Considerations on cryptocurrency, securities tokens, distributed ledger technology, and blockchainLaura Anthony, a leading authority on digital currency, advances the idea that, by sheer design, the success of a new technology hinges on its ability to ferate.
WEST PALM BEACH, Florida, 06 JAN 2020 /PRNewswire/ — Only a select few recognize sweeping socio-economic change as it is occurring. The rest of the world only sees it in hindsight.
According to Miriam-Webster, the definition of ‘Paradigm Shift’ is: an important change that happens when the usual way of thinking about or doing something is replaced by a new and different way.
Scholars and luminaries held fast to the belief that the foundation of Western civilization was comprised of certain building blocks that were impervious to change. Eastern and Western philosophy would never integrate, innovation and invention were exclusively the progeny of large corporations and the concept of replacing hard currency with a virtual, electronic counterpart was nothing short of science fiction.
The pathway to a global economy is now a superhighway, a lone college student has turned traditional media into the underdog and cash is no longer king. As a result, being a scholar or luminary no longer holds the prestige it once did.
Palm Beach attorney Laura Anthony is currently regarded as one of the leading authorities who truly grasps how digital currency and capital tokenization dovetails with private and public companies. Ms. Anthony is the founding partner of Anthony L.G., PLLC, a national corporate and securities law firm that has represented more than a dozen blockchain clients. She has expounded on the complex topic of virtual currency, security tokenization and blockchain technology in her podcast series LawCast, Corporate Finance in Focus, as well as on her blogsite SecuritiesLawBlog.com.
Unless people understand it, they won’t use it
According to Ms. Anthony, “I’ve done more than a dozen LawCast segments focusing on cryptocurrency, securities tokens, distributed ledger technology, and blockchain. To the uninitiated the entire concept may seem initially overwhelming. However, it is important to remember that by sheer design the success of a new technology hinges on its ability to proliferate, meaning that unless people understand it, they won’t use it. By keeping this premise in mind, anyone new to the tokenized marketplace should be confident in their ability to understand it.”
Ms. Anthony launched LawCast in the fall of 2014 during the Podcast Renaissance. The site was designed to explain the intricacies of corporate finance and securities law in layman’s terms and has been viewed more than 100,000 times.
For purposes of investment contracts, tokens are just another method of representing a fractional ownership interest in a company, an asset, real property, a revenue stream, a license, a right or obligation, etc., coupled with the ability to effectuate transactions in these tokens in a fast, safe, and efficient manner. Just as technology solved the Paperwork Crisis of the 1970’s when the U.S. clearing and settlement system was literally being crushed by the sheer volume of paperwork, blockchain and distributed ledger technology has the ability to revolutionize the U.S. capital market system.
During a recent interview with Jeff Ramson, CEO of PCG Advisory Group, Ms. Anthony elaborated on the current debate as to whether digital currency is indeed a currency or a security. Ms. Anthony stated, “Well, I think that securities tokens represent a fractional ownership interest in a company, the same as a common stock does. But it’s a different technology used to record and keep records, to trade and to settle and clear that fractional ownership interest and because of its decentralized nature, it can eliminate middle people and middlemen and the way that securities settle and trade in the United States. I believe the settlement process is going to change – the proverbial train has left the station.”
Distributed Ledger Technology and Blockchain
Naturally, since electronic currency is nothing more than computer code, the need for wallets and money clips has been eliminated. On a grander scale, bricks-and-mortar banks no longer factor into the equation. However, since hundreds of millions of dollars of “ethereal” currency trades hands daily, someone or something must rectify debit and credit balances.
There are two pivotal terms that come into play: “blockchain” and “distributed ledger technology.” These two technology-based platforms are widely used, frequently mistaken for one another, but ultimately bring efficiency to what would otherwise be a chaotic form of commerce.
Emerging technology writer Shaan Ray provides a succinct explanation of how the two platforms differ and interact.
Distributed Ledger Technology
A distributed ledger is a database that is spread across several nodes or computing devices. Each node replicates and saves an identical copy of the ledger. Each participant node of the network updates itself independently.
The groundbreaking feature of distributed ledger technology is that the ledger is not maintained by any central authority. Updates to the ledger are independently constructed and recorded by each node. The nodes then vote on these updates to ensure that the majority agrees with the conclusion reached. This voting and agreement on one copy of the ledger is called consensus, and is conducted automatically by a consensus algorithm. Once consensus has been reached, the distributed ledger updates itself and the latest, agreed-upon version of the ledger is saved on each node separately.
Distributed ledger technologies drastically reduce the cost of trust. The architectures and structures of distributed ledgers can help us mitigate our dependence on banks, governments, lawyers, notaries and regulatory compliance officers. R3’s Corda is an example of a distributed ledger.
Distributed ledgers present a new paradigm for how information is collected and communicated, and are poised to revolutionize the way individuals, enterprises and governments transact.
Blockchains are one form of distributed ledger technology. Not all distributed ledgers employ a chain of blocks to provide a secure and valid distributed consensus.
A blockchain is distributed across and managed by peer-to-peer networks. Since it is a distributed ledger, it can exist without a centralized authority or server managing it, and its data quality can be maintained by database replication and computational trust.
However, the structure of the blockchain makes it distinct from other kinds of distributed ledgers. Data on a blockchain is grouped together and organized in blocks. The blocks are then linked to one another and secured using cryptography.
A blockchain is essentially a continuously growing list of records. Its append-only structure only allows data to be added to the database: altering or deleting previously entered data on earlier blocks is impossible. Blockchain technology is therefore well-suited for recording events, managing records, processing transactions, tracing assets, and voting.
In summary, every blockchain is a distributed ledger, but not every distributed ledger is a blockchain.
Blockchain and distributed ledger technology have the ability to allow for the widespread sale and subsequent re-sale of fractional ownership interests in private companies and assets, blurring the lines between private equity and public companies. The technology can be utilized by earlier stage companies to facilitate access to capital and can essentially democratize investment opportunities. The technology will also, eventually, transform the settlement and clearing of securities in the U.S. requiring industries stalwarts such as the DTCC and its subsidiaries and affiliates, the NYSE and Nasdaq, to reconstruct their business operations – and they are all investing heavily in that future as of today.
Of course, regulations and the protections afforded to investors and our capital market systems will need to transform as well, but the technology has the ability to automatically detect and react to fraud and human error in a way that has never before been possible.
Attorney Laura Anthony
Laura Anthony, Esq. is the founding partner of Anthony, L.G., PLLC, a national corporate, securities and business transactions law firm. For more than two decades Ms. Anthony has focused her law practice on small and mid-cap private and public companies, capital markets, NASDAQ, NYSE American, the OTC markets, going public transactions, mergers and acquisitions, registered public and exempt private offerings and corporate finance transactions, Regulation A/A+, securities token offerings, Exchange Act and other regulatory reporting requirements, FINRA requirements, state and federal securities laws, general corporate law and complex business transactions. The Anthony, L.G. PLLC team has represented issuers, buyers, sellers, underwriters, placement agents, investors, and shareholders in mergers, acquisitions and corporate finance transactions valued in excess of $1 billion. ALG has represented in excess of 200 companies in reverse merger, initial public offering and direct public offering transactions. Palm Beach Attorney Laura Anthony is also the creator and author of SecuritiesLawBlog.com, the host of LawCast™, Corporate Finance in Focus and a contributor to The Huffington Post and Law360.