Delaware Moves toward Blockchain Technology

On May 2, 2016, Delaware Governor Jack Markell made it official: the state of Delaware is heading toward the use of blockchain technology.

The innovative Delaware Blockchain Initiative began in 2017 and will be rolled out in phases over the next few years.

What Is Blockchain?

Blockchain technology (also known as “bitcoin 2.0,” “Distributed Ledger Technology,” “DLT” or “blockchain”) is a means to clearing and settling almost every type of transaction quickly, easily and with permanent records created for all the participants of the transactions.

In essence, it allows people and businesses “to transfer assets directly to one another without the costs and delays” that are often associated with such transfers” (O’Toole, Reilly and DiDonato).

Blockchain technology will decrease the typical costs and delays created by paper transactions. Since any asset can be digitized, be it personal property titles, commercial property titles, securities, derivatives or authorized shares, blockchain can, quite realistically, eliminate the need for a variety of intermediaries in many industries.

Blockchain technology does not require verification (often the source and reason for intermediary delays); rather, blockchains “rely on ‘proof’ achieved by mathematical computation to determine if a transaction is authentic” (O’Toole, Reilly and DiDonato).

Thus the Delaware Blockchain Initiative has the potential to create real-time, trustworthy and traceable transfers between Delaware companies, banks and law offices in seconds.

Since legal claims can also be digitized, even law firms will potentially be affected by this new type of digital document sharing.

Delaware’s Department of State has joined forces with the Governor’s office (Markell and now Carney) to lead the Delaware Blockchain Initiative. The first priorities of the Initiative are:

• To ensure that businesses that utilize blockchain will not face new regulations in Delaware.
• The governor’s support for the proposed amendment to Delaware corporate law that will accommodate distributed ledger shares.
• A Delaware Blockchain Ombudsman (Andrea Tinianow), who will spearhead the Initiative, and a Delaware Legal Ambassador (Marco A. Santori, Esq.)
• A partnership with Symbiont, a company that provides blockchain technology, in order to create distributed ledger share solutions.

What Are the Benefits to Distributed Ledger Shares?

First, let’s define distributed ledger shares. As defined in the article “The First Block in the Chain: Proposed Amendments to the DGCL Pave the Way for Distributed Ledgers and Beyond, “the phrase ‘distributed ledger shares’ generally refers to shares of stock that can be recorded and transferred on decentralized electronic networks using blockchain technology” (O’Toole, Reilly & DiDonato).

There are many benefits to distributed ledger shares, most notably that the participants can share a single database and thus execute trades, votes, governance processes and issue shares without relying on any intermediaries. Since all the data on a blockchain is stored together, there is no need for one database to update another, as is typical on non-digitized databases that almost always exist in isolation.

The speed and efficiency with which a blockchain can execute all types of transfers will eradicate the laborious, unpredictable and inefficient processes currently in use by banks, corporations and law firms. It will no longer take days to process and settle transactions in Delaware; thus both public and private Delaware companies can benefit tremendously from distributed ledger shares.

Delaware corporate law must be amended to allow the use of blockchain technology. According to the Delaware Blockchain Initiative, amending the law is among the top three priorities for this year.

Blockchain technology is not perfect, and the Delaware Blockchain Initiative will face both technical and legal obstacles. However, if Symbiont and the Initiative’s administration can work through—and then past—the complications, the potential pay-off is enormous (for example, more European companies doing business with Delaware companies as well as starting their own Delaware companies).

Stay tuned to our blog for updates on the Delaware Blockchain Initiative and the digitized future of corporate Delaware.

Sources:

“The First Block in the Chain: Proposed Amendments to the DGCL Pave the Way for Distributed Ledgers and Beyond.” Harvard Law School Forum on Corporate Governance and Financial Regulation. Pub. 16 March 2017. Ret. 27 March 2017.