On May 2, 2016, at the second annual Consensus conference in New York, Delaware Governor Jack Markell will announce his support for the creation of a new method of representation of corporate share ownership. In addition to traditional certificated and uncertificated shares, all Delaware corporations (including a majority of the Fortune 500) would have the ability to issue shares using the same technology that underlies the virtual currency Bitcoin.
Pillsbury’s Blockchain Technology focus team has played a leading role in this effort, and it has been publicly designated by Delaware as its “Legal Ambassador” to the blockchain industry. Among other things, the Initiative pertains to the creation of a new type of share registration for Delaware corporations: distributed ledger shares.
This is a significant development in the course of corporate affairs and, we believe, marks the beginning of an inexorable transition to blockchain-based share registration.
A blockchain is a ledger of transactions between parties on a network. The difference between a blockchain and a traditional database is that the ledger is “distributed.” That is, each party on the network maintains a complete copy of the ledger. The parties all participate collectively in the validation and recordation of transactions via a computerized consensus protocol. There is no clearinghouse required to clear and settle those transactions. Thus, a blockchain ledger can efficiently record transactions without costs and delays caused by intermediaries. Though Bitcoin was the first application of blockchain technology, blockchains can also be used to clear, settle, validate and record transactions in any asset that can be digitized, including securities, derivatives, title to real and personal property, health records and legal claims. Blockchain technology has the potential to affect some of the roles currently played by intermediaries in many industries, in the same way that the Internet has changed the roles of intermediaries in many types of transactions.
The Delaware Blockchain Initiative
The Delaware Blockchain Initiative (the “Initiative”) is an outreach effort led by the Governor’s office and Delaware’s Department of State. The immediate elements of the project are:
- the assurance that virtual currency and blockchain businesses will not face new proscriptive regulation in Delaware;
- the Governor’s support for the amendment of Delaware law to accommodate distributed ledger shares;
- the creation of the office of the Blockchain Ombudsman, who will be a point of contact for those seeking to do business using blockchain technology in Delaware;
- the launch of a proof-of-concept with Symbiont – a technology provider and Pillsbury client – to develop distributed ledger solutions for archival records; and
- the naming of Pillsbury as the state’s Legal Ambassador to the industry.
Potential Benefits of Distributed Ledger Shares
The key benefits of blockchain shares are that trades can execute instantaneously, without reliance on intermediaries, and settlement is guaranteed. “T+3” settlement delays need no longer exist. Voting and other governance processes can be included in the blockchain processes. Both publicly traded and privately held companies might benefit from the efficiencies of a blockchain ledger.
Steps to Consider
Pillsbury is working closely with Delaware as it develops its approach to distributed ledger technology and those who will use it in the state. Pillsbury currently serves as a conduit for suggestions, concerns and recommendations to Delaware regarding blockchain technology.
The adoption of blockchain processes will be rapid. Entities incorporated in Delaware or interested in leveraging the benefits of blockchain technology should consider developing a blockchain strategy. Pillsbury can provide strategic counsel; general education on blockchain technologies, benefits, and risks; updates on new developments; and due diligence on potential blockchain technology partners.