by Erik Adams
As I start to write this column, Google informs me that it takes $13,577.90 to purchase a single Bitcoin. Bitcoin’s astonishing rise in value last year (and significant fall this year) has been in the news a lot, and there are many articles that attempt to explain what it is and how it works. I’m not going to repeat that here; as with so many things, I think Wikipedia has a good introduction. However, there is a part of how Bitcoin works that merits closer attention for law librarians: the blockchain.
Wikipedia has a nice description of blockchain, quoting Harvard Business Review: “blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” In other words, a blockchain is a kind of database. But where most databases are a single authority that responds to queries and manages updates, a blockchain is a shared resource with multiple participants. With Bitcoin, each computer that participates in the blockchain downloads a complete copy of the database (currently around 100 gigabytes for Bitcoin). Updates are announced peer to peer, without a centralized authority.
When a Bitcoin is transferred from one person to another, that change is an update to the ledger. Nothing physically changes hands; only a change in the database occurs. Each participant in the blockchain updates their copy, and forwards the information about the change to its peers. In a way, blockchain is a little like the children’s game of “telephone” – each player gets a message from a person on one side and whispers that message to a person on the other side. Except with Bitcoin there are millions of players, and each player sends their message to as many other players as they can. Another way blockchain is different from the children’s game is that the updates are reliable, and complex math guarantees that the message doesn’t get garbled in transit, no matter how amusing that might be.
Blockchain is seen by many in the legal industry as a way to improve the speed and reliability of financial transactions large and small. The Georgetown Journal of International Affairs recently ran an article about Bitcoin, and although the authors were very negative about the currency itself, they were upbeat about blockchain. Matthew Swinehart & Merritt Baer, Those Things You Have Heard about Bitcoin: Distinguishing Signal from Noise, 16 Geo. J. Int’l Aff. 144 (2015). They report that Citibank is looking to use blockchain to speed up cross-border financial transactions, and J.P. Morgan Chase is looking to creating a payment system that would be completely anonymous, backed by technology derived from blockchain. The American Lawyer named blockchain in its article noting “The 3 Technologies that Redefined Legal in 2017.” Even Above the Law has gotten in on the buzz, saying “In Legal, Blockchain Is The New Black.” A quick Google search reveals that many large law firms are now promoting their blockchain practice.
Like artificial intelligence, it is worth the time to understand what blockchain is and know a little about how it works. Fortunately, you don’t have to spend bitcoin money ($10,483 as I write this) to get started. Though, if you want to, there are a lot of people who think it is still a smart investment opportunity.