Module 7

MODULE 7

UNDERSTANDING THE BLOCKCHAIN TECHNOLOGY AND THE

LAW CODE AS LAW

We’re quite confident, said Marc Andreessen in an interview with The Washington Post,
“that we’re sitting here in 20 years, we’ll be talking about blockchain technology the way we
talk about Internet today”.

Everybody is looking at how blockchain's distributed ledger technology is altering the
manner in which associations direct their business transactions. Blockchain is as yet a
forthcoming innovation – so it is very hard to appreciate how it functions without
investigating the code or getting profound into software engineering ideas. To help with that,
this module ought to kick you off.

A blockchain is independently connected chain of square, with each square containing
various transactions. It gives a decentralized, immutable information store – that can be
utilized over a network of users, make resources and go about as a mutual book that records
all exchanges. Every transaction can be effortlessly questioned, bearing more transparency
and trust to all parties included.

Let’s go through the below case study!

Abhay is your closest companion. He is voyaging abroad, and calls you and says, "Hello, I
require some cash. I have come up short on it."

You answer, "Alright, don't stress. I'm sending some immediately," and hung up.

You at that point call your account manager at your bank and let him know that you want to
transfer Rs.10,000 from your account to Abhay's account.

Your account manager answers, "OK, sir."

He opens up the register, checks your account balance and makes the payment. You at that
point call Abhay and let him know, "I've sent the cash. You can withdraw Rs.10,000 from
your bank that I have just transferred."

What just happened?

You and Abhay both trusted in the bank to deal with your cash. There was no real movement
of physical bills to transfer the cash. The only thing that was needed was an entry in register.
Correctly – it is only an entry in register that neither you nor Abhay controls or possesses.

And here comes the
problem with the

current systems.

To set up trust between ourselves – we rely upon individual outsiders. For quite a long time,
we've relied upon these mediators who could be banks, attorneys, examiners, or bookkeepers
to confide in one another. You may think, "What is the issue in depending upon them?"

The issue is that they are singular in number. If discontent has to be injected in the society, all
it requires is one individual/association to go corrupt – deliberately or unintentionally.
Consider the possibility that that register in which the exchange was logged get burnt in a
fire. Consider the possibility that, by mistake your account manager has written Rs.15,000
rather than Rs.10,000.

Consider the possibility that he did that deliberately. For a considerable length of time, we
have been putting all our investments tied up on one place and that too in another person's i.e.
outsider.
§ We store monies with banks since we confide in them.
§ We obtain cash from them since we confide in them.
§ We know whether there are issues the bank will for the most part "make the best choice".

Could there be structure where we can at still transfer cash without requiring the bank?
Presently, if this trust can be substituted by innovation that everybody trusts – it can possibly
diminish the job of banks, legal counsellors, evaluators, bookkeepers.

The better question would then be- is there an approach to keep up the register among
ourselves rather than another person or outsider doing it for us? Now, that is a question that is
worth investigating.

The blockchain is the answer to the question.

1.1. WHAT IS BLOCKCHAIN?
The Blockchain is the Internet of Value as opposed to the Internet of Information. It's a stage
for everybody to comprehend what is valid. It gives an open decentralized database of any
exchange including value.

Blockchain is exactly what the name suggests. It is an innovation that enables blocks of data
to be made and put away in a chain. Each time another block is made, it is added to this chain
to form what has been known as a “digital ledger”. A blockchain is only a document/an
information structure i.e. how information is sensibly assembled and put away.

In its simplest form, blockchain is a decentralized innovation or distributed ledger on which
transactions are namelessly recorded. This implies the exchange record is kept
simultaneously across a system of random PCs or servers called "nodes". The ledger contains
a persistent and complete record of all exchanges performed which are grouped into blocks: a
block is just added to the chain if the nodes, which are individuals in the blockchain
coordinate with elevated amounts of processing power, agree on the following 'legitimate'
block to be added to the chain. An exchange must be checked and form part of a block if
every one of the nodes on the system affirm that the exchange is legitimate.

The Blockchain has no single central database, so no single individual can defraud or hack
the system. The blockchain is considered as the worldwide trust machine. It is basically "a
distributed database of records or public ledger of all transactions or digital events that have
been executed and shared among participating parties". The verification through Blockchain
technology makes the trustworthiness of the data we get. Every exchange in the public ledger
is checked by accord of the vast majority of the members in the framework. It is encoded and
contains a certain and unquestionable record of each and every exchange ever made. Bitcoin,
the decentralized peer to peer computerized currency, is the most famous model that utilizes
blockchain innovation. Without a doubt, the Bitcoin was made utilizing a procedure known
as blockchain. As a rule, it holds the potential for releasing new applications and abilities to
change numerous segments, territories of business and law.

Blockchain permits all exchanges over the supply chain to be tracked in real time,
guaranteeing that buyers pay for what they get. This expanded perceivability into the working
of the supply chain offers potential for further developments to build effectiveness;
blockchain not just enables operational changes to be transmitted in real time, it additionally
empowers all parties to execute and share data with trust.

Klaus Schwab, founder and executive chairman of the World Economic Forum, totals up its
potential in this way: “in essence, the Blockchain is a shared, programmable,
cryptographically secure and therefore trusted ledger which no single user controls and
which can be inspected by anyone”.

