You’ve heard plenty about it— maybe you’re watching it from a distance; maybe you think it’s a fad; maybe you’re even making a fortune on it. Blockchain technology is one of those things that gets discussed but it’s hard to pin down exactly how it’ll affect your life and your legal practice. To help demystify the subject, Adriana Linares is joined by none other than Scott Stornetta, one of the co-inventors of what’s now seen as early blockchain technology, and IBM’s Shawnna Hoffman. Together they converse on everything from the early motivations that led to the creation of blockchain, the ways blockchain works in the world today, and how it’s going to affect the future.
Scott Stornetta is one of the co-inventors of early blockchain technology.
Shawnna Hoffman is the co-founder of Diversity in Blockchain, Inc. and the Lead Account Partner & Global Cognitive Legal Leader at IBM.
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Learning Blockchain From Those Who Know It Best
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Adriana Linares: Hi everyone and welcome to another episode of New Solo on Legal Talk Network. I am Adriana Linares, a legal technology trainer and consultant. I help lawyers and law firms use technology better. I hope today’s episode will help you, if not inspire you, to do the same. I have some really cool guests on. We are going to talk about blockchain, but before I do that I want to make sure and take a moment or two, possibly four, to thank our sponsors.
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Adriana Linares: Okay, here we go. We are going to talk about one of these topics that everybody wants to know something about, but a little bit that we read or watch on the YouTube video, it still seems like one of those topics that’s hard to grasp. So I am very excited to have Shawnna Hoffman and Scott Stornetta with me.
Before I ask you to introduce yourselves, which one of you two invented blockchain? Shawnna, let’s start with you. As a lover of the blockchain, maybe not necessarily the inventor, but tell us a little bit about yourself and how you got into this business and what you are doing these days.
Shawnna Hoffman: Absolutely no, I am not the inventor of blockchain, but I wish I was.
Adriana Linares: You are too young.
Shawnna Hoffman: Thank you. But no, I found blockchain a few years ago. So as many people know, I moved to IBM for my career as an expert witness in eDiscovery and when I was in eDiscovery, one of the problems that I had was when the judge would ask anyone, including me, and the expert witnesses did collect all the data, there was no way to say yes to that, because data is literally everywhere.
So I thought moving to IBM, moving and building AI solutions was going to be the answer to that. Quickly I realized that without an organizational system and without a system that was trustworthy, there was no way to have the right AI and the best AI data for an AI system itself.
And so blockchain has now become our answer to really start to keep a ledger of that trusted data and we are starting to see everyone from big automotive manufacturers to small companies start to put their data, not in blockchain, but start to keep it in the ledger. So it’s pretty fascinating to see where we are seeing in the system. So I am thrilled that I am here, but then also even more thrilled that Scott is here to talk about it.
Adriana Linares: I know, me too, I am excited. Before we move on to Scott I just want to say a couple of more things about you, because you are a very amazing woman. You and I met 20 years ago when you worked for Lexus and I worked at a law firm and you have slowly like morphed and transitioned and done all these very cool things, but one of the things that you did was found Women in e, right?
Shawnna Hoffman: Yes.
Adriana Linares: Tell us a little bit about that, just real quick, I think that’s such a cool thing, because now there are chapters I believe all over the world.
Shawnna Hoffman: Yeah, there is over 5,000 women involved and many men now. It is on its 14th year, which amazes me. And it was an idea that I had along with Lana Schell and with Margaret Havinga and Margaret was with of course Williams & Connolly and we realized that there just were not a lot of women in the industry, nor was there a lot of support for women moving into the industry.
And so by founding the organization we gave and kind of unknowingly, we kind of wanted to just start getting together and educating each other. In our first meeting there were 50 women, which we were shocked by. By the end of the summer we had 2,000 women signed up and women calling from all over the world saying we want to start a chapter.
And law firms were very supportive, we were hosting the meetings there and it just grew by leaps and bounds. And the focus was of course education and giving women and honestly minorities an opportunity to not have to take away time during their day, they could come over lunch, they can learn about the newest technologies and then they could go back so they weren’t taking away from their families. We fed them, they didn’t have to worry about anything financially, and we started to see a huge growth in the industry of women kind of breaking through their own personal glass ceilings. And I am shocked that it got so big, but I am so happy it did.
Adriana Linares: Yeah.
Shawnna Hoffman: Yeah, so thank you.
So a little over two years ago now, about three, I started Diversity in Blockchain with four other female attorneys who are amazing and it was the same issue. We just saw that there were a lot of — and with this one it was really minorities in general not coming into the blockchain space and we wanted to make sure that voice was heard.
So we have a white paper that was accepted by Congress on to the Congressional Record that dives into diversity in the industry itself. So it’s pretty neat to see that kind of continue on.
Adriana Linares: That’s awesome. So when I scheduled you I said you know, do you want to come to the podcast and talk about blockchain, you were like yeah, and can I invite my friend Scott Stornetta; he is like the father of the blockchain and I said hell yes.
So Scott, thank you so much for taking the time to do this with us. I am sure just like Shawnna you are very busy. Tell us a little bit about your background.
- Scott Stornetta: Well, I am happy to talk about that, but I want to put in a disclaimer here right up at the front which is, I would rather describe myself as co-inventor of what I want to call the early blockchain, and the reason I say that is not because I want to disinherit ownership of the blockchain, but that the blockchain is something multilayered and there are many contributions that build on top of the early work that we did, and so I wouldn’t want anyone to think I am trying to take credit for the whole stack if you will.
