Blockchain & Smart Contracts – Page 9 – FinTech and Blockchain Law Watch

Surge in fintech patent applications

May 05 2017

Several business publications have recently reported a dramatic increase in the number of patent applications filed globally for fintech-related inventions. According to one widely-reported analysis, 9,545 applications were filed in 2016 which is 500 more than in 2015 and over 49% more than in 2011. The United States is reportedly leading the charge with 4,523 patent filings in 2016 and China, in a somewhat distant second place, filed about half that number in the same year.

A patent gives an inventor exclusive rights to exploit their invention commercially for a limited term (usually 20 years) in return for public disclosure of the invention. The monopoly conferred serves to incentivize innovation and encourages public disclosure of innovations for the advancement of technology and the common good. The recent surge in patent applications clearly reflects a significant uptick in research and development efforts in fintech and shows that innovators in this space are serious about protecting and commercialising the fruits of their labour.

The types of fintech-related inventions seeking to be patented are diverse and include systems for managing bitcoin and blockchain-based currency reserves. Other examples include credit risk assessment tools and artificial intelligence agents for identifying and analysing fraud and irregular trading activities.

K&L Gates has significant experience filing fintech-related patents including for SMEs and large entities in Australia and the United States. Innovators should consider patenting their new fintech technologies to help protect their competitive advantage and reward their R&D efforts.

U.S. Government Accountability Office Issues Long-Awaited Report on Fintech Industry

May 01 2017

By Judith Rinearson and Eric A. Love

The U.S. GAO has issued a long-awaited report on the fintech industry, which focuses on the regulation of marketplace lenders, mobile payments, digital wealth management platforms and distributed ledger technology (“DLT” – often referred to as blockchain). For each of these fintech industry “subsectors,” the GAO report details the nature of the subsector and how it operates, as well as its potential benefits and risks. Moreover, the GAO report addresses industry trends, regulation and oversight for each subsector.

Marketplace lenders. The GAO report indicates that marketplace lenders may provide expanded and quick access to credit at lower cost than banks, although the report also notes risks related to loan term transparency and certain protections for small business borrowers. Read More

Adapt or die, the reality for retail banks during a digital revolution

Mar 26 2017

By Cameron Abbott and Giles Whittaker

Traditional banking is a thing of the past, at least according to 203 senior retail banking executives surveyed by the Economist Intelligence Unit.

According to an Economist Intelligence Unit report for Temenos, the EU’s Second Payment Services Directive (PSD2), which will force banks to provide interfaces, APIs and data to third parties, is set to “tip the scales between banks and FinTechs for customer loyalty.” More than half of financial transactions will be made through FinTech companies rather than traditional retail banks by 2020, as the latest EU payments directive unleashes competition.

CPMI publishes an analytical framework for DLT

Mar 24 2017

By Giovanni Campi and Ignasi Guardans

The Committee on Payment and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) recently released a report that focuses on the potential impact of distributed ledger technology (DLT) on payment, clearing and settlement.

In providing an analytical framework to approach DLT, CPMI hopes to enhance authorities and market participants’ understanding of this technology. The report reviews the potential implication of DLT for the efficiency and safety of payment, clearing and settlement activities. The last part also analyzes broader implications of DLT for financial markets, in terms of market architecture and connectivity.

CFTC FinTech Initiative

Mar 21 2017

By Anthony Nolan

On Wednesday Commissioner (and Chairman-designate) Giancarlo of the US Commodity Futures Trading Commission (CFTC) gave a speech to the Futures Industry Association in which he identified the embrace of technological change as a key factor in economic growth. In that speech he announced that the CFTC has been conducting a review of FinTech innovation issues including those arising from a range of new digital technologies. The review is focused on three issues:

How the CFTC should leverage FinTech innovation to make it a more effective regulator;
How CFTC rules and regulations need to be updated to account for FinTech in order for the Commission to be relevant in 21st Century digital markets; and
The proper role of the CFTC in promoting US FinTech innovation in CFTC regulated markets.

Some Limits on Smart Contracts

Mar 16 2017

By Susan P. Altman

Amid the excitement about the promise of smart contracts comes a wet towel over their use. Milos Dunjic argues that the Capabilities of Smart Contracts are Overblown because most people misunderstand the fundamental properties of smart contracts and propose ideas that are not implementable on a practical level. Dunjic addresses the scalability and privacy issues presented by smart contracts.

