Blockchain technology is set to be a transformative force behind changes that are set to take place within the legal industry. Business clients are becoming heavily invested in blockchain; it behooves law firms to get on board with the blockchain revolution. This technology is set to become as revolutionary as the Internet. It will have a significant impact on the legal sector, both regarding how firms serve clients as well as how law practices are run.
We will explore how blockchain will affect smart contracts, corporate filings, criminal cases, dispute resolution, document notarizations, industry organizations, intellectual property rights, land registries and property deeds, law firm operations, and public service records.
Although blockchain technology appeared nearly ten years ago with a white paper written by an anonymous person or group called Satoshi Nakamoto, only within the last two to three years has the technology been catching on like wildfire. “Most major Fortune 500 companies, from retail and finance to automobiles and airlines, are exploring blockchain technology for its possible benefits in business operations and security,” according to a story which appeared in Blockchain at Berkeley by Ashley Lannquist. This includes business sectors in financial services, retail, automobiles, aviation, shipping, telecom, and Internet of Things (IoT).
The blockchain is an immutable, anonymous, unhackable, and decentralized ledger. The technology has been in existence for nearly ten years. Blockchain, or distributed ledger technology, is the underlying force behind bitcoin. It is decentralized so that the transactions are recorded across millions of computers and hard drives. Each block of data is linked to a previous block of data, or chained together. The transaction is synchronized, and all nodes reflect the updated data as it occurs. Once a transaction is validated, the transaction or asset is theoretically immutable because it would be nearly impossible to change all records throughout the chain at the same time.
Areas That Will Be Transformed by Blockchain Technology
Smart contracts are blockchain’s version of traditional contracts. They are self-executing, with the terms being written in code and residing on a decentralized, immutable blockchain. A smart contract is programmed to execute actions upon completion of certain criteria. With smart contracts, many of the intermediary services of contract implementation, including brokers and agents, are no longer needed.
Smart contracts are autonomous, decentralized, and auto-sufficient. They are run via Ethereum, which is an open software platform that is based in the blockchain.
Once the contract initiator launches the smart contract, it performs without further action from the initiator. It is decentralized because it resides on millions of computers throughout the blockchain. A smart contract is auto-sufficient in that it executes the terms of the contract on its own, according to its programming, including distributing or collecting money.
Trust is one of the issues that smart contracts overcome. If an agreed upon action is not undertaken, then the code simply will not execute the agreed upon remuneration.
While it may seem that smart contracts will soon replace lawyers, that is not likely to happen in the foreseeable future. First of all, smart contracts aren’t contracts. They are computer protocols that behave in a set manner determined by their programming. The assumption is that nothing will go wrong, and no human analysis or intuition will be necessary.
In the real world, something often goes wrong. A party to the smart contract may steal away with the warehouse full of cotton, or a ship may go down in the Bermuda Triangle. Such unforeseen mishaps call for an independently minded individual who can make calls that are fair to both parties. This is where dispute resolution comes in, described in depth below.
In August 2017, a Delaware state law went into effect that allows corporations to list shareholders and other corporate records on the blockchain. Because Delaware incorporates more than two-thirds of Fortune 500 companies, the state’s endorsement of blockchain is significant.
Although things aren’t likely to change soon, the transformation is coming. According to an article in Fortune, within two to five years the changes and use of blockchain “could be profound.”
In the same article, John Mark Zeberkiewicz, a partner at the law firm Richards, Layton & Finger, said, “Think about what a corporation is—on some level, a corporation is its records. Ultimately, about every corporate document and transaction could be recorded on the blockchain, creating an immutable record of all corporate acts.”
Former Delaware Gov. Jack Markell had planned to move the state closer to blockchain technology by moving part of its corporate franchise business and public archives to a blockchain based system. However, the new administration isn’t as enthusiastic about technology and is taking things slower.
Deputy Secretary of State Kristopher Knight, a proponent of more caution, wants to examine associated costs to other streams of state income by employing blockchain technology. Meanwhile, Secretary of State Jeff Bullock says that his office is very much involved in using blockchain technology and is exploring further means by which the technology can help Delaware increase its income.
Wyoming is poised to chew away a portion of Delaware’s grip on corporate business services. With the passage of five bills on the blockchain, Wyoming has spoken about its intention to position itself as blockchain friendly, and has also communicated its intention to welcome businesses that are interested in operating in a forward-thinking, technologically advanced state.
The bill that deals most directly with business services is HB 101, which authorizes corporations to use blockchain for the “creation or maintenance of corporate records.”
The criminal justice system is an area of government that would benefit greatly from blockchain technology. This complex, document-heavy system needs to be brought into the 21st century. Records created by blockchain could be shared among all the players in the system, from law enforcement officers to parole officers. Changes in a defendant’s legal status would be documented instantaneously. Interested members of the public, such as victims, could keep abreast of the status of defendants.
