Cryptocurrencies and non-fungible token (NFT) news headlines currently focus on the market crash (sometimes framed as a crypto-winter or cryptoextinction), fraud and the collapse of various crypto exchange platforms — or the “wealth” being created or lost through cryptocurrencies and NFTs. Earlier, in 2021 and the first half of 2022, headlines were focused on the meteoric rise in value of cryptocurrencies, digital art marketed as NFTs, and platforms and exchanges that facilitated these transactions using blockchain technology. Looking ahead to 2023 and beyond, further legislation and regulation, along with the enforcement of existing laws and regulations, is inevitable in connection with these financial, investment and otherwise speculative use cases relating to cryptocurrencies, NFTs and blockchain technology.

However, the underlying blockchain technology could be (and is being) used for less headline-grabbing and more mundane, pragmatic and less speculative purposes, and those use cases should not be confused with the use cases typically seen in headlines.

What the future holds for cryptocurrencies, NFTs and other similar uses of blockchain technology is hotly debated, and many people have strong feelings about these developments — especially about the value of new currencies, NFTs and the like. However, regardless of one’s feelings and beliefs in this regard, we think everyone should be aware that the legal and business risks vary greatly depending on the use case of the blockchain technology. At its core, blockchain technology is about securely recording and tracking transactions via a ledger that can then be used for many nonspeculative purposes unrelated to cryptocurrencies or digital asset speculation, several of which are discussed below.

Alternative blockchain uses

1. Personal information verification. The ability to both secure and selfauthenticate information makes blockchain technology a promising tool to help authenticate and validate who should have access to personal information, including in connection with financial, health care, travel and other data.
2. Welfare and government distributions. With access to self-authenticating, secure personal information using blockchain technology, government distributions could be made more reliable and efficient. Eligible recipients can be verified and obtain access more readily, while ineligible applicants can be more readily identified.
3. Health information. Medical records could be accessed, with sensitive information kept more secure, through blockchain technology used to authenticate an individual’s identity. Insurance coverage could be more readily verified, administrative costs and lags could be reduced, and treatment could then be provided more quickly and cost effectively.
4. Media royalties. Blockchain technology can be used to help authenticate who has rights relating to music and video downloads. In addition to mitigating piracy and unauthorized copying, views and playbacks could be more accurately logged. In addition, “smart contracts,” typically associated with crypto and NFT transactions, could facilitate automatic royalty payments.
5. Supply chain and logistics. By tracking shipments on a distributed ledger, multiple parties along a supply chain can access real-time and historical information about each shipment. Because blockchain technology could track the chain of ownership and transactions, the presence of counterfeit goods could be more readily identified and mitigated.
6. Loans and insurance administration. The use of blockchain authentication and associated smart contracts in lending and insurance could improve efficiency in connection with various administrative and processing activities, including insurance documentation and coverage, liens, and collateral.

Legal principles to consider

Blockchain is an exciting, promising and relatively secure technology, but like most technology, its use cases and how humans use (or abuse) it need to be considered when entering into transactions, contracts or relationships involving the blockchain. Nothing is perfectly safe or secure, nor is it free from the human element at some level — including error, omission or abuse. For example, people may lose passwords or other credentials or new technologies may arise, which could increase the potential for hacking and the circumvention of encryption mechanisms underlying the blockchain.

Time-tested and basic business, legal and contracting principles should be kept in mind when considering the use of blockchain technology, including (1) counterparty and other due diligence and analysis, (2) legal and regulatory compliance analysis, and (3) robust and thoughtful contractual provisions and protections based on the nature of the use case and application, including the allocation of risks (whether known or unknown).

If you are a vendor providing products or services incorporating blockchain technology, reasonable and appropriate disclaimers about the technology and ancillary human elements should exist in your contracts. Conversely, if you are a customer or consumer purchasing products or services using blockchain technology, be realistic and cautious about the potential benefits and ensure there are appropriate controls, safeguards, remedies and recourse that could be realistically enforced.

Conclusion

Just because cryptocurrencies and NFTs, which use blockchain technology, have been in the news grabbing alarming headlines about potential fraud and massive financial gains or losses, there are still other use cases and applications of blockchain technology that, while perhaps less glamorous or newsworthy, may potentially be more profound and beneficial in everyday life in the future.