LSTA Releases Second Video on Blockchain and Smart Contracts

February 28, 2017 - The LSTA is producing a series of short videos on blockchain.  In each video, Joe Dewey of Holland & Knight, who is also one of the authors of "The Blockchain: A Guide for Legal and Business Professionals", discusses this new technology and its potential impact on financial services and the loan market in particular.  This week, the second video on “smart contracts” was released.  In the context of blockchain, the term “smart contracts” has nothing to do with the traditional idea of a legal contract; rather it refers to a snippet of programming code that can be executed on the blockchain.  In the short interview, the LSTA’s Deputy General Counsel, Bridget Marsh, and Joe explain some of the different smart contract use cases in the financial industry and their potential impact on the legal industry.

The first introductory video released this year explains that blockchain is simply a database or a ledger, and like any traditional database – such as an Excel spreadsheet -- it can store any type of data (for example, a person’s name, age, and address). However, unlike a traditional centralized database with one authoritative copy of a critical ledger maintained on a centralized ledger by a trusted party such as a central bank, blockchains are maintained in a decentralized manner with transactions stored on computers connected to a common network via the Internet.   Blockchain is actually a collection of technologies that, when taken together, allow for a unique way of information sharing between participants on a network.  Broadly those technologies, many of which existed for years before the emergence of blockchain, include (i) distributed peer-to-peer network communication (as opposed to a network where people tie into a central system of communication on a server), and (ii) public key encryption to control ownership of or rights to the information on the ledger. With distributed ledger technology, there is not a single authoritative copy.  Instead, everybody who is a participant in this distributed peer-to-peer network maintains a copy of the ledger.

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