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4/25/2017 1 Blockchain for Smart Contracts Blockchain for Smart Contracts Jeremy Clopton, CPA, CFE, ACDA, CIDA Forensics & Valuation Services [email protected] Tom Haldiman, CPA, CFE Forensics & Valuation Services [email protected]

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Page 1: Blockchain for Smart Contracts - BKD€¦ · Blockchain for Smart Contracts Blockchain for Smart Contracts Jeremy Clopton, CPA, CFE, ACDA, ... contract. 4/25/2017 16 Benefits of Smart

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Blockchain for Smart Contracts

Blockchain for Smart Contracts

Jeremy Clopton, CPA, CFE, ACDA, CIDAForensics & Valuation [email protected]

Tom Haldiman, CPA, CFEForensics & Valuation [email protected]

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To Receive CPE Credit• Participate in the entire webinar

• Answer polls when they are provided

• If you are viewing this webinar in a group• Complete the group attendance form• Submit to [email protected] within 24 hours of the live webinar• Answer the polls when they are provided

• If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar

Presentation Roadmap

What is the blockchain?

What are smart contracts?

What this means for you

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What Is the Blockchain?

Questions Addressed by the Blockchain

• Was this TRANSACTION appropriately AUTHORIZED?

• When did THIS TRANSACTION occur relative to OTHER TRANSACTIONS?

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Was this TRANSACTION appropriately AUTHORIZED?

Physical World Example 1

Info on face of check Signature

Transaction Authorization

Verification: Bank compares signature to signature card, bank verifies customer has sufficient funds

Was this TRANSACTION appropriately AUTHORIZED?

Physical World Example 2

Transfer real estate Signature

Transaction Authorization

Verification: Title company verifies signer identity, performs title search to confirm ownership

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Was this TRANSACTION appropriately AUTHORIZED?

A >>> B Digital signature

Transaction Authorization

Blockchain Equivalent

Verification: Digital signature verified, funds availability verified through cryptography

10

Father

Son 1 Son 2

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Key

AccountDigital Signature for Transaction A

Questions Addressed by the Blockchain

• Was this TRANSACTION appropriately AUTHORIZED?

• When did THIS TRANSACTION occur relative to OTHER TRANSACTIONS?

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Transaction 1Transaction 2Transaction 3

Transaction 4

First $1,000,000 transactionInvalid second $1,000,000 transaction

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Transaction 1Transaction 2Transaction 3

64ae5b11c96ed

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Transaction 1Transaction 2Transaction 31 (random #)

1b5a6da546eba

16

Transaction 1Transaction 2Transaction 32 (random #)

7ca8965c4da45

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Transaction 1Transaction 2Transaction 33 (random #)

adb26e4ff674a

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Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56

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Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56

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Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56Transaction 4 Transaction 51 (random #)

64ac5b783afd2

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Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56Transaction 4 Transaction 52 (random #)

912bc3a1ef6b2

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Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56Transaction 4 Transaction 54879 (random #)

0000c944d9d75

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Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56Transaction 4 Transaction 54879 (random #)

0000c944d9d75

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0000c944d9d75 Transaction 6 Transaction 7Transaction 8Transaction 98914 (random #)

Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56Transaction 4 Transaction 54879 (random #)

00001a876df82

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0000c944d9d75 Transaction 6 Transaction 7Transaction 8Transaction 98914 (random #)

00001a876df82Transaction 10Transaction 11Transaction 12

Transaction 1Transaction 2Transaction 31975 (random #)

0000a549f1b56Transaction 4 Transaction 54879 (random #)

Questions Addressed by the Blockchain

• Was this TRANSACTION appropriately AUTHORIZED?

SOLUTION: Digital Signatures

• When did THIS TRANSACTION occur relative to OTHER TRANSACTIONS?

SOLUTION: Blocks of transactions cryptographically linked

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What Are Smart Contracts?

Smart Contracts

• Not really contracts, per se

• Based on rules & Boolean logic

• Combine coding & paper contracts

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Example – Apartment Rental

Smart Contracts• Smart Contracts are more complex transactions on the blockchain

• For example

– Transfer $1,000 to an Escrow Account

– If $1,000 is raised from others, release all funds to Charity A

– If $1,000 is not raised from others by May 1, 2017, return my funds to my account

Still must have your digital signature, but can “listen” for conditions to execute the contract

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Benefits of Smart Contracts

Automation of contract elements

Permanency

Efficiency

Reduced error rates

Potential for reduced litigation

Automation of Contract Elements

Performance

MonitoringEnforcement

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Permanency

Unchangeable record of what occurred

Blockchain is based on previous transactions

Smart contracts perform based on preset coding

Efficiency

Source: https://blockgeeks.com/guides/smart-contracts/

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Potential for Reduced Litigation

“Smart contracts … guarantee a very, very specific set of outcomes. There’s never any confusion and there’s never any need for litigation.”

Jeff Garzik

Owner, Bloq

Potential Risks/Issues

Programmatic issues

Elements outside the contract

Jurisdiction over the blockchain

Hacking

Contracts that violate laws

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What This Means for You

Anticipated Acceptance

Multiple platforms for smart contracts – not just Bitcoin

Music industry is an early use case

Development of Smart Contracts Alliance through U.S. Chamber of Digital Commerce

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Impact on Attorneys

Contracts will evolve, but not disappear

Clear understanding of “rules” in a contract will be key

Increasing reliance on technology & understanding of code

Enforcement will largely be in the blockchain

Likely will lead to fewer contract disputes

Your Next Steps• Evaluate impact on traditional contracts

• Identify expected areas of impact• Digital identify verification• Record destruction• Fintech• Title recording

• Education around blockchain

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Online Resources• https://blockgeeks.com/guides/smart-contracts/

• http://www.initc3.org/

• https://digitalchamber.org/smart-contracts/

QUESTIONS?

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The information contained in these slides is presented by professionals for your information only and is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

• CPE credit may be awarded upon verification of participant attendance

• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected]

CPE CREDIT

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THANK YOUFor more information

Jeremy Clopton | [email protected] | 417.522.0409

Tom Haldiman | [email protected] | 816.489.4300