Whether you consider bitcoin to be an integral part of the future of currency or a passing fad, there’s no denying its fascinating implications for industries across finance and law – not because of any merit or downside of cryptocurrency, but because of blockchain, the powerful encryption method behind it.
The internet revolutionized the transfer of information, making it possible to efficiently and instantly send data over huge distances. Blockchain technology does the same thing, but instead of transferring information, people use it to transfer value. Currency, property titles, licenses, digital assets, executed contracts—any instrument of value can be sent instantly and irrevocably, without the need for a middle man, for a fraction of the cost of traditional transactions.
Given the ability to introduce unquestionable efficiencies in industries that have historically relied on third-party-mediated systems to undertake complex transactions, what does this mean for the legal industry, which itself acts as the most trusted intermediary there is, and has traditionally been known as a late adopter of new technology?
Law firms around the world are already interested in the implications of blockchain. According to a 2017 PricewaterhouseCoopers study, 21 percent of business support law firms, 31 percent of high-value legal services and 41 percent of transactional legal services firms are using or plan to use blockchain solutions .
But what is blockchain? This visual guide from Reuters presents a clear picture of how blockchain works. But for our purposes, let’s consider research and advisory company
Gartner’s definition of blockchain as “an expanding list of cryptographically signed, irrevocable transactional records shared by all participants in a network.”
Since each record contains a timestamp and reference links to previous transactions, “anyone with access rights can trace back a transactional event, at any point in its history, belonging to any participant.”
If you’re not particularly inclined toward computer network systems, this new way of structuring data might not seem particularly groundbreaking or relevant to the field of law. But here’s a look at four ways blockchain will impact your firm and – perhaps more importantly – your clients.
In-demand benefits will attract law firms and clients alike
Consider that blockchain has wide-reaching appeal; it’s not just for computer savvy individuals mining for bitcoins. Businesses looking for increased transparency, accurate tracking and cost reduction will be interested in how they can use blockchain to improve or better secure the way they do business.
For lawyers, that might look like new methods of collecting and storing information to maintain the authenticity and integrity of internal and client data. It also holds promise for authoritatively closing and securing financial transactions. For clients, benefits could range from smart contracts that automatically disperse royalties or maintaining a transactional history for the chain of custody of land ownership in developing countries.
Regardless of which specific benefit attracts your firm or your clients, know that blockchain isn’t just for niche technology specialists or companies with large research and development budgets. As the technology becomes more commonplace, small- and mid-sized businesses will pilot blockchain programs, as well.
Dangerous unknowns leave law firms and clients at risk
Every new technology comes with certain risks, but two stand out for companies seeking to deploy blockchain. First, learning and working with a complex technology will introduce implementation challenges and will likely require more technical assistance. And second, still-uncertain regulatory implications put the future of blockchain regulation in question. Without a central bank or network in charge, companies will have no control or way to estimate how blockchain evolves or changes as it grows.
Lawyers, who deploy blockchain technologies or have clients who use it, will need to stay on top of regulatory developments and consider how to protect data and transactions if the technology changes or needs to be replaced in the future. They will also need to be aware of the added resources and cost that could be associated with deploying blockchain. This includes time and resources to update existing processes and infrastructure; expertise to verify what the firm is doing is authorized by financial, law and local governing bodies; and full-time staff or vendor partnership to ensure the technology is implemented correctly.
It requires significant resources to prove blockchain is more secure than proprietary systems
The main attraction of blockchain (and the success behind the cryptocurrency bitcoin) is security. For example, traditional malware hacks are less effective because blockchain stores data in a decentralized network where only some pieces of data can be accessed at once. When considering a holistic security strategy, law firms looking to invest in this technology won’t be able to comprehensively verify that blockchain is more secure than proprietary systems without help from experts – often expensive experts.
In practice, this leaves large firms in a better position to access blockchain talent and resources, slowing development for small- and medium-sized firms that want to explore the technology. Lawyers from smaller firms seeking insight into potential uses of blockchain will need to take the initiative to learn about the new technology themselves by following industry experts, reading the latest releases and advocating for blockchain awareness and education within their firm.
Some think blockchain could replace most of the legal landscape; some don’t
Much as employer experts debate the role artificial intelligence will play in the workforce, many law experts disagree on how much of the legal landscape will be or can be replaced by blockchain technology. Some expect the ironclad blockchain encryption to make it easy for blockchain-enhanced contracts to automatically do the work of banking and financial services lawyers, litigation support and paralegals, while others find blockchain to be no threat to these roles.
In an interview with Raconteur, Joanne Frears, a solicitor at Lionshead Law, suggested a lawyer’s “expensive and fallible” role in doing due diligence about goods or services could be entirely negated by smart contracts with blockchain technology. However, in the same article William Akman, a trainee solicitor at Morrison & Foerster, LLP, expresses skepticism that legal agreements could ever be completely automated due to the use of complicated legalese. The reality will likely lie somewhere in the middle, with repetitive or automation-friendly tasks being assumed by blockchain technology but never completely replacing the necessity of human critical thinking throughout the legal process.
If you think blockchain is only important for firms working with cryptocurrency, think again. New developments indicate this technology will have a powerful impact on industries such as finance, accounting and law. Consider how your firm will support both internal adjustments to blockchain, as well as the impact this technology will have on your clients.