Commercial Awareness Update – W/C 12th December 2022

Recent Sustainable Change To Ethereum 

The cryptocurrency market has been under pressure in recent months, and a software upgrade to Ethereum, which according to ethereum.com, ‘is a technology for building apps and organizations, holding assets, transacting and communicating without being controlled by a central authority’, is a sizeable step towards a more stable cryptocurrency market and the deceleration of climate change.

Cryptocurrencies have been subject to increasing criticism for having adverse effects on the environment due to the amount of energy required to operate cryptocurrencies. Bitcoin, for instance, is thought to use more electricity than the entirety of Finland.

However, sustainability concerns may no longer apply to Ethereum, as a recent change in how it operates may vastly reduce how much power it needs.

How does Ethereum work?

Ethereum is further definable as a digital currency traded by online exchanges and stored in cryptocurrency wallets. It is also the second most popular digital token, with Bitcoin taking first place.

Ethereum, like all cryptocurrencies, relies on a blockchain. The blockchain acts as an extensive database, recording every single transaction, with the database maintained by a system named ‘Proof of

Work’.

Companies were rewarded with new cryptocurrency coins for using their computers to run this network; the more they ran the network, the more cryptocurrency they would receive. This policy would motivate businesses to create big warehouses of computers running 24-7; the energy utilised in this process was acquired from fossil fuels.

Ethereum recently switched to a different system called ‘Proof of Stake’. Under this system, the ability to make new coins does not depend on how much time is spent on the computer. This change has cut Ethereum’s electrical energy consumption by 99.84%.

However, researcher Alex de Vries warned that this should be taken lightly as “the blockchain-based system remains relatively inefficient compared to more centralised alternatives”.

Societal impact

As Ethereum increases the transactions it handles per second, this will, according to cabital.com, ‘reduce the congestion of the network leading to a major reduction in gas fees’, or, perhaps better stated, Ethereum will reduce the electricity consumption from 8.5GW to 85MW or less.

With climate change an inescapable and pressing issue, with its increasing threat to the environment and humanity, this change will aid in reducing the acceleration of climate change, thereby helping sustain the environment for future generations and inevitably contributing to the better health of all.

Additionally, Ethereum will likely bolster the move towards ethical cryptocurrency owing to its positive environmental impact.

Impact on the legal sector

Sustainability is a significant factor that needs to be dealt with in the crypto world, so new regulation is paramount.

Should this sector be further regulated, law firms and their cryptocurrency clients will seek additional advice on how to best adhere to amended or new crypto regulations whilst remaining profitable and competitive.

Furthermore, the pressure put on corporate clients to maintain sustainability by their stakeholders may lead them to obtain further advice from law firms on how to do so.

Accordingly, the increased procurement of legal advice would likely lead to greater profits for law firms.

Article written by Tina Khorram

Venture Capital vs Venture Debt

 Venture capital and venture debt are both forms of investment that provide funding to companies, but there are some key differences between the two.

Venture capital is equity financing that is provided to young, high-growth companies that are in the early stages of development. Venture capital investors provide capital in exchange for ownership equity in the company, with the goal of generating high returns on their investment. Venture capital is typically used to help companies develop their products, expand their operations, and reach profitability.

Venture debt, on the other hand, is a type of debt financing that is provided to companies that have already received venture capital funding. Venture debt is typically provided in the form of a loan, with the company agreeing to pay back the loan plus interest over a set period of time. Venture debt is often used to provide companies with additional capital without diluting the ownership stakes of existing investors.

One key difference between venture capital and venture debt is the level of risk involved. Venture capital is considered to be a higher-risk investment, as the companies that receive venture capital funding are typically young and unproven. Venture debt, on the other hand, is considered to be a lower-risk investment, as the companies that receive venture debt have already received venture capital funding and have a proven track record.

Another difference between venture capital and venture debt is the level of control that investors have over the companies they invest in. Venture capital investors often take an active role in the companies they invest in, providing guidance and advice to help the companies grow. Venture debt investors, on the other hand, have a more hands-off approach, providing capital without taking an active role in the company’s operations.

Who provides the capital/debt?

Venture capital firms vary in size. From a single ‘angel investor’ to a multinational firm such as Andreesen Horowitz, there is no typical VC. Venture debt is often provided by banks, and dedicated debtors. The biggest provider of venture debt is Silicon Valley Bank.

What role do lawyers play?

