Chris Housser, JD’13, discovered bitcoin while toiling away as an articling student at a Toronto litigation firm. He was immediately hooked on the buzz-worthy cryptocurrency and its underlying technology, known as the blockchain. While he wrote legal memos and drafted claims, he pondered the legal aspects of the technology. In his spare time, he devoured articles on the topic.
“I was really much more fascinated by blockchain than litigation,” he said.
He started attending conferences and meeting groups involved in blockchain development. Luckily, Toronto is one of the tech’s biggest communities in the world.
By 2017, Housser realized litigation wasn’t for him. He quit his firm to immerse himself in the blockchain world. Along with Trevor Koverko, he co-founded Polymath and the two mapped out the idea of bringing traditional securities products, such as stocks and bonds, to the blockchain.
If you don’t fully understand, that’s OK. Most of the world doesn’t.
But Housser is not alone in his fascination, as a recent wave of Western Law graduates have started staking claims in the rapidly developing blockchain space.
Blockchain technology uses smartcomputer coding to create a type of digital ledger or spreadsheet that is stored across multiple networks and allows information to be updated constantly, distributed widely, but not copied. The information is public, verifiable and harder to hack, since there’s no central location as the information exists simultaneously in millions of places. While it is the backbone of cryptocurrencies, other industries are starting to wake up to its power.
Blockchain is expected to transform how organizations transact business in industries such as banking, insurance, retail, energy services and health care, among many others. Areas like supply chain management, payments and capital raising will evolve using blockchain technology.
It will also impact how organizations interact with suppliers, such as law firms and financial institutions. In fact, a number of Canadian law firms have recently announced efforts on the blockchain front, from the creation of practice groups to joining emerging blockchain networks.
Entrepreneur Amy ter Haar, LLB’04, LLM’13, and current PhD student, is former president of Integra Ledger, a blockchain company targeting the legal industry and is now a consultant and board member at Blockchain Canada.
One of the challenges for the legal business, she said, is that “lawyers don’t think of their files as assets.” But the files that lawyers create and the documentation around them “sits really well on a ledger.”
“It’s a lot more secure than relying on email. Blockchain is a way of increasing security,” she said.
She quotes a line she’s heard repeated often:
Bitcoin is to the blockchain what email was to the Internet.
“It’s far beyond cryptocurrency,” she said, noting that blockchain impacts all aspects of the law, from intellectual property to contracts, trademarks and even land registry.
Zach Justein, JD’12, is head of business development at Paycase Financial Corp., which helped the TMX Group launch a cryptocurrency brokerage platform.
Justein is a blockchain believer. He left Bennett Jones LLP where he was a corporate associate in the tech and media group to join Paycase. He said one of the many benefits of the technology is that “funds can be transferred globally in seconds and for nominal costs”.
In the current banking system, funds have to clear through a network of correspondent banks, which takes time and is expensive.
“It’s really exciting to be part of this industry,” he said, adding that if blockchain development was a baseball game, “we’re only in the third or fourth inning.”
Everything from loyalty points to real estate will be disrupted, he predicted, as well as whole swaths of the law from tax to insolvency, corporate, real estate, regulatory, anti-money laundering, governance, intellectual property, securities, banking and finance.
“Lawyers in private practice or in-house positions have a huge opportunity in front of them,” Justein said. “There are countless legal considerations.”
There is no playbook when it comes to advising on the legal impact of blockchain technology, he continues. Rather, blockchain involves an integrated approach covering multiple legal disciplines.
Aaron Baer, JD’13, who co-founded the blockchain, cryptocurrencies and ICO practice group at Aird & Berlis LLP, calls blockchain “transformative technology.”
“Clients will be looking at new solutions and they will need advice,” he said.
As an example, Baer expects due diligence in merger and acquisitions deals will change because of the way information will be recorded. “Maybe we won’t need the same type of representation and warranties as we did in the past.”
The concept of holding funds in escrow will change, as will the need for trusted thirdparty intermediaries, because companies will deal more directly with each other. Title searches will change as well, including registrations under provincial and federal laws, such as Ontario’s Personal Property Security Act.
Contracts will get smarter and property and assets linked to loans and mortgages, or the transfer of securities that are subject to restrictions, will be easily trackable and preventable unless the proper conditions apply. That should also reduce disputes among parties, he said.
