Bernadette Jew (pictured), a partner in Gilbert + Tobin’s TMT practice, spoke to Lawyers Weekly recently about a white paper she completed, revealing how the firm is seeing more corporate clients opt for shared ledger arrangements rather than traditional blockchain.
“Private shared ledgers are still distributed ledgers, but they no longer fit the classic blockchain model,” Ms Jew said.
“A private shared ledger is still ‘distributed’ in that each participant still holds a distributed node on the blockchain platform and each participant can have their node located on a server co-located anywhere in the world, but the shared ledger is not fully centralised – where anyone can be a validator – and there is no longer full replication of data across all nodes. This generally means that full synchronisation is no longer necessary.
“Decentralisation of network control becomes less important on private shared ledger platforms, since all the nodes are operated by known parties. Because the consortium members and consortium operator are known to each other, they are able to satisfy certain regulatory and compliance requirements without relying on complex software protocols that the full blockchain solution offers, even between parties who do not necessarily trust each other. They can instead look to ‘real-world’ solutions for legal recourse.”
Ms Jew said shared ledger arrangements “promise to create a new age of the consortium”, providing corporate clients the opportunity to collaborate while reducing transaction and record-keeping costs, as well as streamlining business operations.
“The key difference [between blockchain and private shared ledgers] is achieving confidentiality,” Ms Jew added.
“Blockchain was designed for transparency; it’s often called the ‘transparency machine’ … Private shared ledgers involve more centralised decision-making and governance in a decentralised environment. Sometimes in private shared ledgers there may be no consensus at all, and that is a huge benefit.
“All in all, in private shared ledgers, the solutions are much simpler and that’s a huge benefit. What they’re doing is relying on more real-world governance and contractual arrangements, they’re not relying on the technology and the code to do all of the work, like in a public blockchain.”
Ms Jew said while many corporate clients jumped on the blockchain bandwagon as it hit the market, she believes there is now a distinct shift for those looking for private shared arrangements instead.
“We’re moving away from the early days of a fairly chaotic arrangement, whereby everyone just jumped on the technology, to a much more organised framework where the design of the technology and design of the consortium and the people working on the consortium are a lot more integrated,” she said.
“I think the private shared ledger is the way of the future.”
However, Ms Jew also noted that it is important for legal professionals to ensure their clients who are interested in this “new age of the consortium” are aware of how they can best support business, and are not just jumping on board for the sake of it.
“There’s no point in having a shared ledger [arrangement] unless you’re going to collaborate. It’s not going to work if corporates jump on the technology and then try and work out how to make it all work later on,” she said.
“If they’re going to collaborate with other corporations, you really need to know that they’ve thought through what the consortium framework is going to look like, what the governance is, and what contractual arrangements and operational rules are going to look like to make it work as efficiently as possible.”