3.2. Traditional Legal System in the Era of Distributed Ledgers Technology: Catalyst for Progress or Transactional Costs?

Track: 3. Smart Society

Description

Distributed Ledgers Technology (DLT, known as the blockchain, although the latter reflects only the name of its initial primitive version) is in fact not new. Although the history of its existence lasts several decades, but attention to it has been simply unprecedented only in the last few years.

Experts from all over the world recognize its enormous disruptive technological potential, and above all the ability to change the balance of power in the whole system of centralized traditional society and its core institutions, being the basis for the traditional business, politics and law.

From a technical point of view, as the technology is based on the peering network principles, it allows for creation of decentralized information networks whereby there are no "main" servers, and, consequently, each participant of the network is a peer participant being both a client and a server at the same time. As a result of this composition the entire information about all transactions in this network is distributed and stored simultaneously on each computer of this network.

All the most important DTL features are therefore based on this principle of distributed information: the system can not be centrally managed, controlled or hacked. Unlike the centralized network management architecture, DLT network can be maintained with any number and any combination of nodes that remain available. The main feature of this technology is that it is built on the principle of consensus meaning that no transaction will become a part of a block, and the block will not become a part of a chain, if the transaction is not confirmed by the majority of participants in the network.

Blockchain has full potential to change and even rethink many industries that currently depend on so-called intermediaries or a middleman, which has no use in a peer-to-peer transaction. Blockchain offers methods to convert social functions into a pure algorithm without any involvement of human intermediary, whereas all those traditional social functions currently depend on intermediaries (social and credit institutions etc.) and, therefore, represent so called transaction costs.

From the time immemorial it was the basis and essence of the legal profession to enforce the law, to secure rights, duties, and freedoms of citizens, parties to contractual relations, etc. Now it can turn into a bunch of programmed smart contracts inside the global distributed network, which runs and enforced in accordance with the algorithm built into and with no alternative. Thus, procedures set forth by the decentralized applications (smart contracts) may well be determining the rules of socio-economic interaction between participants of the network.

DLT technology can offer a number of substantial benefits to the society as a whole: access to alternative digital currencies, global payment markets, automated and trustless transaction systems, self-enforcing smart contracts, automated transactions between peers without any intermediaries, direct access to capital markets (including impact investments), enhanced protection of property rights, including intellectual property rights, efficient tax systems and anti-corruption and fraud prevention systems.

In fact, blockchain is a database, which means that it can store not only specific transactions, as for instance a crypto currency token (Bitcoin being an example). It in principle can store any information: cadastres, registries, depositories, accounting information, notary information, tax registers - everything that accounts all kinds of assets can be built on blockchain. In addition, DLT can facilitate innovative models of governance based on transparency and corruption free voting.

At the same time, the use of blocking technologies can be associated with significant risks due to its transnational, encrypted, and decentralized nature as well as its technical complexity and pseudo anonymity. All these factors make it increasingly difficult for the government enforcement agencies to identify wrongdoings and to enforce the law in relation to and within DLT's applications. With the further development of this technology, growth of its scale, its further decentralization, and the weakening role of intermediaries, the traditional law enforcement potential will become even more technically narrowed. It is therefore of a paramount importance for the society to work out the global standards and methodology for the DLT technology, and, therefore, international efforts to develop a global and uniform standardization of DLT technology is hard to overestimate.

We are positive on DLT technology is being technically capable of changing the fundamentals of the traditional law. But is it equally capable of developing the acceptable solution to avoid and reduce the drawback that DLT may cause to society. This balance between the technological power of DLT and its ability to secure fundamental human values will be after all determine its real value for the society. On the panel at St. Petersburg Legal Forum we will discuss different points of views on issues as described above.

Moderator:

Yuri Lyubimov

State Secretary - Deputy Minister of Justice of the Russian Federation

Alevtina Kamelkova

Counsel on Information Technology and Telecommunications, Baker McKenzie CIS

Speakers:

Maxim Bashkatov

Leading Researcher, Institute of Law and Development of the Higher School of Economics - Skolkovo

Alexey Blagirev

Director for Innovation, Bank OTKRITIE

Alexander Savelyev

Legal attorney, IBM Eastern Europe/Asia Ltd.

Irina Sirenko

Deputy Director, Moscow Iformation Technologies Department, Moscow City Government

Paolo Tasca

Executive Director, Centre for Blockchain Technologies (CBT), University College London


*This schedule may be subject to change