By now everyone has some awareness of bitcoin—the rapidly growing cryptocurrency favored by internet geeks, currency speculators, and those who want anonymity in financial transactions.
Most of us have also heard about, but have only a light understanding of, blockchain: the technology underlying Bitcoin, Ethereum, Zcash, and other cryptocurrencies. Blockchain by design offers security, immutability, and transparency, and holds promise beyond payments or financial transactions, including potentially significant impacts on the legal industry over the next few years.
Though speculation about the future of blockchain continues, it is gaining momentum and deserves attention from law firms, courts, and legal technology providers. Large enterprises are gearing up for a blockchain revolution. Corporate clients are actively pursuing it. According to a recent Forbes report, there were nearly 1,500 blockchain-related mentions in SEC filings, transcripts, and company press releases in the first nine months of 2017. This represents an increase of more than 65% over the prior full year. Growth in interest and investment ballooned after investors began shifting their focus from cryptocurrencies to the underlying blockchain technology.
Microsoft, IBM, and other large enterprise technology providers are partnering with blockchain startups to advance projects. Beyond the financial and payments applications, use cases for blockchain technology include supply chain tracking, authorship, ownership, identity management, and even diamond and gemstone identification and tracking.
Two schools of thought have emerged on blockchain and its potential impact in the legal industry. One view is that blockchain will automate decisions, processes, and contracts, removing the need for an attorney and reducing demand for legal services. The alternate, more optimistic view embraces blockchain as a source of new opportunities for growth in legal services. For those who build a familiarity with blockchain, opportunities are surfacing. In the short term, those opportunities will be in the implementation of smart contracts and in the resolution of regulatory challenges that are bound to come up in blockchain adoption.
The Power of Blockchain
Today, most interactions use a trusted intermediary such as a bank, agent or mediator to complete transactions. The excitement surrounding blockchain is related to its limitless potential. Almost any type of transaction involving an exchange of value, be it information, money, goods, or property, can be conducted securely and efficiently with blockchain.
Blockchain technology creates a decentralized, digital ledger of transactions. The blockchain encrypts transactions, then distributes them throughout the network, creating a public record that is virtually impossible to hack. This allows for a highly reliable digital system where interactions, transactions and agreements can happen without the need for a single centralized authority.
The Promise of Blockchain in Law
The secure, immutable and transparent nature of blockchain will allow attorneys to record and authenticate many types of legal matters. That includes any ledger-based activity: property records, UCC filings, court records, funds transfers, chains of custody, contracts and even legal opinions. The following examples illustrate the broad impact that blockchain could have in the legal industry.
In blockchain terms, a smart contract is a coded program that contains the terms of agreement and triggers, allowing the provisions of a contract to be carried out upon notification. For example, the delivery of an asset, a shipment of goods or other promised completion of services can automatically trigger a payment or other exchange defined in the contract. Blockchain provides a decentralized ledger that stores and replicates documents and agreements, giving them a certain security and immutability.
The Delaware Blockchain Initiative (DBI), introduced in May 2016 and in active implementation, will leverage blockchain technology in support of corporate filings and other documents that companies file with the Delaware Division of Corporations. The current process is still heavily paper-based and laborious. The new DBI plan includes a new “smart records” system that automates compliance with retention and destruction of archival documents and “smart UCC filings” that will automate the release or renewal of UCC filings, increase the speed of UCC record searches and reduce errors, fraud and operational costs.
Land Registry and Property Deeds
A public blockchain ledger can keep reliable records of property titles, deeds and ownership changes as they occur. Property owners, banks, insurance companies, title companies and municipalities would all have access to clean records of ownership and title transfers, reducing future title search time and increasing transparency.
Intellectual Property Rights
As with real estate, blockchain can provide indisputable records for intellectual property rights on patents, trademarks and copyrights. Blockchain is irreversible, secure and time-stamped, offering a reliable way to track first use. A blockchain approach to IP management could also be used with any kind of digital asset, such as images, video files, audio recordings, and other digital content. For example, professional photographers or musicians could use it to manage licensing rights to their creations and to enable royalty payments.
Several startup companies, including Stampery, Stampd, and Blocksign offer notary services online using blockchain technology. These services accept an uploaded document, hash it, and provide a time stamp—a digital fingerprint of the document—that validates its date and time of creation, ownership and independent verifiability. Any third party can verify these immutable facts about the document.
Though blockchain notary processes have not been challenged yet, some believe that a cryptographic signature alone is not sufficient to prove identity. However, earlier this year Microsoft announced the integration of Stampery authentication into Microsoft Office, signaling confidence in a blockchain solution for notarization.
Public Services Records
Blockchain can help agencies digitize existing records and manage them within a secure infrastructure, allowing them to make some of these records “smart,” as described above in the example of Delaware corporate filings. Government agencies could create algorithms to allow blockchain data to be shared between parties once predefined conditions are met. Blockchain applications in this arena might secure and streamline the management of birth and death certificates, driver’s license records, sporting licenses, professional licenses, passports, travel visas—the examples are plentiful.
Blockchain could be used to improve the criminal justice system with a distributed ledger architecture. Criminal charges could be shared and tracked in a ledger that law enforcement, prosecution, courts, probation, defense attorneys, and corrections organizations could access. When charges are added or dropped by law enforcement, prosecution, or courts, that information would be posted to the ledger as well, with the expected result being faster, more efficient administration of justice.
Alternative dispute resolution refers to a variety of processes that help parties resolve disputes without a trial. Typical ADR processes include mediation, arbitration, neutral evaluation and collaborative law.
For parties seeking ADR, a blockchain platform could provide a secure, immutable, and transparent platform for capturing negotiations, terms of a resolution, and the identities and agreements of each of the parties. Every fact and detail of the agreement would be available and traceable in case of further disputes. Availability and expertise of qualified third-party mediators could be recorded in a blockchain ledger as well.
Industry Organizations Advancing Standards
Many industries have established blockchain ledgers specific to their industry or application, and the law is no exception. Bob Craig of law firm BakerHostetler is leading a group of law firms and technology companies in the blockchain effort with the recent formation of the Global Legal Blockchain Consortium. The consortium will work to drive adoption and standardization of blockchain in the legal industry, with a goal of improving the security and interoperability of blockchain for legal applications.
Another industry organization, the Enterprise Ethereum Alliance (EEA), is a collaborative blockchain consortium aiming to leverage open-source Ethereum technology. The EEA recently announced the launch of a new Legal Industry Working Group, to explore blockchain opportunities in legal and develop standards for smart contracts.
A recently formed company, Integra Ledger is hoping to become the ledger used throughout the legal industry for blockchain digital identities.
The examples above provide just a taste of what blockchain might mean for the legal industry. While bitcoin and other cryptocurrencies take the headlines, the blockchain technology underlying them has even greater potential for the legal industry. It’s an immature market and a still widely misunderstood technology, but new opportunities, initiatives and application ideas surface every day. As the growth of blockchain unfolds, law firms and attorneys focused on nearly any practice area will be impacted in some way and would do well to seek opportunities in blockchain.