A decentralized cryptocurrency – Bitcoin – first appeared in January of 2009, following the 2008 financial crisis. Bitcoin utilizes a decentralized database to keep track of all transactions in a distributed ledger. This ledger has become known as Blockchain or “the Blockchain.” Blockchains are public ledgers of all Bitcoin transactions that have ever been executed. It is constantly growing as completed blocks are added to it with a new set of recordings that are secure, tamper-proof and immutable. The blocks are added to the Blockchain in a linear, chronological order.
It is helpful to think of Blockchain technology as a way of allowing multiple parties to each verify a transaction that will be entered onto a ledger in advance, with no single party having the ability to subvert or control the ledger entries. This results in a trustworthy record unsusceptible to fraud. This transparent ledger will ultimately foster a culture of trust amongst individuals and corporations that conduct business and narrowing the gap of distrust we inherently possess as human beings.
From a legal standpoint, Blockchain has the ability to make obsolete the current form of record keeping. Blockchain keeps documents in their fixed form, allowing changes to documents only if there is a mutual agreement between all parties. Storing records on blockchain would also decrease the likelihood of any instances of human error.
Another aspect of blockchain, perhaps more valuable, are smart contracts. Smart contracts are Internet legal contracts that execute automatically (without verification by a third party) when a set of pre-programmed conditions are satisfied. Unlike traditional legal contracts in human language, smart contracts are written using on-chain Internet code. On-chain Internet code is a set of computer protocols that facilitate, verify or enforce the performance of a contract. Such code makes traditional contract language redundant and, hence, unnecessary. The format of on-chain Internet code often emulates the logic of traditional contract language.
In practice, when a buyer in one country purchases property from a business across the world using a smart contract, for example, it can send them a contractually obligated payment as digital transaction, such as a bitcoin transfer, through the blockchain. This triggers the blockchain into automatically transferring the property’s title deed to the buyer’s possession. Because there is no need for a centralized intermediary to keep the terms of the contract or act as executor, there is no need for the parties to turn to banks, attorneys, or related professionals for help. This automation can occur no matter how many parties are interacting on a blockchain.
Legal professionals should focus on the opportunities to enter into contracts in a cheaper and more secure way. While the resistance will be strong, as more industries begin adopting and exploring the uses of blockchain, further technological innovation will occur. Intermediaries, bureaucracy and old-fashioned procedures will be replaced by the 4 Cs: code, connectivity, crowd and collaboration. The technology increases openness and speed, while at the same time significantly reducing costs.
First revealed in July, the Legal industry Working Group is chartered to educate the legal industry about the potential benefits of blockchain technology, and to develop and standardize private versions of the ethereum (a decentralized platform that runs smart contracts) blockchain. Working in partnership with several existing members – BNY Mellon, Intel and JPMorgan Chase – the group is designed to ensure that ethereum smart contracts and assets comply with regulations and are legally binding. Transparency and efficiency should be objective goals for a company and blockchain should be the answer for future generations of business. As more fortune 500 companies and law firms adopt the blockchain, the more this technology will seep into the collective marketplace.