Adriana Linares: Sure.
- Scott Stornetta: But look forward to talking about the early blockchain and what blockchain really is in its essence as well as how it extends into additional application.
So my own background, really I think the relevant part begins when I was a grad student at Stanford and there was a very interesting news item in the scientific community; I was in the physics department, but there was a story that broke about very prominent pair of researchers who had published some terrific — some very provocative results and then come to find out the results were provocative in part because someone had made up all the data and they did it by doctoring the records.
And at the time I thought, you know, there is going to be a time when all the world’s data is digital.
Adriana Linares: In the future.
- Scott Stornetta: Yes. And there won’t be any way to tell what an original record is from something that was just changed the day before it was entered into evidence in court and we are going to need to solve that problem otherwise we won’t have any confidence in the records that are created. And so that was my introduction to the issue.
And shortly after that I graduated, came back to the east to work at Bell Communications Research, part of the whole Bell Labs tradition, and I didn’t know much about cryptography, but I went down to some very smart people in the cryptography group and said, I don’t know the cryptography, but this problem is going to be an enormous problem and if we get a jump on it, we can make some contributions here before the smart people jump in and try to take all the credit. And so that was really my introduction to this issue.
And so again, by way of just giving people some — a little bit of perspective, so the work that we did, this is in the early 90s and a company was spun off, a company called Surety that started operating a blockchain and we will talk more about what that means in a minute. But all of this is fully 15 years before the Bitcoin paper came out where so much interest got generated, but in fact if you look at the Bitcoin paper, just to give you some reference point, there are eight footnotes in the Bitcoin paper and four of them are references — half of them are references to the work that my collaborator Stuart Haber and I did back at the old Bell Labs.
Adriana Linares: AKA the two of you, Satoshi.
- Scott Stornetta: I am not going to go there, although it is kind of funny that the first I heard about the Bitcoin paper was when people that I did not know started sending me postal mail and email saying, I see that you are a significant fraction of the footnotes in the Bitcoin paper and I also googled you online and see that you speak Japanese and so I am just wondering.
This is getting a little bit stock but I always give the same answer as to whether I am Satoshi, the answer is [Japanese]. I don’t know how to say it any clearer than that.
Adriana Linares: Yes, you are. I am kidding. That’s really cool. Why do you speak Japanese? Did you study there? Did you learn it somewhere?
- Scott Stornetta: There you go. I actually was a missionary there for two years, lived in Tokyo, north of Tokyo and then came back and taught Immersion Japanese and then worked as a Japanese translator.
Adriana Linares: No kidding, that’s really neat. That’s so cool. So just a side question, because of course everyone is fascinated with whomever Satoshi could be or the group that they are, why do you think he, she or they keep it such a secret?
- Scott Stornetta: I think it’s a fair question and I want to sort of go on record as saying that I think the evidence first of all points to it being centered in a single person that perhaps had assistance, but I think the notion that it’s a group that uses a single person pseudonym, I don’t think that’s warranted by the evidence and in fact I think there is a fair amount of evidence to the contrary there. And I know that that whole notion that there is this whole clique of people that are silently hiding behind the name makes it a little more intriguing.
Adriana Linares: Sure, yeah.
- Scott Stornetta: But the scientist in me wants to say that I don’t think the evidence supports that. Certainly it doesn’t mean that this one person who was the principal figured out everything on their own, but I think it speaks with the voice of a single person.
And as to the secrecy issue, I think it really doesn’t require great leap of faith to see that someone that was in the kind of crypto-anarchists community, in which I certainly was a participant, maybe the crypto libertarian side is what I would say the particular branch I was in, not full anarchy, but they have a deep suspicion about institutions, particularly very powerful institutions. And so the idea of remaining anonymous from the get-go and then dropping out of sight, I think is consistent with that mindset.
Adriana Linares: Interesting.
- Scott Stornetta: There is a phrase called Occam’s Razor that’s used often in scientific discussions and it says that the correct explanation should be the one that is simplest but still adequate, and it’s called a razor, because the idea is you cut away everything that’s unnecessary, and I think that argument of Occam’s Razor argues for a single person and argues for just a natural concern about large institutions as being the sort of minimal explanation for that.
Adriana Linares: That’s amazing, but I guess we are all grateful for what they built and then like you said being able to build and sort of grow up on that.
- Scott Stornetta: Absolutely. And I do want to be clear that while many of the design decisions that were made in creating Bitcoin on top of the basic blockchain structure, while many of them are not necessarily the ones I would have made, it’s still a tour de force. It’s a wonderful intellectual achievement. That doesn’t mean that it shouldn’t still be criticized point by point on its merits and that we separate the hype from the reality and what it’s useful for and what it’s not, but absolutely hats off to this individual for kind of putting pieces together in a very provocative, powerful way.
Adriana Linares: Yeah, I love it. So in trying to break apart the hype from the reality, can one of you tell us — I mean I am sure people must ask you all the time, what is it, how do you explain it, surely you have come up at this point with a way to bring it down to terms that smart people like our listeners and me, I am smart enough can really understand or at least grasp a basic understanding of what blockchain is.
Shawnna Hoffman: I think Scott has a great example with the paper.
- Scott Stornetta: Oh, sure.
Shawnna Hoffman: The torn paper, I think that that — that I think will hopefully help the listeners understand the original basis of blockchain and what we can do about it. And then I think if we break it down into the cryptocurrency discussion, which is an app on blockchain and then also the Blockchain for Business, so that there is two separate, because for attorneys it’s mostly going to be the Blockchain for Business when they are creating things for their firms, but the cryptocurrency side of course is where they will practice and make the most money.
