Canadian Lawyer InHouse

JULY/AUGUST 2019 34 INHOUSE — or proof of concepts — dot the block- chain space. The advertising world, for one, is hard at work to use blockchain to drive efficiencies in digital ad management. In the energy sector, oil and gas companies are teaming up to build commodity trad - ing solutions on blockchain, while cannabis upstarts and food giants are looking at ways to enable traceability in their supply chains through the cutting-edge technology. "Blockchain works really well for prov - enance, be it about a cow from birth to slaughterhouse right to the table — block- chain offers remarkable traceability," says Wayne Logan, an intellectual property lawyer who heads the blockchain practice at Miller Thomson LLP. The financial sector in the meantime is forging ahead and re-examining its processes and func - tions thanks to blockchain. The Canadian Securities Exchange, for instance, is set to launch a blockchain-powered platform that will enable securities to be traded, cleared and settled in real time. The National Bank of Canada for its part launched a blockchain pilot program that is expected to improve and streamline the process for negotiating standby letters of credit and guarantees, the complex conditional agreements used by banks for securing financial transactions. "Exploring is probably the right way to describe where most organizations would be in the market," says Andrew McCoomb of Norton Rose Fulbright LLP in Toronto. "It is very experimental in terms of the big industry applications." Blockchain is widely regarded to be an immature technology with a market that is still nascent. But that is expected to change over the next several years as a growing number of organizations begins to opera - tionalize blockchain. In-house counsel can, and should, play a key role in determining whether there is strategic value for an or- ganization to implement blockchain, assert experts. Few are better placed to straddle I n d u s t r y S p o t l i g h t Wayne Logan says blockchain 'offers remarkable traceability.' between the business and legal divide, liaise between technophiles within the organiza- tion and external legal suppliers and just as crucially have an understanding of the workplace culture. "The key role of an in-house counsel is to be able to identify whether a project will come with not only rewards but also with risks," says Usman Sheikh, national head of the blockchain group at Gowling WLG. "In-house counsel should be prepared to roll with the punches in this space and real - ize that it comes with a lot of challenges." It is a "huge undertaking," as one former in-house counsel put it, because of the series of long and complex issues in-house counsel will have to deal with, from measuring the pulse of senior management to ensuring le - gal compliance to grappling with thorny is- sues made more challenging by blockchain, be it governance, jurisdictional or litigation. "Just because something will have a ben- efit down the road doesn't mean it doesn't require upfront legal time now, and that's the issue for companies that are operation- alizing this," says Addison Cameron-Huff, a Toronto blockchain lawyer who was a former president of Decentral Inc., a lead- ing blockchain software company. "What people want to know is how to do it right now, what's the cost and how difficult will it be. The answer is more difficult than run- of-the-mill work." Even then, challenges facing in-house counsel can differ, varying from industry to industry. A financial institution's proof of concept would raise different legal ques - tions compared to one by an insurance com- pany. The legal challenges that may surface can also depend on the kind of blockchain network the organization has implemented, whether it's public or private. Blockchains, best described as a digital database for se - curely storing information and recording transactions, can be public like the internet or private so that only preapproved partici- pants may join them. On top of that, a growing number of com- panies, such as financial institutions, is join- ing forces to develop and deploy business solu- tions using blockchain technology as part of a consortium, typically to set standards to en- able the development of new infrastructures. But those kinds of private blockchains raise questions about governance, notes Jil- lian Friedman, blockchain lead at the Na- tional Bank of Canada. How is the blockchain run and how are decisions made, how are upgrades made and potential errors dealt with and who gets to transact are all basic questions that natural competitors must come to terms with in the private blockchain space. "The whole governance question of get - ting multiple parties to align on what should be done and how we should go about do- ing it is a major consideration for whether or not we pursue different opportunities," says Friedman. "So that is not necessarily a technological challenge. It's a challenge of stakeholder alignment." But regardless of the type of blockchain network an organization adopts, a criti - cal component of any blockchain project is identifying legal issues and ensuring that it is legally compliant. All would be for naught if there is a "key legal flaw" at the outset of the blockchain project, says Sheikh. To avoid any surprises, many in-house lawyers embed themselves in technological teams precisely to ensure that the projects will be legally compliant when it is operationalized. The absence of clear regulatory guid - ance and common standards does not make matters easy for in-house counsel. Regula- tors may assert that standards do exist and that they have withstood the test of time, regardless of the technological innovation, but those in the frontline have a different take. Some have gone so far as to maintain that the dearth of common standards and regulations is proving to be a major limi - tation on blockchain applications' ability to scale. Industry blockchain consortiums such as R3, a distributed ledger technology company that leads a consortium of more Andrew McCoomb says the big industry applications of blockchain are currently very experimental.

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