Blockchain and Distributed Ledger Technology: Definition and Scope

A blockchain is a form of distributed ledger technology (DLT) (Szabo 1996). A DLT stores and distributes records of transactions about assets (ISDA and Linklaters 2017).6 The literature review about blockchain describes it as a technology that records and stores transactions7 on a ledger. It distributes these transactional records to all computers connected to its system. The information entered on the blockchain is time-stamped and verified through the technology’s interaction with the data. The time-stamp identifies and specifies a time when a particular transaction on the blockchain took place. By time-stamping data, the blockchain technology “includes the previous timestamp in its hash, forming a chain, with each additional timestamp reinforcing the ones before it” (Nakamoto 2009, 2).

Blockchain nodes8 are decentralized. In other words, information recorded and stored on a blockchain is not controlled by a central authority. This is the objective of the blockchain: to create a decentralized system where people can transact with each other without the need for a central authority to validate or control transactions.9 Anyone can also access this information. However, as the author explains later, the amount of information accessible to the public depends on the nature of the blockchain. Although consensus is needed to validate a transaction, not all blockchain nodes need to agree. However, there must be a majority consensus among blockchain nodes for a transaction to be validated.

6 Ibid.

7 Durovic and Janssen (2018); DiMatteo, Cannarsa and Poncibò (2019); Cong and He (2019); US, HB 2417, Signatures; electronic transactions; blockchain technology, 53rd Legislature, Reg Sess, Ariz, online: Arizona Legislature <www.azleg.gov/legtext/53leg/1r/bills/hb2417p.pdf> (Arizona’s amendment to the Arizona Electronic Transactions Act to include provisions on blockchain and smart contracts).

8 Refer to Table A2 in the Appendix for an example of how nodes operate.

9 Ibid.

Blockchain Roles

Blockchain technology’s design, functionality and operation are its architecture. Based on the architecture of the blockchain, the technology can store, record and time-stamp infinite types of transactions. These transactions and information are immutable because the inputs on the blockchain cannot be reversed. Although bitcoin10 is the most well-known type of cryptocurrency, blockchain’s architecture makes it possible for both electronic payments and non-financial transactions to be performed using the technology. This architecture allows contracts to be formed.11 Cryptocurrencies are digital currencies that verify, record and store payment information about transactions. They allow payment transactions to be performed on the blockchain. Bitcoin is the first digital currency developed to enable payment transactions between parties who do not know each other, without needing a trusted third party (Nakamoto 2009). As use cases of the blockchain show, the technology can be used to replace or complement several existing services and processes. Bitcoin’s native scripting language is restricted to allowing the use and transfer of bitcoins between parties or accounts. While bitcoin facilitates financial payments on blockchain, the Ethereum system extends blockchain uses to non-payment and “hybrid-financial” situations. Ethereum operates on computer codes that selfexecute and self-enforce commands, confirmations and actions based on triggers programmed in its system. The computer program that creates Ethereum is called Solidity.12 This program makes and executes commands based on the codes used to create it or with which it interacts. A wide variety of B2C and B2B transactions that give rise to contractual relationships can be performed using the Ethereum system. Table 1 shows the different types of transactions that bitcoin versus Ethereum can facilitate. How contractual obligations or legal relationships are produced in these settings, and how they are likely to be dealt with in Canadian common law jurisdictions, are discussed in the next section of the paper.

10 A bitcoin is a decentralized electronic currency that operates on a peerto-peer distributed basis on the blockchain.

11 Contract formation is covered in detail later in the paper.

12 For how Solidity works, see https://docs.soliditylang.org/en/v0.8.17/ index.html#.