1.2. BENEFITS OF A BLOCKCHAIN

Speed and Efficiecy Transparancy

Benefits of
Blockchain

Traceability Increased Security

§ Speed and Efficiency: Due to the automation of the process of the blockchain,
transaction is completed more quickly and efficiently. In a blockchain everyone has an
access to the same information and therefore there is no question of trust which allows the
clearing and settlement much quicker.

§ Transparency: Blockchain main the transaction histories more transparent. It is a
distributed ledger that is used and accessed by all the people in the network and any

modification or alteration can only be made with the consensus of all which makes it
more transparent.
§ Increased security: A blockchain is more secure than other types of record keeping
mechanism. Any transaction needs to be agreed on before they are recorded. Since the
information is stored across various computer network rather than on a single network,
the scope of compromise is reduced.
§ Traceability: In a blockchain all the transactions are recorded which leaves an audit trail
that gives information about the source of the assets and every stop it made during
processing. This can be very helpful in verifying the authenticity.
1.3. HOW A BLOCKCHAIN WORKS?

Steps
1. A want to send money to B.
2. The transaction is represented online as a “block”.
3. The block is broadcasted to everyone in the network.
4. Those in the network approves the transaction is valid.

5. The block then can be added to the chain, which provides indelible and transparent

record of transaction.
6. The money moves from A to B.

1.4. TYPES OF BLOCKCHAIN

1. Public Blockchain- A public blockchain refers to a completely open network in
which anyone can join, participate and play their role in the network. These kinds of
network usually involve an incentivizing and encouraging mechanism to incentivize
more participants to join the network. In public blockchain networks there is no point
of control and also there is relative anonymity. Bitcoin, which is the largest public
domain blockchain network in the industry today, is the best example of a public
blockchain network.

2. Private Blockchain- A private blockchain is one which is not open and requires an
invitation by the network starter or the set of rules prescribed by them. These are the
permissioned networks which puts restrictions on the persons who are allowed to join
the network meaning that the existing or the network starter can decide who the future
entrants are going to be. In private blockchain networks there is some point of control
and also there is no anonymity. Hyperledger is an example of a private blockchain.

From the above it is quite clear what are the difference between the private and the public
blockchain network. Now let us see what are the similarities between the two: -
§ Both are decentralized peer to peer networks.
§ Involves maintenance of a replica of a shared ledger of digitally signed transactions.
§ In both replicas are maintained in sync through a protocol referred to as “consensus”.
§ Both provides certain guarantees.

1.5. THE LAW CODE AS THE LAW

We are spending expanding measures of our lives interfacing inside stages, whose client base
put down that of existing country states, e.g. Facebook appreciates in excess of 2 billion
clients, Youtube 1 billion, and Instagram 700 million clients. But then, their administration is
extremely distant from the estimations of fair nations. Rather, they are represented by

programming and algorithms that direct our interaction and online communication through
obscure rules implanted in source code, and expounded by a bunch of private actors.

As more of our interactions are administered by programming, we progressively depend on
technology as a way to directly uphold rules. In reality, instead of customary legal rules,
which just stipulates what individuals will or will not do, technical rules figure out what
individuals can or can't do in the first place. This take out the requirement for any outsider
implementation authority to intervene afterward, with the end goal to punish the individuals
who encroached the law. Software ultimately winds up stipulating what can or can't be done
in an explicit web-based setting, more frequently than the material law.

Today, direction by code is dynamically building up itself as regulatory mechanism adopted
by the private sector as well as public sector. Governments and public admirations
progressively depend on programming algorithms and innovative apparatuses for the purpose
of defining code-base rules, which are consequently executed by the underlying technology.

Depending on mechanical apparatuses and code-based principles as a way to manage society
realizes a variety benefits, mostly identified with the capacity to automate the law and to
implement rules and regulations from the earlier, i.e. prior to the fact. However, regulations
by code additionally accompany critical downsides that might ultimately disturb a portion of
the fundamental precepts of law.

From one perspective, as opposed to customary legal rule, which must be valued by a judge
and applied on a case-by-cases premise, code-based rules are written in the inflexible and
formalized dialect of code, which does not profit by the adaptability and uncertainty of
common dialect. Then again, the compositional implementation of online platforms
ultimately relies upon the explicit decisions of platform administrators and programming
engineers, looking to advance or keep a specific sort of activities. Just like any other
technological artefact, code isn't impartial, yet intrinsically political: it has critical societal
implications, seeing that it may bolster certain political structures or encourage certain
activities and practices over others.

1.6. CONCLUSION

The Blockchain is a rising innovation, its decentralized ledger functionality combined with
security makes it exceptionally appealing to solve money related and non-monetary business
issues. Various organizations and new businesses are working and putting resources into
investigating its conceivable business applications.
Today, the focal point of societal administration is imposed generally by organizations and
bureaucratic frameworks and the blockchain innovation can possibly change business as
usual fundamentally. As the technology develops, blockchain could quicken a structural shift
from legal rules and regulation to code-based rules and conventions administered by
decentralized blockchain-based system.
The initial step toward understanding how to regulate blockchain technology requires an
investigation of its developing uses, alongside a more analytical examination of the
technology's advantages and disadvantages.
Blockchain has the possibility to become an indispensable piece of the activity of numerous
organizations. However, obviously, just like the case with most new innovation benefit
contributions, there are various risk-based issues that should be precisely considered before
business, especially intensely regulated ones, can begin to completely understand the
potential advantage.