On May 2, 2016, Governor Jack Markell declared his support for the Delaware Blockchain Initiative (the “Blockchain Initiative”) which would allow Delaware corporations to issue corporate shares using the same technology that powers the online currency Bitcoin.  By creating a single digital ledger of transactions that is shared among a network of computers, the hope is that blockchain technology will simplify the process of issuing shares of stock.

Currently, financial institutions’ databases are isolated from one another.  In order to update one database, the assistance or approval of another financial institution is often required. In contrast, each participant that uses the blockchain technology will maintain a complete copy of a single ledger. In accordance with the terms of a consensus protocol system, participants will act collectively to validate and record transactions in the single ledger.  As a result, given no intermediaries are necessary, the costs and timing associated with them are eliminated.

Bottom Line: Although a novel and potentially beneficial tool, the General Corporation Law of the State of Delaware (“DGCL”) does not permit the authorization of blockchain-based shares.  The members of the Blockchain Initiative will have to work closely with the Delaware Corporation Law Council, of which Ellisa Habbart is a member, to consider and develop amendments to the DGCL permitting the issuance of such shares.