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Legal Technology in the Age of Blockchain

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Emerging technologies have been transforming entire industries recently. Even traditionally technophobic sectors like the legal system are being upended as well.

While legal technology is nothing new, the current technologies being developed from blockchain have the potential to shake the legal industry to its core.

Everyone knows blockchain as a platform for well-known cryptocurrencies like Bitcoin or Ethereum. However, it is gradually spreading to other services where a decentralized, reliable and immutable model makes sense. Companies and organizations are now turning to distributed ledger technologies to increase security when making transactions, enhance transparency and visibility, and facilitate airtight legal documentation.

Here are some of the ways blockchain is changing legal technology and the industry as a whole:

Smart Contracts

One of the ways businesses are using distributed ledger technologies are through the creation of smart contracts. They are a set of contractual clauses embedded in code to which parties have reviewed and agreed upon. With properly defined codes and protocols running in a verifiable decentralized platform, smart contracts are self-executing. And because they are decentralized and immutable, no single party can tamper with a smart contract without everyone in the blockchain being duly informed.

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Legal Technology

Ethereum was the first blockchain network to support smart contracts. Unlike Bitcoin, Ethereum makes use of an account balance model in order to store the assets owned by the users. With smart contracts, third party mediators like lawyers are virtually made redundant, as code-embedded contracts are final and self-executing.

While Proof of Work type blockchains like Etherium’s smart contracts save money by skipping the associated legal fees, altering the terms in a smart contract is difficult. As an agreement code set on a distributed ledger is as good as irrevocable, some smart contracts cannot be altered at all. Having contract specialists, which legal firm Special Counsel defines as someone who negotiates and manages contractual agreements, is a good failsafe strategy when using smart contracts. Richard Howlett with Selachii LLP, on the other hand, suggests to include alteration protocols in the initial code of the smart contract to alleviate this potential problem.

Patenting and Copyright Licensing

Copyright laws were intended to protect authors and creators by granting them a set of moral and exclusive rights. A study on Science Direct highlights that distributed ledger technologies for digital rights management and patenting have two major ways they can contribute. The first is to ensure and introduce transparency in copyright protocols in order to avoid piracy. A second application is creating a blockchain-based model of how authors can be compensated for their work without patenting their work for long periods of time.

Legal Technology

Blockchain-based DRM systems enable authors, artists and other copyright owners to enter into a direct relationship with the public. By using smart contracts to assign levels of access, third party enforcement will become unnecessary. Recently, The Fabricant sold the first digital only blockchain clothing worth $9,500. The company behind it digitally stitches a photograph of the customer wearing the digital dress, which the customer can then use on social media. The piece of digital clothing is also a “non-fungible token (NFT) on the Ethereum blockchain” – meaning it acts as both a currency and clothing. It also means the dress is impossible to copy and steal, and that it belongs fully to its owner.

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Blockchain Regulation

Law and technology are in a complicated and interconnected relationship. On the one hand, the State is struggling to exercise its sovereignty over the Internet by regulating code in order to regulate individual users. On the other hand, blockchain technologies are being developed in a wide variety of use cases to regulate behaviors jointly with existing laws.

Good faith and trust are two of the things blockchain needs to prove if it is to replace or even integrate into existing legal procedures and processes. However, as Thompson Reuters points out, there is a growing necessity for lawyers to learn and understand advanced technologies that can and will affect their practice, such as blockchain.

In a few years’ time, the battle between lawyers and blockchain technologies will come to an inevitable conclusion. And, if we have learned anything from other industries, integration is the only productive way forward.

1 COMMENT

  1. There is a socially redeeming value in blockchain that will send lawyers to find other employment: “With smart contracts, third party mediators like lawyers are virtually made redundant, as code-embedded contracts are final and self-executing.” Yes, technology can be your friend.

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