- Scott Stornetta: I think that’s a great distinction. Again, all of their mafia connected clients may want to pay them in Bitcoin, but other than that they are going to sort of be sitting over on the enterprise side.
Adam, you can just cut that whole phrase out.
Adriana Linares: I would leave it.
- Scott Stornetta: I want to build on the point that Shawnna made and that is there is one way of explaining the technology that has nothing to do with computers and in fact is retrospective historically in the legal tradition, and that is, I think everyone has heard the phrase an indentured servant, but far fewer people understand what an indenture is.
An indenture is a contract of a particular form. It’s a contract that’s written out on a single piece of paper in triplicate and then the paper is torn along a jagged edge that divides the paper up into the three pieces and each of the parties to the contract receives a copy.
Now, why is it torn in the particular way that it’s torn? Go for it.
Adriana Linares: I think I can guess. So that the three pieces can be brought back together and there is no doubt, like if you cut it with scissors there would be doubt, but if you tore it, there would be such detail that it would be obvious which pieces went together.
- Scott Stornetta: That is exactly right, the tearing in this random way creates this jagged edge, namely it creates a denture, the same root word that we use for teeth, because of the way teeth interlock, that’s why it’s called an indenture. And it’s the jagged edge being brought back together that provides proof of authenticity. That’s what an indenture is.
And in a sense the blockchain is simply a modern version of the indenture. It’s a way of taking, not physical records, but digital records, just the literal 0s and 1s themselves, not the flash drive that they are sitting on or the DVD that they are recorded on, but the actual bits themselves and finding a way to create an indenture, finding a way to tear the document up in a certain randomized way and then distributing to each of the parties that has an interest an exact copy of it, so that if anyone were to try to tamper with it, it would be immediately evident. That’s what the blockchain is.
Adriana Linares: So when we hear about terms like the distributed ledger system, that’s what you mean when everybody gets a copy. Now, break it down a little more basic for us, where is this ledger, what is it built on and how do I get a copy?
- Scott Stornetta: Right. So again, this is — at this jumping off point, we already start to diverge into the different varieties of blockchain that Shawnna previously referred to.
So let’s take a simple example, suppose we have the kind of system that IBM has set up in the trade space or maybe let’s use the food space, and the idea is we have got an outbreak of E. coli or something in romaine lettuce and suddenly there is a need to remove all the romaine lettuce off the shelves that were produced in a certain location, I don’t know, Petaluma, California maybe and we have got to trace all the places that that romaine lettuce got to.
Well, the idea is in that case the entire supply chain, that entire industry, all the people that touch produce as it goes from farm all the way to the Walmart or if you want to pay more all the way to the Whole Foods store, we need to have all of those people on a common ledger so that at each stage in the process they all submit the information and therefore each of the parties would hold a copy of the ledger. Everyone that’s involved in the process would hold a copy of the ledger. That’s what we might call a private ledger because the only people that get copies of it are the actual people involved in the transaction.
It might be different if we’re talking say on the Bitcoin side where the ledger becomes a public document that anyone that wants to look at it can — whether they’re a party to the transaction or not, but I hope that’s responsive to your question to how do I get a copy of the ledger, basically it’s either be invited to the party that’s creating that particular blockchain, right, or if it’s a public ledger then you should have simple access to it just without credentials.
Shawnna Hoffman: And there’s actually a really good point that you just made in public and private blockchains. This isn’t like the internet. There’s not just one big grand huge internet or one big grand huge blockchain, and I think that’s some of the confusion that’s been out there.
Yeah, but the public blockchain of course with the Cryptocurrency is global, it is worldwide, when we start to build out the private blockchains then that’s where they’re very locked down.
So for example, the blockchain that Walmart has of IBM Food Trust that is locked down even to just the supplier to the — so there’s 200 suppliers involved, each supplier can see their transfers to Walmart but they can’t see the other suppliers transfers to Walmart. So Walmart can see everything but it’s all permission based.
Adriana Linares: And so give me a little primer on the actual technology. So there’s a block, and there’s a chain and they’re stacked on top of each other?
- Scott Stornetta: All right, that’s great. I’m happy to pick that thread up. Here’s the idea, it’s that, there’s a block of information that perhaps you are involved with, and then there’s a next person who has either a related document or a completely unrelated document and each of those we can think of as individual blocks and this is a simplified version. Those that are thinking I don’t understand what a Merkle Tree just a shout-out to you people I really do know what a Merkel Tree is but allow me to keep it simple here.
Adriana Linares: I have a lot of those listeners.
- Scott Stornetta: So just think of each of the individual documents, if we’re going to stick with the Food Trust example each — I’ve processed the Romaine lettuce at this time at this date so on and so forth and the next guy, next person, next person. Each of those documents is linked using a very clever cryptographic mechanism called a Hash Function, which I wish I had invented but I didn’t. Okay.
Adriana Linares: The blockchain wasn’t enough, Scott?
- Scott Stornetta: But it’s linking those blocks together in a way that tampering with any of them will reveal the evidence of tampering in all of them. And that’s what we’re doing, we are chaining together independent records in such a way that we are now creating those tears going back to the indenture example that only fit together in one way and so all the parties in the chain can quickly verify whether someone further upstream in the chain has modified anything.
Adriana Linares: So I guess there’s a big component or the main component then is cryptography?
- Scott Stornetta: Yes.
