In our previous article, we explained what Blockchain is. In this follow-up article, we look at how it is pertinent for lawyers. In short, it is relevant in two ways: on the one hand, there are the legal aspects of using Blockchain: Blockchain is changing the way things are done in several industries, and lawyers active in those fields should be prepared for that. On the other hand, there already are new legal applications, like e.g. smart contracts, that are built on Blockchain. We can expect many more of those to come.
Legal aspects of Blockchain
A lot of the work lawyers do, has to do with helping to facilitate the secure transfers of assets. Blockchain was developed for exactly that purpose: it creates real-time digital records that verify and confirm that the transactions, detailing such transfers of assets, did happen at a certain time, and in a specific order. In other words, Blockchain offers proof that at present is as good as irrefutable.
In his book Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business and the World, Dan Tapscott states: “anything of value – money, but also titles, deeds, identities, even votes – can be moved, stored and managed securely and privately. Trust is established through mass collaboration and clever code rather than by powerful intermediaries like governments and banks.”
Blockchain has already started disrupting markets, and is expected to affect many more industries. In fact, it has the potential to affect most of them. The most obvious example is the world of finance, where Bitcoin and Blockchain started. Thanks to Blockchain, virtual currencies are a reliable alternative to traditional currencies. Blockchain is also being used in post trade settlements (Securities). Intellectual property, too, is a prime candidate for a Blockchain overhaul: applications are already being developed with regard to digital rights management which will affect music, eBooks, and other online content you purchase or rent. For trademarks, too, Blockchain technology can prove that a certain trademark was registered by a specific party at a specific date. Applications that rely on the Blockchain technology are being developed for real estate (transfer of title deeds), health care (patient data), insurance, energy (peer to peer market for energy), digital voting, gambling, etc.
If you, as a lawyer, represent clients in Blockchain-affected industries, you’ll need to get acquainted with how Blockchain affects those industries. Doing it early offers a competitive edge, as you become a greater resource as trusted adviser to your clients.
As Blockchain is changing the way business is being done, we can also expect the law to start regulating the use of Blockchain. A recent example of this was in the US, where the SEC made a ruling on 25 July 2017 in a case of an ICO, i.e. an Initial Coin Offering: instead of launching an IPO (Initial Public Offering), a company wished to raise capital using a cryptocurrency instead of US dollars. The SEC ruled that “federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.”
Legal applications using Blockchain
One of the areas where Blockchain is expected to make great strides is ‘smart contracts.’ OpenLaw, e.g., is a joint US and Swiss project that is working on a smart contract platform that will allow lawyers to make legally binding, and self-executing agreements. The platform uses Ethereum, which is an alternative to Bitcoin but is also built on Blockchain. In a first step, lawyers can choose one of many contract templates that can then be further customized online. If the parties for whom the contract is made agree, they can confirm and activate the contract on the Ethereum Blockchain, and then have the contract self-execute its key agreements via the same Blockchain.
Smart contracts are expected to start pitching up everywhere. For this reason, on 15 August 2017, a new legal Blockchain consortium, called the Global Legal Blockchain Consortium (GLBC), was launched. An array of law firms and leading legal tech companies are involved, and their goal is to discuss and consider the issues around the use of Blockchain and smart contracts.
All of this creates new opportunities for lawyers: your law firm can become a Smart Contract Firm, or a Smart Contract Mediator, and/or a Smart Title Company. Individual lawyers can become ‘Distributed Ledger Lawyers’ who are Blockchain law and policy advisors.