Decentralized Public Ledger Systems and Securities Law: New Applications of Blockchain Technology and the Revitalization of Sections 11 And 12(A)(2) of the Securities Act Of 1933

When Bitcoin launched in 2009, it was the first virtual cryptocurrency to gain popularity and attain widespread use. Much attention has been paid to Bitcoin’s well-publicized advances and setbacks as the world’s foremost virtual currency. Less attention has been paid, however, to the decentralized public ledger technology that enables Bitcoin to function. That technology is just as innovative as Bitcoin itself. Decentralized public ledgers are a revolution in digital data storage and have the “potential to fundamentally shift the way in which society operates.”

This Note will examine one such societal shift—a change in how shareholders access and assert their rights the securities markets. Specifically, this Note proposes that decentralized public securities ledgers will enable private shareholders to more fully access the protections of Sections 11 and 12(a)(2) of the Securities Act of 1933 in cases of securities fraud.

To facilitate understanding of this new technology, Section I describes the history and function of decentralized public ledger networks. It provides an overview of common ledger formats, and details current and future applications of the technology.
Section II examines how decentralized public ledgers relate to the securities markets at both the national and state levels. It details how the Securities and Exchange Commission (“SEC”) plans to implement and regulate the use of decentralized public ledgers and explains how Delaware is currently using the technology to create new classes of corporate stock.

Lastly, Section III of this Note posits that applying decentralized public ledger technology
to securities transactions will increase the number of plaintiffs who are capable of achieving standing under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”). After detailing the history of Section 11, Section 12(a)(2), and the tracing doctrine, Section III explains how decentralized public securities ledgers will transform the tracing doctrine from a nigh-insurmountable pleading burden to a simple records search. It will help a wider scope of plaintiffs meet the judicially-imposed tracing doctrine. Although making this burden easier to fulfill will expand the potential plaintiff pool, and thus may create logistical issues for courts and defendants, the internal structure and pleading requirements of the Securities Act will effectively limit frivolous suits. This, in turn, will better fulfill the statutory language and remedial intent of Sections 11 and 12(a)(2) of the Securities Act.