As for scalability, smart contract code must produce the identical outcome in every node that executes it. Dunjic questions whether a large number of distributed nodes all hitting a “funds transfer” API at the same time might look like a self-inflicted DDOS attack on the API. Would each call to the API receive exactly the same response from the API? Reliability must be absolute in a smart contract.

As for privacy, replicating and storing data on each blockchain participant’s computer does not look like the best way to prevent data breaches. The reality of decentralized networks is that they expand the opportunities for breach. Not surprising, Dunjic’s conclusion is that smart contracts should be used mainly for management of transactions with one database and that interaction with external environments and services should be avoided. For another viewpoint on the privacy problem with suggestions for partial solutions, see Privacy on Blockchain. We’ll watch how the smart programmers address these issues.

The Age of Blockchain

Mar 08 2017

Tom Wallace and Tyler Kirk contributed an article to American Lawyer on the impact blockchain is having on companies around the world. The article discusses the potential business development opportunities and the ways companies can leverage the technology including what companies must do in order to capitalize on this emerging area.

To read the article, click here

Banks Help Blockchain Move from Bitcoin to IoT

Feb 02 2017

By Susan P. Altman

As companies continue to look for practical uses for blockchain’s distributed ledger technology, we’re seeing interesting collaborations between major banks, global technology players, and nimble startup fintech companies. To be sure, banks are still focused on blockchain as it applies to financial services. BNY Mellon recently hosted a blockchain event at which presenters discussed whether blockchain should be viewed by banks as a disrupter or an opportunity. (Naturally the bank is looking for opportunity.) Of particular interest to the lawyers is the discussion of legal risks raised by blockchain, which include problems already in existence, such as data privacy concerns across geographic jurisdictions, and new problems created by blockchain, such as identifying where an asset is when no one bank or entity is the custodian of the record.

But the banks aren’t only experimenting with, dare we say, traditional financial uses for blockchain; they’re right in the mix trying to figure out how to exploit blockchain in industries far beyond the bitcoin world. BNY Mellon has also, for example, joined Cisco, Foxconn, security company Gemalto and several blockchain startups in a collaboration to develop a shared blockchain protocol for the Internet of Things. Blockchain could potentially improve security of IoT applications and create a tamperproof manufacturing, maintenance and supply chain history, areas not typically viewed as concerns of large financial institutions. Banks are experimenting with supply chain technology. Now that’s looking for opportunity in the world of disruption.

Smart Contract Code versus Smart Legal Contracts

Jan 24 2017

By Susan P. Altman

In a recent CoinDesk Op-Ed, Josh Stark makes a useful distinction between smart contract code and smart legal contracts. He describes smart contract code as a program or script executed on a blockchain—this code being what many commentators misleadingly refer to as “smart contracts.” This (mis)use of the phrase has led lawyers to quip that smart contracts are neither smart nor contracts, they’re just code. The better term for blockchain code-enabled legal contracts is “smart legal contracts.”

Although Stark helps us a lot with terminology, his argument goes a little askew in suggesting that smart contract technology enables machine to machine commerce without enforcement by legal entities and therefore is a new tool for solving the problem of trust between trading parties. Individuals and companies are legal entities and at least two of them hold an interest behind every machine operation executing smart contract code. Just because there is no intermediary between the two (or more) parties to the transaction does not mean that traditional legal contract principles do not apply. Smart contract code speeds up and increases integrity in trading transactions by reducing friction in forming, executing and enforcing a contract. It is a new tool in our toolkit, but the toolkit is for building traditional legal contracts. Offer and acceptance, coupled with consideration, are still the basic principles of contracts, whether they are smart, stupid, oral, written or digital.

FinTech in Canada – Towards Leading the Global Financial Technology Transition

Nov 15 2016

By Robert Zinn and Jim Bulling

The Digital Finance Institute is a prestigious Canadian-based think tank for FinTech established in 2013 with a mandate to address the balance of innovation and regulation; support initiatives for financial inclusion; and advocate for diversity in FinTech. The Digital Finance Institute also promotes FinTech in Canada through conferences and international alliances; the creation of Canada’s national FinTech Awards; the FinTech Cup, the new university FinTech startup challenge and by preparing research papers on FinTech.

Robert Zinn and Jim Bulling contributed insight and content to the U.S. and Australian FinTech ecyosystems.

To read this publication, click here.

Category:Blockchain & Smart Contracts