Leading up to DLA Piper's 2018 Tech Summit next week, Mark Radcliffe, Partner, DLA Piper, discusses a technology that has immense potential for disruption across multiple industries – blockchain.

Although blockchain has been hyped in the press for several years, many seasoned technologists believe that the hype is justified and blockchain's impact will be as significant as that of the Internet. Radcliffe discusses how organizations are beginning to get past the hype and how they are managing the real-world legal and technological challenges of implementing blockchain.

What are some of the implications and opportunities for the implementation of blockchain into a company's business?

Blockchain is technology that provides the opportunity to implement new business models in many industries. It can be used to track goods, such as drugs and food, through complicated supply chains. Blockchain can also provide liquidity for previously illiquid markets, such as commercial buildings and patents, through the use of tokens.

Tokens can be used as a digital representation of the ownership of, or income from, a tangible asset. Tokens can be easily sold and the ownership recorded. Without tokenization, the transfer of corporate stock or LLC interests requires significant due diligence and can take months to complete. Tokens recorded on a blockchain can be traded almost instantaneously.

What are some ways in which businesses are implementing blockchain?

The financial services industry is very interested in using blockchain to reduce costs. JPMorgan recently announced the expansion of its Interbank Information Network, a network of more than 75 of the world's largest banks, powered by the Quorum blockchain and aiming to reduce the cost of cross-border payments. I estimate that a least 70 percent of financial services companies have started proof of concept using blockchain technology, but only 5 to 10 percent of the companies have actually placed blockchain solutions into production. Blockchain clearly has tremendous potential to disrupt the finance industry, but there are many other businesses that are implementing blockchain solutions as well.

Many major American retailers are now starting to track products through complex, multi-party supply chains using blockchain.  For example, earlier this year, food safety investigators were able to trace romaine lettuce contaminated with E. Coli to a specific county in Arizona. However, that information could not be used by food retailers to identify the contaminated lettuce because the retailers could not connect the lettuce on their shelves to the farms identified as the source of the contaminated lettuce. Consequently, the retailers needed to remove and discard all of the lettuce received within the period in question. In addition to the economic cost, the lack of traceability created concern among consumers. The use of blockchain to track such shipments could have increased the speed of identifying the contaminated lettuce, thereby reducing the cost of discarding contaminated lettuce and the possibility of negative consumer reactions. In addition, the use of blockchain to manage the supply chain would not only help investigators but also give consumers and companies a much clearer picture of how their food is being handled and sourced, from farm to grocery aisle to table. Diamond and pharmaceutical companies are also implementing trials of blockchain technology for tracking their products.

Are there any unexpected issues companies have faced when implementing blockchain?

First, blockchain technology is different from cryptocurrencies such as bitcoin or ether. Blockchain solutions can be implemented through a number of software platforms: bitcoin, Ethereum, Corda (R3), Fabric (HyperLedger), EOS and Hedera Hashgraph. These technologies have different characteristics and a company must decide which technology best fits its needs. 

Second, many blockchain technologies are based on software licensed under open source licenses. The uses of such licenses need to be managed because some of the projects have adopted certain copyleft types of open source software licenses that can raise problems for companies developing proprietary extensions to the blockchain. 

Third, one of the major advantages of blockchain technology is the ability to "automate" transactions using "smart contracts." However, "smart contracts" are not "smart" and have serious limits. First, smart contracts are written in software code and may contain errors. The liability of developers for such coding errors is uncertain. For example, The DAO venture capital decentralized autonomous organization had a flawed smart contract that permitted a hacker to divert $50 million worth of ether (of the $150 million raised); the core Ethereum developers needed to fork the Ethereum blockchain to correct the problem. Furthermore, smart contracts are generally limited to contracts with clear "if then" contractual obligations. Finally, at present, smart contracts frequently need a "written" off chain agreement to deal with issues that cannot be easily coded, such as arbitration and governing law.

In light of some of these issues, how can companies be practical about assessing blockchain's potential?

Companies should realize that blockchain technology is new and still immature. According to Gartner, the technology research firm, blockchain technology in 2018 is moving toward phase three of its famous five-phase Hype Cycle describing technology development − the Trough of Disillusionment. Blockchain technology spent 2017 at phase two of the Hype Cycle, Peak of Inflated Expectations. 

However, blockchain technology provides the opportunity to fundamentally alter business models and improve performance. Companies should be seeking opportunities to apply blockchain technologies to solve their business problems.