Adriana Linares: Right. So tell us a little bit, give us a little bit of information for those of us who have only seen the movie Enigma and that’s as much as we know about cryptography, give us the basics.
- Scott Stornetta: Which is a great movie.
Adriana Linares: Yeah.
- Scott Stornetta: Okay. Let’s just hang on that for a second or two. It really is, okay. Well traditionally cryptography what it’s about taking a message and encoding it in such a way that an intermediary could not recover any information from it, but that when it got to the intended party they could run a reverse process and decrypt it. But it has come over time to include much more sophisticated things aside simply encoding a message with that Ovaltine decoder ring and then decoding it, okay.
It has come to mean many of the increasingly useful manipulations of digital data that allow us to perform different operations, such as, is there an equivalent to signing a document and in fact there is something called a Digital Signature, that’s an outgrowth of cryptography. And when I say that a digital signature that I don’t mean someone on a digitizing pad and writing out their signature, it’s a mathematical process that is akin to signatures but completely independent from what we do with our hands and a pen.
And so cryptography has also come to encompass things called Smart Contracts, which I don’t mean to touch on any more than that right now, but a whole host of mechanisms that for example would allow you to — let’s give one example, suppose you are trying to buy something at a grocery store and it requires you to be over 21 years old, okay. Well, how do you validate that? Well, typically you’ll show them your driver’s license, but if you think about that given the privacy concerns that many people appropriately have today your feeling is what I’d like to show them is simply the evidence that I’m over 21, do I need to show them how old I am? Do they need to see what my driver’s license number is? And there’s a whole list of facts that we’d prefer to not disclose.
And yet right now we kind of are all or nothing. We have to show them everything in order to just validate the one question that they legitimately should have access to.
Well cryptography now includes not just this encoding and decoding but these elaborate algorithms that allow you to probe data and find out that the person is either over 21 or less than 21, but not know anything more about them. And so really when we talk about cryptography we’re talking about all sorts of encoding of social interaction that increasingly can be done with digital data and gives us much more fine tuning of the flexibility of what we choose to do with the records are gone.
Adriana Linares: Amazing. Shawnna, do you want to add on any tips or suggestions or explanations that I mean I think we’ve — Scott has done a really good job.
Shawnna Hoffman: He really has —
Adriana Linares: Certainly, I get it. Yeah.
Shawnna Hoffman: Isn’t that good?
Adriana Linares: Yeah, yeah, for sure.
Shawnna Hoffman: I think that the one thing I would say just in regards to that comment is everyone tries to overcomplicate it. Because it really is — it’s a simple technology and it seems like it should be much more complicated than it actually is. And so as we start to put it into our day to day life, it will be kind of like the internet something you will normally use, and it’s not going to be a big deal in the future.
Adriana Linares: And we don’t really understand with the internet, we just are glad it’s here.
Shawnna Hoffman: Thank God, right?
Adriana Linares: Yeah, I mean seriously.
Shawnna Hoffman: It’s an amazing invention.
Adriana Linares: Indeed. Well, I think that was a great start to the conversation sort of explaining the history of, the background behind and a little bit of technology. So we’ll take a quick break, listen to some messages from some sponsors and when we come back we’re going to talk about some day-to-day applications and maybe what we can look toward in the future, when it comes to legal specific uses of the blockchain. We’ll be right back.
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Adriana Linares: All right, and we’re back with Shawnna Hoffman and Scott Stornetta. We are talking about blockchain. We just covered the basics I think and I did want to go back and ask you one thing. We mentioned the original paper, can you tell us what we would Google if we wanted to find that original paper?
- Scott Stornetta: Well I think the easiest thing to do is to Google the Bitcoin Paper and then simply go to the end of the Bitcoin Paper and look at the footnote. And when you get to one that says Haber and Stornetta you will know you’ve —
Adriana Linares: Okay.
- Scott Stornetta: Those, there’s only eight footnotes, it’s not a large task and you’ll see that half of them are pointing to those original papers.
Adriana Linares: I wanted to spend a few minutes asking you to give us some ideas and examples about the impact of blockchain in legal. We hear a lot about things like being able to of course track and secure monetary transactions, identity verification which you just actually sort of talked about in a more societal way, authentication of things, smart contracts you mentioned.
Where are you seeing and I don’t know how much time you spend in legal Scott, I think you probably spend your time in a lot of places and I know Shawnna has spent a lot in legal. So notary services, give me some examples that a lawyer who is listening to this would say well that makes a lot of sense of how I might use the blockchain or maybe I’ve seen that in action now and I didn’t even know it.
I think smart contracts is a great place to start, because we keep hearing about it but it seems harder to understand than I think it really is.
- Scott Stornetta: I think that’s fair. Let me go to something — I mean smart contracts and tokens and those sorts of things are of course the things that get a lot of attention, but I’d like to start with something far more basic.
Adriana Linares: Oh good.
- Scott Stornetta: And that is, let’s just talk about basic internal corporate records and that is records can be back dated.
Adriana Linares: Sure.
- Scott Stornetta: And when it’s a digital record you can backdate it if you’re sophisticated enough without leaving any trace of the fact that you’ve tampered with it after the fact.
But if records are as part of the standard operating procedure of an enterprise, if records are checked in to the blockchain on a routine basis, then you can know that the records that you’re looking at are the original records created at the time that they claim they were created and not altered after the fact.
And so, one of the simplest issues that the blockchain can do without revolutionizing anything is that attorneys should attach far more significance, far more confidence to records that were routinely as part of the standard operating procedure checked into a blockchain than those that weren’t.