As an added perk, blockchain has the potential to “get rid of the drudgery” in the practice of law, Baer said, and “free up lawyers to do more interesting things.”
It is a business that is growing fast.
Eric Richmond, JD’14, is director, business and legal affairs at Coinsquare, which is regulated as a money service business and features Canada’s largest digital currency trading platform. He joined the firm at the beginning of 2018 when it had 16 employees – today it has 155 and counting.
According to marketsandmarkets.com, blockchain tech companies will see revenues grow from US $411 million in 2017 to US $7.6 billion by 2021, a compounded annual growth of almost 80 per cent.
“It’s massive growth,” Richmond said. “And it’s a very exciting culture.”
Calling his young company with a staff of mostly under 35s “scrappy and humble,” he said the emerging technology, means “learning on the fly.”
“This space is so new. It’s a great opportunity to make yourself an expert quickly.”
Distributed ledger technology, better known as blockchain, is the disruptive technology behind cryptocurrencies such as Bitcoin and Ethereum.
“Blockchain could be transformational for the tax world,” says Professor Jennifer Farrell, who has been awarded a Western Social Sciences and Humanities Review Board grant of $21,292 for her research project on blockchain and taxation.
Farrell is looking at how the use of blockchain technology could help close the Canadian sales tax gap, reduce compliance costs and improve government tax administration.
“Blockchain has the potential to tackle the ubiquitous problems of aggressive tax avoidance and tax evasion,” she says. “Some governments are actively researching and employing the potential of this technology for taxation problems.”
Her project called “Blockchain and taxation: A case study on eliminating the sales tax gap” will examine how blockchain could tackle current problems and record real-time transactions along the supply chain, create smart contracts, and calculate, withhold and remit taxes automatically to the Canada Revenue Agency (CRA).
In her research, Farrell posits that a blockchain system in a cashless society will significantly reduce, or even eliminate, the Canadian tax gap for GST/HST, and result in a significant increase in revenue for public finances.
“The non-payment or under-payment of sales taxes creates a significant loss of revenue in Canada,” explains Farrell. The CRA estimates the tax gap for GST/HST non-compliance at $4.9 billion in 2014.
Her research will examine the advantages and disadvantages of blockchain for key stakeholders such as taxpayers, the CRA, and the government, and will explore the legal, technical, and ethical implications of this new technology, most notably privacy concerns. “It’s an exciting area of research,” says Farrell. “Currently there are no Canadian studies on blockchain and its application to taxation so it’s a relatively unexplored field for Canadian scholarship.”
“I’m looking at whether blockchain technology can help resolve or shrink this revenue loss using a model where sales taxes are collected and remitted in realtime as the sales transaction takes place. This method will substantially reduce the opportunity for a taxpayer to avoid or evade paying the tax.”
She is also reviewing tax implications that arise from activities in the crypto-asset space.
“Since blockchain is relatively new, and crypto-assets are continually evolving, the taxpayer is baffled with respect to when tax liability arises. My research looks at how these types of activities trigger tax liability in Canada and internationally, how we apply current tax laws to these activities, and where we need changes or further guidance from tax authorities.”
Farrell will be organizing workshops on blockchain tech for students this coming academic year.
“In order to work in the blockchain space, you have to understand the underlying technological ecosystem,” she says. “So, our workshops will begin with a primer on blockchain and cryptocurrencies from a technical perspective.”
In addition, practitioner-led workshops will look at areas such as the regulation of cryptocurrencies and Initial Coin Offerings (ICOs)/Initial Token Offerings (ITOs) in relation to securities law and tax law, and the type of litigation arising in this space.
“Can we do something about reducing tax evasion or tax avoidance or increasing tax compliance? It’s also about how can this help from a tax industry perspective,” says Farrell, who will be conducting the case study with three part-time research assistants who are law students with computer science backgrounds. According to Farrell, there currently aren’t any Canadian studies on blockchain’s application to taxation, so this will likely be the first of its kind in the country.
Farrell stresses people need to strive to find the balance between creating and fostering an environment for innovation to thrive, but balancing this by understanding the problems with innovation, such as blockchain. She predicts while cryptocurrencies might not last the test of time, blockchain is only in its infancy.
“I think it’s important that Western Law is on the cutting edge of innovation and looking at blockchain,” she says. “As far as I’m aware, I don’t think there is any law course in Canada at the moment on this topic.”
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