The ABCs of Electronic Currencies
Blockchain technology has the tech and business sectors abuzz. Legislators, regulators and the judiciary struggle to keep up with the breakneck pace of development. Much of the initial focus has been on Bitcoin, the virtual currency that was the first major blockchain-based application, but interest and activity by both industry and policymakers is quickly shifting toward broader uses of blockchains. A blockchain, also sometimes called a distributed ledger, is essentially an online database that, instead of being controlled by a central authority, is created, managed and used in a decentralized way by its users on a peer-to-peer network. The shared, transparent and unalterable nature of a blockchain creates the perfect environment for the transfer of assets (physical, informational or financial). A blockchain network eliminates the need for a central record system or intermediary to establish ownership and trust, allowing individuals with no previous relationship to exchange such assets in a secure manner. This technology is still in its infancy, but it is fast giving rise to “initial coin offerings” as a new form of raising capital, massive (and wildly speculative) investment in various virtual currencies, and other transformative technologies. Although blockchains’ possibilities are exciting, the uncertainty and instability surrounding many blockchain applications, certainly including cryptocurrencies, is likely to result in significant distressed scenarios requiring specialized knowledge of both this extraordinary technology and insolvency law.