And this actually goes if you will not to carry coals to Newcastle since this is a legal podcast, this goes to the heart of the so-called hearsay exemption for business records. What that’s about is that hearsay evidence is not admissible because of its being removed two steps from the witness and the witness can’t be cross-examined in a hearsay situation.
And yet if you think about business records they are in a sense all hearsay because the people that anonymous people that were creating them day after day are not being brought into court typically. And yet we have something called the Hearsay Exemption for Business Records. Why? Why are business records admissible even though they fall under the hearsay? And here’s the reason.
The reasoning has been you’re right, it’s two steps removed but these businesses operate on the fact that they’re working with authentic records, they wouldn’t be able to continue their day-to-day operations if they couldn’t trust in the records and therefore we can have a certain level of trust in business records.
And all of that was true until records became fully digital, because a business could operate day after day using its records and relying on them and therefore reinforcing the notion that these are trustable records and then the moment before they bring them into court or submit them as evidence, they could simply change all of the records.
And so blockchain quite frankly, its first and simplest application is to restore the logic for why the Hearsay Exemption for Business Records should persist. While we still should be able to rely on business records. And so that’s really my first point and I hope attorneys can immediately relate to the fact that records that are routinely checked into the blockchain are simply have higher evidentiary value.
Adriana Linares: And they should — I say this all the time about lawyers and especially and like the example that you just gave, they’re such a trusting society, it’s so weird because their job when they’re talking to a client is to start by breaking down any trust that there might be.
But within each other – between each other or even me when I walk into a law firm and they’ve decided to hire me as a technology consultant, man, they will hand me the keys to the kingdom. We trust you, here are all of our passwords, all of our documents have access to everything.
And they also put a lot of trust, social trust into those documents. So for years of course lawyers have said to me, I don’t want anybody to change it, so I send it as a PDF and then I’d have to remind them, well, it’s been about I don’t know 15 or 16 years now that PDFs have been fully editable.
- Scott Stornetta: Right.
Adriana Linares: So they just have this trust and I think that we’ve just been really lucky for hundreds of years in legal that this hasn’t been a bigger problem at a broader level. Of course, there’s always going to be examples where somebody is deciding to change documents or change the date or change a figure whether it’s the client or the lawyers, there’s always that example.
But I think what you’re describing will really hit home because it’s true, why do we put so much trust and when it comes to litigation, it’s all about producing documents which none were born from the blockchain.
- Scott Stornetta: Right.
Adriana Linares: So it’s really amazing. Shawnna what do you have to add on?
Shawnna Hoffman: It actually reminds me of a case that I had about a decade ago and unfortunately the company — so I was with one of the big eDiscovery companies, at 7 a.m. one morning I got a call along with all the other consultants who were director level and above that the company had been bankrupt, go get all of your client information as soon as possible.
I had 17 locations, we sent people all over the world, there was one location we could not get the data from, they had already locked the doors. So I mean I literally had teams out with duffle bags, gathering the hard drives. And so unfortunately it was one of the largest MDLs we’ve ever had in the United States and we had no idea what was on the hard drives that was left in that one location because we had sent for processing all over the place.
Now this of course was kind of in the earlier days of eDiscovery, but it took eight months for that data to get out of the bankruptcy court. And so you started to have all of these issues it was so painful, all of these issues and if we had been able to use blockchain back at that point, we would have had a chain of custody that because the chain of custody of course was on the hard drives again, looking back I definitely would have changed our processes but we’ve never had an issue, I’ve been doing it for years, never had an issue.
And it was just such a shock and a surprise. The strength of blockchain is transparency and traceability and with the traceability, you have your ledger and then as we start to look at the chain of custody we will know where the documents were at all times.
So it’s an amazing opportunity to really start to really change the industry and not to have issues like that.
Adriana Linares: And I know a lot of the large law firms are starting to use blockchain in ways like that and it’s amazing, it’s obviously going to revolutionize a lot of things. What about other examples of use in legal that maybe isn’t necessarily just bound by big law firms. There’s smaller law firms or solos that can appreciate how blockchain might be usable in a day-to-day way.
Shawnna Hoffman: I think especially with the solos, well and just to kind of back up, we’re not — from my perspective especially in the blockchain for business is kind of we call it at IBM, our first clients that have come to us to solve problems with blockchain have been in major industries like financial services, which includes insurance, we could talk about that in just a minute to food trust like through Walmart we have Maersk, who’s one of largest shipping companies in the entire world.
And what they’re saying is that and their general counsels come to us saying okay, we need to back the projects that our teams, our production teams want to do and they believe that blockchain is going to be that traceable, allows the traceability from for example with Walmart from literally the growing on the trees so kind of that from the table aspect.
Adriana Linares: It doesn’t.
Shawnna Hoffman: Yes, blockchain doesn’t grow on trees, but no, that’s pretty funny. But yeah, if we wanted to track an apple all the way from it growing on the tree all the way to Walmart as Scott has talked about the issues that we had with Romaine lettuce, the good thing about is anything you’ve got to get out of your fridge you will know where it came from or what it was grown within.
So those are the main problems that we’ve been solving here in the beginning. On the lee side what we’re seeing the legal teams on being most excited about is the traceability of the data itself. We have large IT departments, I have a large automotive company who wants to be able to track all of their code within watching. So that’s the next step for them.
Adriana Linares: And Shawnna in your work with IBM, are you part of Delaware’s proof of concept pilot for their corporate filings?
