Back from Blockchain Week: Crypto Kitties, Truck Platoons, and More.

As Sanjay returned from Blockchain Week in New York, the first message on his iPhone (when he turned it on at an altitude of about 5,000 feet) was a criminal lawyer asking to speak urgently about “ICOs” (“initial coin offerings”) in connection with a client indicted by the SEC for violating securities laws. The client, without any thought or knowledge of SEC regulations, effectively sold equity in his company on a public cryptocurrency exchange issuing digital tokens to investors who bought in on the hope of value appreciation. “Can you tell me about these ICOs?” asked the lawyer. I, of course, responded with a question, “Have you heard about crypto kitties?”

If you’re a lawyer and you think you don’t need to worry about blockchain, think again. At this very moment, there are criminal lawyers, securities lawyers, corporate lawyers, employment lawyers amongst others, learning about blockchain in a crunch because their clients are pressed with an urgent matter. You can keep telling yourself that you don’t need to bother understanding what blockchain is all about, but before your memory harkens back to the days when you thought you could ignore the dotcom hype like you could ignore the Y2K hype, you will have a client with a blockchain related issue. While it’s possible you may be right to write off Bitcoin like another Y2K, understand that blockchain is not Bitcoin. Bitcoin may one day become the world’s dominant currency, or, as many headlines read, it may just be a 21st-century tulip bubble — regardless, blockchain and the broader “distributed ledger technology” likely have as much staying power and relevance as the internet. Why?Because it eliminates friction.

Friction burns time and money. For some market participants, friction creates opportunities (e.g. middlemen such as brokers, clearinghouses, etc.). For others, it is a cost that destroys opportunities. Musicians, for example, cannot afford to go from establishment to establishment attempting to collect a royalty for playing their songs. Consequently, aggregators like BMI and ASCAP have built a fairly substantial business around that friction — a platform to charge establishments for aggregated music content, enabling BMI and ASCAP to profit from musician’s songs before sharing a small royalty with them. In time, a blockchain-based digital rights platform would enable musicians to get paid directly each time an establishment plays their music. Whether you represent musicians or commercial establishments, understanding this technology will be critical.

Friction also results in increased cost to market participants when information is either unavailable or unequally distributed. In the automobile insurance industry, high-risk drivers pay low insurance premiums until they are officially hit with a traffic violation. Low-risk drivers pay higher premiums as a result of the higher costs associated with (unknown) high-risk drivers. Blockchain-based auto insurance startups are offering low-risk drivers dramatically lower insurance premiums, provided they allow their cars to be outfitted with devices that track their speed, centripetal force, number of passengers, location, etc., all of which is recorded on a blockchain, resulting in real-time risk assessment and premium calculation. Lawyers representing insurance companies and/or drivers are likely going to have to understand a new type of evidence (i.e., data aggregated on a blockchain) and its impact on fault determination.

Speaking of friction, vehicles and insurance companies, did you know that an 18-wheeler racing down the highway at 75 miles-per-hour burns about 25 percent more fuel than the 18-wheeler immediately behind it (think drag coefficient)? German company Bosch has developed a blockchain-based system for semi-trucks traveling down the highway together, enabling truckers to take turns at the front of the so-called “platoon,” ensuring that they are equally sharing the burden and benefit of their drag coefficient by automatically distributing payments amongst the truckers. If you represent an automotive insurance company, you may want to consider what happens, in terms of liability allocation, when a collision occurs as a truck moves to the front of the platoon.

Pick an area of law. Pick an industry. Find the friction and you will understand why you are not going to escape the reach of blockchain for long. Now, we can’t say what kind of friction resulted in crypto kitties — digital kittens that you can breed and trade online to earn Ether, a leading cryptocurrency. But we can tell you that even before the start of 2018, more than 200,000 people had spent more than $20 million on crypto kitties, one of which sold for more than $100,000. We can’t wait to hear the next 411-PAIN commercial seeking to represent people who get bit by one of those little kitties.

David Perla and Sanjay Kamlani are co-founders of 1991 Group. Perla is a managing director at Burford Capital.

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