable with that piece of art - it really is that thing that was created by Gauguin, Picasso, etc. There are different art houses that keep track of these records. There are what, to my mind, look like title companies that specialize in doing the diligence before an art transaction is consummated, to really make sure that art is authentic,” he explained.

“In a weird way, the art stuff kind of starts to look a little like the securities transactions," Fry said. "An enormous amount of art is sitting in warehouses in Geneva. People transfer that art without really seeing it. The lot identified by this row and that height now belongs to me. I may or may not be interested in displaying it. If I want to loan it out to a museum, that's how they would go get it, but if I want to transfer it, it may never leave that spot before I transfer it.”

Industries Respond to Blockchain

While many businesses have begun experimenting with blockchain - Walmart, for instance, is testing blockchain as a means of tracking portions of its global food supply chain - others, like credit card companies, seem wary of the technology. “I think that people can see that you could set up something that was really parallel to the business of Visa and MasterCard that allowed transactions to occur on a completely immediate basis, totally reconcile each transaction, and where you can be assured that people aren't going to spend money they don't have,” Fry said.

Transactions that trigger only under certain conditions sound very much like a stock exchange, and the FinTech community is thinking hard about those implications, Fry explained. “Regulators are very interested in this idea that the blockchain might facilitate transactions in securities and the recordation of those transactions. I think blockchain that's being run by an exchange is going to look just like any other infrastructure that exchange uses.”

In fact, Fry added, the very idea that a blockchain transparently tracks all transactions makes for a more orderly market. “You could have a public blockchain, a blockchain the regulators would have access to, which is where the transactions are happening. You can make whatever statistical analysis you want of it. You can ask people about trades that you're seeing, because you're seeing them. They're anonymized, but you're the SEC—you can find out who; you can ask and get information about who matches onto those accounts.”

“I think there was this notion early on that regulators didn't like Bitcoin because it's so anonymous. Actually, what the FBI and others have found is, it's really not. Right now, the model we have is, people in the market do stuff and they report it to a regulator, who has to then figure out what to do with that data. Here, if you got to a model where the transaction is the report and allows a regulator to be more immediately involved in transactions and less involved in the paperwork, collecting data about transactions—they're pretty excited about it.”

What Does the Future Hold for Blockchain?

“One of the things I think is going to happen if the blockchain continues to go in the direction it's going,” Fry predicted, “is we probably won't have this conversation again about the blockchain, any more than we currently have long conversations about the cluster of servers that are used to make the Internet work. It's basically invisible to us. We just use the Internet. We talk about typing stuff in and getting answers from Google. There's a huge process that underpins that, but we don't care about it. We just use it.” 

To read the full interview, please click here.

More About Pryor Cashman’s FinTech Practice

Fast-growing FinTech companies need agile counsel who respond swiftly to industry developments and ever-changing regulations. Pryor Cashman works with FinTech companies to meet their unique needs by advising them on corporate issues, guiding them through the thicket of applicable regulations and advocating for them in government inquiries and investigations.

Our team of attorneys has a wealth of experience representing FinTech companies, ranging from small cryptocurrency startups to the nation’s leading payments companies and internet banks. To learn more about our experience in this area, visit here.