One of the key tasks of venture capital lawyers is to help negotiate the terms of the deal. This includes determining the amount of capital to be invested, the ownership stake that the investor will receive, and the rights and obligations of the parties involved. Venture capital lawyers also help to draft and review legal documents such as term sheets, investment agreements, and shareholder agreements.

In addition to negotiating and drafting legal documents, venture capital lawyers also provide legal advice to the parties involved in the transaction. This may include advising the company on the legal implications of the deal, and helping the investor to understand the risks and potential rewards of the investment. Venture capital lawyers may also help to identify potential legal issues and provide guidance on how to address them.

Overall, while both venture capital and venture debt involve providing funding to companies, they differ in the form of financing they provide, the level of risk involved, and the level of control that investors have over the companies they invest in.

Article written by Avishai Marcus

The Electronic Trade Documents Bill

The Electronic Trade Documents Bill (ETDB), first mentioned in the Queen’s Speech on 10^th May 2022, was introduced to the House of Lords on 12^th October 2022, which, according to Hill Dickinson, seeks to ‘enable electronic trade documents to operate in the same way as a physical paper document’ which would mean the latter being recognised as a legal document.

This recognition means traders, for example, maritime traders, would possess electronic versions of trade documents, such as bills of lading and generally, this legislation would also mean traders could opt for electronic instead of paper documentation.

Why is the Bill needed?

The Bill was introduced as ‘the operation of many documents important to international trade, including bills of lading and bills of exchange, is premised on their possession’ and ‘the person in possession of the relevant document can claim performance of the obligation recorded in the document, and can transfer the right to claim performance of that obligation by transferring (physical) possession of the document’.

Current English legislation does not permit the possession of electronic versions of such documents as they are considered intangible (as it currently stands, intangible things are not regarded as compliant with possession). As a result, electronic records do not hold the same legal weight as paper documents.

The ETDB, therefore, eradicates the afore-explained obstacles.

Digital equivalence

For any digital documentation to acquire the exact legality as paper documentation:

• It must be distinguishable from other copies.
• Subjugate to exclusive control (control by all means – the pre-requisite to res ipsa loquitor).
• The exclusive control must be fully divested on transfer.
• It must contain identical information as required for paper documents.
• It can be possessed.
• A competent system must support it, for instance, blockchain encryption technology.

The wider impact

The introduction of this legislation would improve overall trade efficiency and remove trade barriers by:

• The streamlining of administrative tasks concerning trade and, more pointedly, international trade. This positive effect directly translates to more time saved, perhaps better spent on other areas needing development within a business.
• Reduced costs, with a simple example being stationary costs; thus, business owners may divert much-needed capital to areas of need and facilitate company growth. As published by gov.uk, ‘the Bill is estimated to create £1.14 billion in net benefits to the UK over a 10-year period’.
• There is also the environmental impact; reduced paper use, for example, means a reduced carbon footprint and the emission of gases, thereby preserving and increasing environmental sustainability, both positive consequences which could also go some way to help companies realise their ESG policies.
• The enhanced security, uniformity and transparency of documentation would induce more confidence in companies during and after the negotiation of trade deals, with the ETDB further increasing the accountability and liability of those who may breach its legislative requirements.

Conversely, the ETDB would affect companies that manufacture, for example, paper, for use in trade deals as companies incorporate changes.

There are also the initial incorporation costs of the ETDB in the changeover from a paper-based to a digital-based system, which would affect all those who subscribe to it, and more so for smaller businesses; however, albeit arguably, those costs could be recouped in the long-term owing to the positive economic impact of the new legislation.

Impact on the legal sector

Law firms must familiarise themselves with the new legislation and its impact on their clients. Proactive consultation with their clients before Parliament’s enactment is a must.

Law firms will also need to amend their workforce capabilities, either through the employment or outsourcing of lawyers specialising in digital law or through a shift in their specialisations.

Although it appears less complicated than many other legislative instruments, the ETDB brings significant change that is highly impactful for all businesses, especially during this apparent economic downturn.

This Bill would mean corporate or business clients are highly likely to amend their mode of operation to incorporate the new legislation, and removing trade barriers means business growth for established and new businesses. Therefore, it is inevitable that although law firms retain their existing business clients, they will also gain new ones.

Retainers will need amending for existing clients to incorporate the legislative changes, with the amendments dependent on several factors such as the size of the client, the nature of the renderable advice and the duration of a firm’s involvement.

Finally, taking on more clients whilst retaining existing ones, and so long as excellent quality advisorship is demonstrated, a law firm would stand to profit financially and reputationally.

Article written by Aqua Koroma