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After reading about how a partner in one of the biggest and most prestigious international law firms was busted by an undercover US Federal Bureau of Investigations (FBI) agent for trying to garner Bitcoins in a corrupt transaction from a Silicon Valley tech company, it’s likely you won’t feel sad about smart contracts beginning to take over certain functions of lawyers. You might even secretly thank Ethererum’s co-inventor Vitalik Buterin, for it.
“My life is over”
A calm lobby of Hilton Garden Hill in Cupertino, CA was transformed into a crime scene exactly at 9:55:10 am on Jan. 31, 2017 when a man, shrieked “my life is over” as he was being handcuffed and arrested by FBI agent William Scanlon. The arrested man was using a fake name “Dan” and wearing an obvious wig to disguise his identity. Unfortunately, his cover was blown when the Scanlon, who worked at FBI’s public corruption division, identified him in his report as no other than Jeffrey Wertkin, a partner at Akin Gump Strauss Hauer & Feld who was an ex-US Department of Justice (DOJ) prosecutor.
Apparently, Wertkin, while still working at the DOJ in Washington DC, stole whistleblower complaints brought against a Silicon Valley tech company, which was sealed from public view. To give the tech company a leg up in the government’s ongoing investigation and to obstruct justice, Wertkin tried selling these sealed whistleblower complaints against the tech company, in exchange for 310 “untraceable” Bitcoins worth $310,000, but was instead busted by the FBI.
Wertkin’s dreams of becoming an “undetectable” Bitcoin millionaire was shattered on Nov. 29, 2017 — when Bitcoin was trading at $7,000 – and when he pleaded guilty to two charges of obstruction of justice and one count of transporting stolen goods across state lines. DOJ prosecutors said they would seek 30 to 37 months of prison time when he’s sentenced on March 14, 2018. The law firm has since fired Wertkin.
Blockchain to replace functions of lawyer
It should be noted that Bitcoins are ill-suited for corrupt transactions. Because, Bitcoin transactions are tracked and made public using Blockchain, which is a digital ledger distributed over a network of computers rather than located on a single or multiple servers. Transactions made in Bitcoins are recorded chronologically and publicly. It is almost impossible to alter the historical records on a Blockchain and more importantly, access to a Blockchain can also be restricted.
Buterin explained, “All transactions under Blockchain come with auditable trails of cryptographic proofs. Rather than simply hoping that the parties we interact with behave honorably, we are building Blockchains that inherently build the properties in the system, in such a way that they will keep functioning with the guarantees that we expect, even if many of the actors involved are corrupt.”
The Blockchain’s main disruptive element in today’s commercial and economic ecosystem is its ability to eliminate the necessity to trust intermediaries to certify a transaction. This feature lends Ethereum Blockchain well to being used to create smart contracts.
Smart contracts are computer protocols, or algorithms, which can verify the negotiation process or performance of contracts–to the extent, legal relationships can be reduced neatly into code-whereby clauses are automatically enforced once the pre-programmed conditions are satisfied. They are coded instructions, which execute on the occurrence of an event.
“‘Smart contracts’ – can automatically move digital assets, including ‘contracts’ according to arbitrary pre-specified rules, simply by writing up the logic in a few lines of code,” explained Buterin.
Lawyers realize that smart contract technology will be an unstoppable disruptive force for the profession.
For example, Blockchain’s ledger with the inalterability of the data, mixed with smart contracts could help clients create an immutable, time-stamped and legally-defensible record of when a trademark or copyright is first used. Thus, should a client pursue registration of said mark, the evidence would be there to leverage the option in their favor. The Blockchain is the perfect mechanism for achieving these goals because by nature records in a Blockchain network are time-stamped, secured and scalable.
On Jan. 9, 2017 Kodak, a camera manufacturer, announced the launch of its KodakCoin cryptocurrency utilizing Blockchain security technology, a digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform aimed at enabling image rights management for photographers. Using the Blockchain for copyright registration and tracking makes sense, so the company’s stock price shot up 89 percent upon this announcement.
“With KodakCoin, participating photographers are invited to take part in a new economy for photography, receive payment for licensing their work immediately upon sale and for both professional and amateur photographers, sell their work confidently on a secure Blockchain platform,” Kodak said.
The camera company’s “photo-centric” cryptocurrency is being launched in an ICO to accredited investors who meet the financial threshold of– either $200,000 in income or $1 mln of net worth – from the US, UK, Canada and other select countries under a licensing partnership with Wenn Digital. It will also involve a Blockchain-backed image rights management platform called KodakOne.
On a separate note, Kodak on the same day also announced a new Bitcoin mining rig leasing business line called “KashMiner.” Users of KodakCoin and KashMiner are urged to take into consideration the US as well as cross-border tax implications when evaluating the overall economics of transactions utilizing Kodak’s new virtual currency based products.
Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.