Shawnna Hoffman: I personally am not but I am aware of what they’re doing.
Adriana Linares: Can you tell us a little bit about that because of course Delaware being where corporate filings are mostly done, I think that’s something we can all relate to and understand?
Shawnna Hoffman: Absolutely. Well and I think right now is they’re starting to look at what that POC should look like and starting to have the first discussions on that, the biggest assistance that blockchain instance can be —
Adriana Linares: What’s their dream?
Shawnna Hoffman: Yeah so the dream is to be able to have a system that’s kind of like a smart contract. It wouldn’t be called a smart contract but it would be a smart contract. So to where — if there are changes within any of the bills and we’ve been talking with various congressional members about this too, is being able to track. So let’s take the healthcare bill that came out with Obama, that thing was five feet tall when you stacked it up.
No one knew what was in it, no one knew what changes it happened, everything is such a manual process right now as we’re looking at everything from corporate filings to regs to even the discussions on it.
And the biggest thing of course for attorneys is us wanting to look at what is the intention of the words that are behind the statute, what’s the intention of the information behind the regulation and that’s what we have all this wonderful annotated code but there’s not that original intention often from the people who had originally created it. And so what we can start to do is with blockchain have being that traceable mechanism, you can see where things have changed and keep that tracked so that there’s no fraudulent behavior, there’s no information that has been lost, it’s all been tracked within blockchain.
So that’s kind of that overarching view from the various different regulators, the various different — the team that’s doing the corporate filings.
So Scott, are you familiar with what they’re doing in Delaware or any of the corporate filings work?
- Scott Stornetta: Yeah certainly. I haven’t been directly involved with it but certainly I have kept some track of things.
Adriana Linares: At times like this I just think to myself, if only the founding fathers had this technology —
Shawnna Hoffman: Well that would be fascinating –
Adriana Linares: Right, there’d be a little discussion over what was their goal when they created these rules. Anyway go ahead Scott.
- Scott Stornetta: No, I think the point that Shawnna has made there with respect to corporate filings again just goes to if we can make a process more transparent, if we can put it as a matter of public record, if we can increase the confidence that the records were looking at haven’t in any way been — held only by a single party whose activities are opaque to us, then we’re going to feel more comfortable with the records themselves.
I was actually going to go on to the topic of smart contracts since it’s been raised a couple of times and I would kind of like to touch on that. I would do it however in the context, first of all understand that a smart contract, the notion which I’m about to explain is something that is one of those layers built on top of the basic block chain. Just like the tokens contained in Bitcoin it’s simply a layer that’s built on top of these foundational records but having said that but let me illustrate it with a couple of examples.
Adriana Linares: Great. We love examples.
- Scott Stornetta: First what’s a smart contract? Well in a sense it’s something that processes in an automated way and maybe the easiest example to think of that is not actually a smart contract but that starts to speak about what its features are, is something like your monthly cell phone bill.
Namely, let’s say I pay $50 a month for cell phone service and how does that actually work in practice? Well I don’t have someone call me up on the phone from the cell phone provider and say well, it is the first of the month you know, and so it’s time to pay us the $50 and I’d say well but is it really the first of the month where I am or in other words, there’s not a lot of dispute about the facts, okay.
And as a result what happens is that that process is simply automated. There is in effect a computer program sitting at Verizon or Sprint or whatever that has an if-then statement somewhere embedded in it. If the calendar says it’s the first of the month then you have the right to draw $50 out of Scott’s bank account. That’s an automated contract, if you will.
Now what makes it not yet a smart contract?
Adriana Linares: That’s a dumb contract?
- Scott Stornetta: In a sense, think of that as an automated contract but not one that and here’s the real difference, one person is in more of a position of control than the other. Mainly it’s Verizon or Sprint’s computers that that’s running on. They get to decide when to pull the money, okay.
But the notion of a smart contract builds on top of a blockchain because the blockchain is distributed, it can be something that is neither in the control of Verizon or in the control of Scott, something that because of its distributed nature it just it executes as soon as it gets an input that says it’s the first of the month, it reaches into my account, puts it into Verizon’s account, no one’s in a position of preferential power there.
And that I think is – that’s what’s exciting about the notion of smart contract. But I should add that even though there’s much talk about smart contracts, there’s very little commerce that is actually transaction on these distributed automated outside of either parties control basis yet.
It’s a promising technology but it’s not here yet. Actually you can think of it a little bit as analogous to the way Escrow works, right in the sense that the funds are deposited and whatnot but they’re no longer under the control of the parties, the Escrow gets executed or dispersed based on some neutral other party.
And the concept of smart contract is that we can do that on a massive scale with all sorts of situations. That’s the notion of smart contract; whereas, right now the situation we have unfortunately it’s the large institutions have more control over it than the individual users.
So for example, imagine that you were renting a car, people used to rent cars before there was Uber and what happens is you get a rental reservation and they give you a confirmation number and you show up at the counter and you say here’s my confirmation number and they look it up in the database, they say okay here’s your car.
But imagine what happens if there’s a discrepancy? Namely as I use my confirmation number and they said we don’t have any record of it. Okay who’s got the power there? Okay, it’s the Hertz or the Avis?
But with a smart contract and the blockchain more generally in essence, what you bring as your confirmation number is just as valid as their entire database and they no longer can play that game, and that’s part of the appeal, that’s part of why people that have libertarian or egalitarian leadings get so excited about some of these things is that it becomes much more peer-to-peer and not kind of big guy versus little guy.
