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Why blockchain is here to stay as a force for good

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Lawyers have a central role to play as fast-growing technology gains traction, Norton Rose Fulbright fintech partner Victoria Birch tells Alex Wade

Satoshi Nakamoto — the inventor of the worldwide decentralised cryptocurrency and digital payment system known as Bitcoin — is either a man or a group of people. Similar uncertainty applies to Nakamoto’s place of residence. It could be the United States, or it might be Europe. It could also be the Caribbean, and there are those who are sure it’s Japan. No one has yet suggested that Nakamoto is a woman, but there is no reason she isn’t.

There may be uncertainty surrounding the true identity of Bitcoin’s inventor, but one thing is for sure: since Bitcoin’s release as open-source software in 2009, it has swept the world. Rapidly following in its wake have been other cryptocurrencies, from Gridcoin and Monero to Ethereum and Ripple. The majority make use of blockchain technology, defined in a 2017 Cambridge University study as a “record of all validated transactions grouped into blocks, each cryptographically linked to predecessor transactions down to the genesis block, thereby creating a ‘chain of blocks’”.

Confused? Don’t be. Bitcoins and blockchains aren’t just tech-jargon. They’re big business — the number of unique active users of cryptocurrency wallets is currently estimated to be between 2.9 million and 5.8 million — and fortunately for the rest of us a number of lawyers are at the vanguard of working out how to manage them. Step forward one of the brightest minds in the sector, Victoria Birch, a partner with Norton Rose Fulbright.

“It’s an incredibly exciting area, which is developing exponentially,” says Birch, who has more than 12 years’ experience of cross-border and domestic M&A joint ventures, capital fundraisings and general corporate and commercial transactions. Indeed, being an experienced corporate finance lawyer was key to Birch’s metamorphosis into one of the stars of an industry in which terms like ‘mining’, ‘provenance’ and ‘hash’ have nothing to do with coal, wine or illicit drugs.

“The pace of change is phenomenal but often it’s a case of going back to basics, of utilising fundamental contract law principles and working out if a proposed process or transaction can be legally binding,” says Birch, who studied history at Cambridge before completing the GDL and LPC. “But there is also complexity in the way those processes are being put together, and so an understanding of the legal issues in corporate finance is essential.”

The technology has its critics as well as its supporters. For example, JPMorgan Chase CEO Jamie Dimon commented at a recent banking conference that “it’s worse than tulip bulbs. It won’t end well. Someone is going to get killed. Currencies have legal support. It will blow up”. For good measure, he added that Bitcoin — the price of which has been surging lately before hitting rough patch last week — “is a fraud”.

However, Birch remains optimistic. “In the short time that Bitcoin has been around there has been plenty of doomsday talk, but it’s survived. Its valuation may fluctuate but we don’t see any slowing down of activity at the moment,” she says. On the contrary, with plenty of cryptocurrency initial coin offerings (ICOs) on the desk, Birch has never been busier.

ICOs are analogous to IPOs: instead of company shares going to institutional investors and then the public, a percentage of a newly issued cryptocurrency is sold to investors in exchange for legal tender or other cryptocurrencies (often Bitcoin). As Birch points out, recent figures suggest that in the first quarter of 2017, fundraising by ICOs far outstripped traditional means of fundraising for blockchain companies. She continues:

The blockchain community is often quite mutually supportive. People in it want new ventures to succeed, so there’s a lot of collaboration and encouragement.

And while Bitcoin may have its critics, Birch says blockchain, the technology that underpins it, looks set to stay. “We see it across the spectrum, not just in the financial industry but in so many sectors, from transport and pharmaceuticals to energy and insurance.” That makes for a lot of legal work, as Birch and others in this fast-moving area grapple with the volatility of cryptocurrencies, financial compliance and securities regulation — not to mention cross-border disparities over the regulatory framework. However, as Birch points out: “In many ways, we’ve been here before. For example, if you think about the introduction of the internet, society adapted and so did lawyers.”

In fact, Birch has never been a fan of the term “disruptive”, preferring to see the changes as innovations that will augment and compliment rather than threaten services. “One of the great things we have seen in this market is the collaboration and interaction between existing incumbents, regulators, technology providers and potential new market entrants, which can only improve the service that all of us receive,” she explains.

And better yet, Birch sees the changes as an opportunity rather than a threat to lawyers, adding:

There is a real opportunity to use these advancements to improve and augment the service that we provide to clients. Rather than spending time on administration and process driven work we can focus on the specialist, professional advice that clients are seeking. And this is not really new, most firms have been using some form of AI or other technologies for some time now.

There is just one final thing. “If you want to work in this area, having a technical understanding is a good idea,” says Birch, “it will not only enable a more credible interaction with the technology providers that will be increasingly important but will allow you to speak the language of your clients.

Victoria Birch will be speaking at Legal Cheek’s latest event, ‘Bitcoin, blockchain & smart contracts — and the next generation of lawyers’ on Thursday evening at Norton Rose Fulbright.

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