The blockchain system and its challenges

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The assumption is easy: the notary is a useless institution and will be overcome by technology, indeed the technology already exists and is blockchain.

The blockchain is the protocol underlying Bitcoin, the famous cryptocurrency which makes it possible  to carry out economic transactions without the use of banking intermediaries. What has been discovered recently however, is that the blockchain has found a countless number of applications, doing what bitcoin does for the payment for goods and services. In other words it can be inserted into a relationship, an exchange, guaranteeing  its reliability without requiring a third party authority confirming its validity.

Because of this, many among the supporters of digital innovation immediately argued that the blockchain can be used to replace notaries, institutions and specific experts able to guarantee intellectual property and political elections.

Who guarantees the security of the blockchain? The answer is simple: no-one. This is because it is in no-one’s interests to invest sufficient money to be able to purchase enough nodes to control an exchange volume over the Internet which is less than the investment itself. And once this becomes known nobody would use bitcoin any more.

This then is the true crux. The system, again, is not neutral and could be bought up and hence manipulated.

The whole system stands on the fact that it is not worth anyone’s while to buy the nodes required to control the exchange volumes on the web. It is impossible to say that it couldn’t happen but it could only be done by someone with enormous resources.

Supporters of blockchain aruge that we have to rely on the ineffable algorithmic ability and honesty of neo-liberal man to make an assessment of his own selfish interests rationally and infallibly and that should be enough for us.

But are we sure that it couldn’t happen? You only have to think of the huge fines that the great world banks decided to sustain for the manipulation of Libor and Euribor, Volkswagen which allegedly falsified the tests on its cars and many other examples where the representatives of political and economic power have knowingly decided to break the rules, being prepared to risk the imposition of penalties.

In other words, the much-flaunted security of the blockchain system can be forced too, like all human endeavours, even though with unimaginable technical difficulties and, it just happens to be only by those with economic resources which are so vast that they could afford it.

A recent experience would appear to prove this argument. It refers to DAOs, Decentralised Autonomous Organisation, that is a contract codified within Ethereum in which the parties involved are granted a series of powers and rights deriving from ownership of shareholdings represented by a token. The rules governing the functioning of The DAO are based on its programme code which in turn is centred on Ethereum’s blockchain.

One night someone exploited that The DAO’s programme has a serious security problem and started to empty out The DAO, removing about 3,641,694.24 ethers, that is about 72,833 bitcoin, that is USD 53 million at current exchange rates.

The market obviously punished The DAO (its token is listed) and has punished, and is still punishing Ethereum as well. Unfortunately, there are good fundamental reasons for the market’s loss of trust in Ethereum in this case.

The affair involving The DAO also brought to light another large gap, in particular that there is a gigantic problem of conflict of interest which is much more frequent than might be thought.

This is precisely because the much vaunted inviolability of the blockchain is an assumption which cannot be demonstrated and is probably untrue.

And then it is a point of fundamental importance at which the alleged capacity of the blockchain to install a decentralised checking system capable of guaranteeing transactions involving goods and property gives way before the simplest of questions: Who issues the data which the algorithm is to guarantee? Who guarantees the correctness of the data which have been so issued? This is the aspect of fundamental importance characterising the activities of humans and of notaries in particular which no algorithm will ever be able to replace. Any professional carries out activities of fundamental importance: understanding what the party wants and drawing up the legal instruments capable of satisfying  the requirements of the client. It is the adaptive function which characterises notarial activities and which no technology  can replace.

It is obvious that notaries worldwide cannot in any way undervalue the potentialities and capacities of new technologies to remove parts of their areas of competence but it is important above all, that they are aware of their own strong points.

Indeed, the great challenge for notaries throughout the world will be precisely that of participating in the changes under way, ensuring that the new technologies do not mean the end of the profession but simply its adaptation to the society of tomorrow.

What then is the added value that the notary is able to offer in this economic context?

Support, security and guarantees.

The notary will have to continue assisting the parties, particularly the “weaker” participants with lesser capacity and skills and hence with weaker bargaining power, carrying out its adaptive function, seeking to do what no machine or technology is able to do: to interpret the parties’ wishes and translate them into stable and long-lasting clauses, capable of standing firm and resist the pressures of disputes between the parties.

Notaries in the world must be aware of their strong points, looking at the new technologies and the new contractual forms as an opportunity to exploit in order to highlight their utility. The degree of security that the notary is able to offer, or rather the overall system of which the notary is the main element, is undoubtedly very high. In all cases in which there has been a deregulation of transactions, perhaps by eliminating the involvement of the notary, consumers have had no economic benefit and fraud and fraudulent operations have increased. But what has suffered the greatest damage is precisely the whole economic system because security in commercial traffic, guaranteed by the notary of Roman origin, is a precious asset in economic terms too, saving judicial costs and tending to counteract information and contractual asymmetries.

That’s precisely why it is appropriate to study the blockchain system, understand the limits and potential. To do this it is necessary that operators, experts and potential users discuss on the topic with laicism, confronting economic and legal aspects.

In this perspective, the notaries of Lombardy have signed an agreement with IAIC, the Italian Academy of the Internet Code, for the organization of seminars on the subject, and are organizing, together with Milan’s Bocconi University an event for May 8, 2017 in which the operators will meet and discuss on blockchain.

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