The United Kingdom wants to revolutionize the way justice is meted. The UK is poised to take the lead in taking a criminal justice system into the next generation. According to a report authored by The Police Foundation and CGI, only half of the trials take place on the day that they were supposed to have taken place. Tens of millions are spent on cases that never go to trial. The evidence is continuously being misplaced and lost.
As the report opened with a quote from Sir Brian Leveson, “We simply cannot go on with this utterly outmoded way of working … Endlessly re-keying in the same information; repeatedly printing and photocopying the same documents; moving files about, losing all or parts of them in the process … It is a heavy-handed, duplicative, inefficient and costly way of doing our work and it is all about to go. Considerably past time, we will finally catch up with the world.”
The experience of participating in the justice system for victims and witnesses has to lead to the unhappy fact that 55 percent of these participants would not do so again. Defendants must bear with the system as well. Inaccurate or out-of-date records could cause a person to be incarcerated for longer than his or her term called for.
The report postulated that all future cases could be logged into a blockchain system and listed six benefits of creating this blockchain system.
- The public would have greater access to information.
- Permissions to view records can be set at various levels.
- An auditable trail of amendments to the documents would be created.
- Interested parties could receive updates instantaneously.
- Record keeping would be greatly enhanced.
- As more data is put before the public, creating a “glass government.”
There are several areas in dispute resolution that can be improved. Traditional dispute resolution is costly, time intensive and complex. Proceedings often cross jurisdictional boundaries, and there is the possibility of bias. A participant cannot choose the rules; rather, the rules depend on the particular jurisdiction.
According to Norton Rose Fulbright publication, Norton Rose Fulbright lists several reasons why a dispute with smart contracts may arise:
- Difficulty identifying someone to sue;
- Uncertainty over jurisdiction and governing law;
- Novel enforcement issues;
- Protecting proprietary information;
- Tribunal with specialist technical knowledge; and
- Bespoke procedures and automated enforcement.
To lessen the impact of these issues, it is strongly recommended that creators of smart contracts insert clauses that foresee these types of problems.
At least two companies are using smart contracts and juries to resolve disputes. Jury.Online and Kleros offer dispute resolution based on blockchain technology. If a dispute arises, it goes before a panel of jurors who are randomly chosen from a pool.
To become part of the juror pool with Kleros, you must purchase a token, called a pinakion. The funds go into the court that specializes in your area of expertise and location. Funds held in escrow are disbursed to the winning party.
Jury.Online invites members of the public to become arbiters by filling out an online form. Jury members are chosen for the pool by Jury.Online staff.
Startup companies Stampery, Stampd, and Blocksign use blockchain to offer notary services. Using these services can provide proof of the existence of a document at a given time. It can prove ownership of a blockchain hash. Once hashed, the document is independently verifiable. With that said, Stampary and Microsoft have recently announced their partnership and their endorsement of the technology’s capabilities.
Industry Organizations Advancing Standards
As with most industries, the legal field is developing consortiums to standardize blockchain technology and explore the legal ramifications and opportunities.
The Accord Project seeks to standardize smart contracts by establishing best practices for smart contracts that hold up to legal standards. The organization sets forth technological standards in the form of templates, models, and data schemes.
The Global Legal Blockchain Consortium works to organize and align the legal industry concerning blockchain technology. The consortium strives to enhance the “security, privacy, productivity and interoperability of the legal technology ecosystem,” according to its website. To this end, it will adopt and promote policies geared toward this goal.
Enterprise Ethereum Alliance formed the Legal Industry Working Group. Its objectives are to educate the legal industry about the benefits of blockchain technology and to develop standardization of ethereum enabled technology.
Integra Ledger describes itself as the blockchain for the law. Its primary purpose is to become a global utility that provides “blockchain-based identities for legal information,” according to its website.
Intellectual Property Rights
With the advent of the Internet, maintaining and enforcing intellectual property rights has become an almost impossible feat. For artists, authors and inventors, however, livelihoods are being put in jeopardy.
In the United States, 17 U.S.C. Section 106 enumerates the five exclusive rights that copyright owners hold: reproduction, adaptation, publication, performance, and display. The commercial use of a copyrighted work without the permission of the copyright owner is considered to be copyright infringement.
An aid to IP lawyers is that blockchain can provide evidence of creation, first use, and rights management. Blockchain can track distribution. Binded, Pixsy, TinEye, and Mediachain are websites that will allow for the registration of material, further making the lawyer’s job easier. These types of sites will assist in both preventing copyright infringement and enforce mitigation by providing a time-stamped copy of the work in question (among other abilities), which will aid the plaintiff when the issue is brought before a court.
Blockchain cannot prevent the unauthorized use of copyrighted material. A lawyer is still going to have to advocate for the plaintiff to reach an amenable decision for his or her client.