Adriana Linares: It’s not just a distributed ledger, it’s distributed power.
- Scott Stornetta: Yes that’s a great phrase. It goes to why blockchain and its long run implications get people excited above and beyond the dollars and cents. There is this feeling that it’s kind of equalizing and liberating. And the only caution I add is that yes, it has the potential to do all of those things but getting the details right is at least as important for it to have those implications. And I mentioned that just because some people just want to say well it’s blockchain so we’re all free at last or either or something.
And there’s a big jump between realizing that sort of mythical dream and what the technology actually does and is capable of and if people aren’t careful, they’ll assume that we’re already there in the promised land, whereas there’s just an awful lot of basic work that has to be done for these kinds of aspirational notions to be realized.
Adriana Linares: Shawnna.
Shawnna Hoffman: Well, and one of the things with smart contracts is it allows us to trade items all over the world and so since we’re starting to become a global economy and continuing to grow in that direction, it’s amazing. I actually had a trade of well, so it was money for shoes.
So I’ve seen some Louboutin shoes on one of the like trading websites and I was so excited, they were beautiful, I looked it up, they looked real. So I had it and surprisingly to me, it was built on the blockchain system. So I had paid my money, my money sat in escrow and the way that it’s set up, the smart contract is set up is she ships, so she shipped the shoes to me, as soon as I received them and I accepted them, then she would get paid.
So it would sit in the escrow like Scott explained, now the problem was, is when I received them they were clearly fake. It looks like somebody had nail polished the bottom of them, it was pretty bad. And so I immediately — and everything is built on an app so the blockchain apps themselves as an app and I denied them and I sent them back.
As soon as I sent them back and she received them and I got my money back, and it helps with fraudulent transfers like that, so I can trade with a human being I have never met before and we have a back and forth that’s very managed through the apps that are built to be used in blockchain.
Adriana Linares: Hey before we go on, let’s take a quick break and let’s listen messages from our sponsors.
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Adriana Linares: Okay we’re back. I’ve got Shawnna Hoffman and Scott Stornetta with me. We are talking about Blockchain, Bitcoin and all kinds of cool things.
Well, I want to ask you one more thing before I let the two of you go because we’ve danced around it a little bit and I think for a lot of us when we hear blockchain we obviously think Bitcoin.
And Scott you mentioned that the libertarians or the crypto libertarians are — and I’m going to put myself in that category, we’re against the institutions in the big man.
So this whole notion of commerce and creating a way to distribute the power and the authentication is I think what is at the heart of Bitcoin, so give us an idea of — we know now that Bitcoin is built on blockchain and it’s just confusing because they have a lot of the same letters, but give us a little bit of the technology on that and then again the day to day uses because I think that’s definitely a place where a lot of us are tempted to buy Bitcoin and I tell lawyers all the time, so you should buy, you should create your Bitcoin account now because if you get hacked and a cyber criminal is going to ask you for money to get your files back, which happens every single day in law firms, it’s going to take you three or four days alone to set up your Bitcoin account which makes your ransom go up.
So I have this one friend who’s actually been on my show. This happened to her, she opened the Bitcoin account and she has kept it and she has told every one of her friends in the legal and through her Bar Association if you need bitcoins I’m here for you because I’ve got an account, I’ve got a wallet and she’s willing to help because it just takes so long to create the account and set it up.
- Scott Stornetta: Sure. So let me speak to Bitcoin in a way that I hope is responsive to your question but also gives people a better understanding back to the notion I said before about how there’s the sort of basic blockchain and then these layers that are built on top of it.
So the dream of Bitcoin and I want to switch now from saying Bitcoin to the idea of a truly distributed digital currency, is that we could interact peer-to-peer with a minimal or essentially no intermediary without having to go through a bank or someone that’s going to charge interest.
The appeal of that is self evident, okay. It’s also important to understand that Bitcoin itself falls somewhere short of that dream and this goes back to the comment I made before about the fact that the work that Satoshi did was certainly a great breakthrough, but that doesn’t mean that it should get a pass in terms of evaluating how well does it do this, how well does it do that, how well does it do that.
And one of the things that’s at the heart of Bitcoin is a very intriguing incentive system for why people should hold on to the records that validate Bitcoin and why they should continue to transact on the Bitcoin.
And those so-called mining incentives create quite a bit of — there are some positive benefits to it but those are also at the heart of the instability that gets created in the price of Bitcoin for example. And that in a large sense has unfortunately rendered the particular attempt at building a currency, the particular attempt known as Bitcoin has turned it into a largely speculative effort falling back on the notion that it’s more like a store of value rather than something that is on a day to day basis, something that we use to buy a hamburger or buy shoes or buy a bag.
So again, I’m not trying to rain on Bitcoin’s parade but I do want listeners to understand there’s a distinction between this ideal of creating a kind of frictionless global currency which I very much think is inevitable, and a desireable in, from the particular attempt that’s represented by Bitcoin.
So I think what we’re actually going to see on a more pragmatic basis is a kind of intermediate step where we see the emergence of so-called stable coins. And these are digital currencies but for the effort at keeping them from being volatile so that we can know that a unit today is not going to turn into two units tomorrow or a half a unit tomorrow, these things are initially being pegged to the traditional currencies; pounds or Euros or the dollar and so forth.
And so they start to offer a kind of halfway solution, some of the benefits that we desire but not entirely set free from the various national institutions that are trying to use monetary policy to keep prices relatively stable but still allow for growth.
