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As a developing technology feeling its way to scale, blockchain, or distributed ledger technology (DLT), foreshadows the future of decentralized financial transactions. Conceptually, blockchain is a chain of decentralized-computer-terminal participants ("nodes") that are linked together through a key-access system that enables direct contracting between buyer and seller without employing intermediaries, while nevertheless creating an immutable transactional record.
Rather than relying on intermediaries to broker transactions, maintain records, control title transfers, charge markups for services rendered, and so on, DLT in theory would allow peer-to-peer transactions with decentralized ledgers that enable buyer and seller to communicate directly with confidence that the information contained in their respective ledgers accurately represents their chronological dealings without the parties having to incur intermediary costs.1 Figure 1 compares the conceptual links between traditional and blockchain transactions.
Blockchain also employs key-access restrictions to provide assurance that the parties are dealing with whom they intended. Blockchain has significant implications for equipment leases, loans, syndications, and securitization, as identified in the 2017 report of the ELFA Industry Future Council.2
HOW BLOCKCHAIN WORKS
At its core, blockchain technology ("blocks" of data connected via a cryptographic "chain") seeks to allow multiple participants in a commercial transaction to possess an accurate, immutable record of the transaction as it unfolds. Each party with key access would be able to view and make ledger entries relating to the transaction from its own "node" computer terminal, which would be identical to every other key-access participant's node. No one node would possess the "official record" of the transaction: each node in the chain collectively would constitute the official record.
No longer will it be necessary to transact business through an electronic vault, a centralized repository or commercial institution, though such entities will certainly continue to play roles in the chain as well as in the lending of capital and possible monitoring of regulatory compliance.
Let us consider how a theoretical lease-finance transaction might work using blockchain. Suppose that a lessor enters into a lease (electronic or physical) with a lessee. The lessor can create a chain between those two parties. If the lessor back-leverages the contract, then it can add the lender to the chain, noting its security interest in the contract and the related equipment (as well as filing a...