Rights management can be made easier through blockchain technology, in particular, through smart contracts. Using these types of the blockchain, a lawyer will be able to set up terms of sale and licensing of intellectual property. Licenses would be self-executing upon use. Artists can also use smart contracts for getting paid.
Land Registries and Property Deeds
Blockchain has made its way into land registries and property deeds. To date, blockchain is having the most effect on MLS data, title records, and transactions.
Today, MLS data information is notoriously out of date, decentralized, and restricted. By bringing blockchain to the MLS, everyone could be looking at the same data, accurately depicted and up-to-date. This would encourage more collaboration among brokers as well as an increase in property sales.
Blockchain can also enhance the process of buying and selling a property by maintaining accurate and real-time title records. In 2016, Cook County, Illinois launched a pilot program for transferring and tracking property titles. On May 30, 2017, the county issued its final report. It stated that Cook County had successfully used blockchain to design a “real estate conveyance software workflow that can be a framework for the first legal blockchain conveyance in Illinois (and possibly the US.).” Each parcel of land had its landing page, outlining information about the parcel. The landing pages were seen as digital property abstracts.
Finally, real estate transactions will be transformed into an efficient and secure process. Financial information can be safely shared with concerned parties. Funds will not be released until the transaction is officially completed.
Already, several governments are studying the use of blockchain technology in real estate transactions. Sweden officially began using blockchain to register land and property in July 2017. In April 2017, Brazil and Ubitquity LLC began developing a pilot program using blockchain for nation’s official land records. India is working with ChromaWay on another pilot program to track ownership of property. Here in the U.S., Vermont is partnering with Propy to use blockchain technology to record real estate conveyance documents.
Dubai, deeply involved in blockchain technology, is putting its entire land registry on the platform. Its goal is to have all Dubai properties on blockchain within two to three years. The move is part of the “Dubai Blockchain Strategy,” which is to put all government documents on blockchain by 2020.
The UK’s HM Land Registry initiated Digital Street, which is a research and development project investigating how land registration and conveyance can be improved through technology. Already, a handful of properties have been but on a digital register.
Sweden’s Lantmäteriet is set to record its first land sale using blockchain. Technologically, the nation is ready to go start conducting property sales via blockchain. The Lantmäteriet is currently screening volunteers who want to sell or buy using the system.
Law Firm Transformations
From business to healthcare to government, more sectors are being transformed by blockchain technology. Mastercard offers businesses the option to use blockchain as a way to transfer funds. IBM has worked with more than 400 clients to carry out blockchain applications. Global financial institutions are using blockchain to conduct business, while 90 percent of those who aren’t yet using blockchain are investigating the possibilities.
All of these and more are invaluable law firm clients. They will expect their lawyers to be conversant in blockchain technology. Different industry sectors will demand that their lawyers know which laws apply to blockchain technology. Lawyers, in various capacities, will ultimately determine how laws are enforced to this new technology.
The use of blockchain technology will free up time that is currently spent on the more mundane aspects of developing routine contracts and transactions. Lawyers will be able to invest time in the more challenging, in-depth issues of practicing law.
Public Service Records
With the industrial revolution came the tradition of standing in line at the DMV for hours. Finally, the blockchain revolution offers a cure for this and so many other inconveniences dealt by a hardworking government.
To serve the public, governments must gather, maintain and store an incredible amount of information. Much of this information is still kept on paper while digital acquisition and storage is becoming more frequent.
A vast amount of time is spent in gathering and organizing records. Further, because there are so many variables and forms involved, unnecessary errors tend to creep in. To better serve the public, systems must be efficient in delivering services and be as error-free as possible. Systems must engender trust.
Because Blockchain is an immutable, anonymous, unhackable, and decentralized ledger system, governments are looking into the technology to solve some of these concerns.
As mentioned earlier, Delaware and Wyoming are making it easier for corporations to do business in the state. The Illinois Blockchain Initiative was formed as “a collaborative effort exploring blockchain’s impact on government,” according to its website. The project is exploring how blockchain might serve in keeping records and delivering services. Areas include real estate records, birth registration process, and Medicaid, for example. On April 17, Colorado introduced a bill aimed at maintaining security for state records.
Once on the blockchain, public records will be far easier to search. Records such as birth and death certificates, marriage and divorce documents, driver’s licenses, and passport information could all be located on the public blockchain quickly and accurately.
Blockchain technology is the most transformative technology to emerge since the advent of the Internet. Transformation is set to affect most aspects of day to day business life, including smart contracts, corporate filings, criminal cases, dispute resolution, document notarizations, industry organizations, intellectual property rights, land registries and property deeds, law firm operations, and public service records.
Lawyers are involved in all of these areas. It behooves both clients and lawyers alike to learn as much about the technology as possible. Exploring new legal applications in blockchain is also within a lawyer’s purview in bringing the technology to bear on pursuing a client’s best interest.