So I think it’s important to understand that there’s a dream and then there’s sort of the reality of where we are today. For example, just to cite another example the goal was that everyone would have essentially their own accounts and they could trade amongst each other inter alia.
But in fact, what you will find is in this attempt and again, it’s only one attempt in Bitcoins case to create this egalitarian situation, you end up with a great concentration of power, so-called mining power off in Western China.
And so the dream is a great idea. I think we’re eventually going to get there, but the reality is it’s a not yet realized thing. And I take your point about paying ransomware but just to be the fuddy-duddy at the party, before you start worrying about making sure that you’re ready to pay your ransomware, why not just back up your data every day and put it at an off-site location so that you kind of preempt the need to have to pay ransomware and therefore maybe you don’t need that.
Adriana Linares: I am giving you an Internet hug right now Scott because I would love to see lawyers get rid of servers and start using secure cloud-based solutions, that’s a whole other episode, but yes, I agree with you completely. And it is a terrifying thing for lawyers when that happens.
Shawnna, anything you want to add on about Bitcoin? You got any good stories because and I should say too, I’ll ask this dumb question just to make sure we cover it. Bitcoin is one of many cryptocurrencies that have been born out of the blockchain, it was just as you — I think you started, it was kind of the first use of the blockchain that became a big deal.
So we’re all used to hearing Bitcoin, but there are other cryptocurrencies that are available Ethereum, there’s several of them, but that’s just the one. It’s kind like tissue, we call it all tissue, call it all, Kleenex, call it all Kleenex.
- Scott Stornetta: Kleenex gets the – right.
Adriana Linares: Yeah, yeah.
Shawnna Hoffman: Well, and in the end the world is moving to digital currency. We have seen that over in China right now where they just came out with their digital currency and the citizens are required to use it.
Adriana Linares: What?
Shawnna Hoffman: In the United States – yeah, yeah it’s pretty fascinating, most everyone uses Alipay over there and I think I remember –
- Scott Stornetta: And WeChat Pay.
Shawnna Hoffman: And WeChat, thank you, thank you, that’s what I was looking for. So that’s already being used and being tracked of course by their government, but as we start to look at the other countries very similar, they’re coming up — their digital currency is of course going to be their sovereign currency.
Here in the United States, we have some amazing movements going on, the Federal Reserve has come out saying that our digital currency they are looking into it and expecting 2025 is what we heard last. Although I see Daniel Gorfine and a few others are looking at building at our digital currency or trying to work on that and have that sovereign currency earlier than the 2025.
So we have some really amazing peers, especially many who were at the CFTC and now are moving off into their own private companies to continue to work on the same subject matter that they were before. So pretty fascinating.
Adriana Linares: It is, and I think this is where we’re probably going to realize some common and simple uses, QuickBooks allows me to turn on Bitcoin if I want to take payments that way and the Nebraska issued an ethics opinion on Bitcoin, which is weird, because it’s Nebraska and you think what’s Nebraska doing? Well it turns out that it is a hotbed miners and they had to address the ethics issues associated with Bitcoin.
So there’s a whole white paper that they – or an ethics opinion, sorry, that they put out about that if listeners are interested in learning more you can just put in Nebraska Ethics Opinion Cryptocurrency it’s pretty fascinating.
Shawnna Hoffman: It is, well it’s a great practice area to get into also.
Adriana Linares: Sure, yeah.
Shawnna Hoffman: I definitely see those colleagues of mine who are now leaders actually, Joshua Ashley Klayman Kuzar who is now at Linklaters as one of their leaders in blockchain and then we have Michelle Gitlitz who is at Crowell & Moring and she is again one of the blockchain leaders.
So it’s pretty fascinating to see amazing women who are rising through probably not a glass ceiling for them since they’re rock stars, but rising through the ranks and taking on these tough practice areas.
Adriana Linares: There’s always a place for lawyers. Every time I hear someone say oh the robots they’re going to take, get rid of the lawyers, I’m like, are you kidding, we’re going to need lawyers more than ever. The way technology is evolving and all the interactions and resources and contracts, I mean there’s endless supply of work.
Well before I let you go I want to make sure and give you an opportunity to let our listeners know how they can find, friend or follow you if you are on social media or just have an email that you like to share if people want to reach out and ask any questions.
Shawnna, do you want to start?
Shawnna Hoffman: Yeah, I think the easiest way to reach out to me is of course through LinkedIn and it’s Shawnna Hoffman and it’s Shawnna Hoffman and then I also have a Twitter feed that often I will post things too and it’s @CognitiveLegal.
Adriana Linares: Great. What about you Scott?
- Scott Stornetta: I’m just going to stick with LinkedIn.
Adriana Linares: Great.
- Scott Stornetta: And we handle updates there. There’s also a — you can also go to yugenpartners.com/media.
Adriana Linares: Yugen?
- Scott Stornetta: Y-U-G-E-N, yugenpartners.com/media and you can follow some of the work that we’re doing in the more concentrated in the business as opposed to the public sector there, but LinkedIn is always a good start.
Adriana Linares: It is. Well again, I can’t thank you enough. This has been a really interesting and fascinating conversation and I really, really thank you both very much.
Well, looks like we’ve reached the end of our time together listeners, so I appreciate you tuning in for another episode. If you like what you’ve heard today, I’d love for you to subscribe, rate and give us a nice review on iTunes. We’ll see you next time.
And remember, you’re not alone, you are New Solo.
Outro: Thanks for listening to New Solo with host Adriana Linares. Tune in again to learn more about how to successfully run your new practice, solo, here on Legal Talk Network.
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