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Blockchain technology is set to transform industries and institutions throughout the world. What started as an idea synonymous with Bitcoin, the virtual currency, is now making its way into everything from contract drafting, to election monitoring, to land registry systems.
Many people hope blockchain applications open access to the justice system and lower attorney's fees, making the process faster and more affordable. In this article, we will discuss what blockchain is, its history, and what it means for the legal industry.
Blockchain technology is "distributed ledger technology" (DLT). In essence, it is an online public ledger of transactions. Think of it as a digital version of an accountant's ledger.
These records use encryption to protect data. Users must agree to use this network, and in return, they have access to:
As the number of transactions grows, they each become "blocks" in the growing chain. A new block will always link to its previous block. The system uses an algorithm to confirm each transaction is legitimate before creating a new block in the chain.
This algorithm is called Proof of Work (also called PoW). It is completed by automatic nodes called "miners." A node in the blockchain network is simply a point where messages can be created or received.
The overall process of confirming transactions is called "mining" the blockchain ledger.
A general summary of the process can be seen here:
These blocks are "immutable," meaning they cannot be altered or changed. This reduces the chances of fraud in the blockchain database.
Everyone must follow the same consensus protocol that each record is the one and only accurate record or "block."
The blockchain system was first mentioned in a 2008 whitepaper sent to a cryptography mailing list. The creator is an anonymous person or group called Satoshi Nakamoto, who disappeared from the web in 2011. They theorized that blockchain could be secure, accessible, verifiable, and impossible for just one person or company to control.
So far, Ethereum is the largest blockchain platform. Experts expect it will take a few years before the system's faults are exposed and corrected, and it moves to mainstream deployment.
Blockchain uses peer-to-peer information to store transaction data globally. It can use thousands of servers to store data and allow real-time, fair access to the network. Think of it as a public, honest record of a business's transactions that cannot be hidden or changed. It would allow for full transparency on where the money goes and how companies are run.
If you were considering purchasing a business, you could instantly see an accurate, digital audit of the company's actions. Not to mention, the audit could be done independently and inexpensively. As a business owner, it would take away the time and personnel needed to handle transactions and administrative tasks.
The hope is that financial institutions, financial services, digital currency, and peer networks find a growing use for public blockchain or private blockchain technology.
Blockchain can be hacked, which makes it a concern for privacy experts, businesses, and individuals. It also needs a high amount of computer power to constantly encrypt the information, which has environmental concerns.
Typically, cryptocurrency applications like bitcoin blockchains can lead to hacking, or smaller networks of blockchain are susceptible to fraud or user control. To date, there is little regulation on blockchain, which has experts expressing concerns.
If the legal industry adopts blockchain, they could expect increased access to information, better transparency, faster access, higher cost savings, and greater integrity of the data they find.
For example, a law firm's blockchain network would make record-keeping and administrative tasks instantaneous. Attorneys would no longer spend non-billable time on admin duties, and clients would no longer pay for tasks that a computer can do instantly.
There are blockchain solutions in progress today that could change the face of the legal industry. A variety of legal areas could be affected, such as:
Real estate and personal finance concerns, such as separation of property in a divorce, would require less work in litigation if blockchain is widely implemented. Instead of spending time compiling each spouse's financial records, ironclad records could exist showing where someone's money is going and coming from.
Other uses could include:
Blockchain could make things easier for attorneys to represent clients for contracts, financial transactions, and other business disputes.
Other applications could include:
Blockchain could improve tasks like signing documents digitally, storing legal agreements safely, and streamlining transactions. It also has positive implications for smart contracts.
These are contracts that use the blockchain to implement themselves automatically. Those contracts can be coded and recorded in the blockchain and executed, without human intervention, when the proper conditions are met.
Smart contract use has important legal implications, not just because drafting a smart contract requires significant computer coding, rather than simply referring to "the party of the first part." Smart contracts implicate everything from choice of law issues, notarization, and federal electronic transactions and money laundering laws.
Such contracts are already being used in the financial industry, accounting, supply chain management, healthcare, and more, to do things such as:
The blockchain system could lead to more reliable evidence at trial if judges make the evidence admissible.
There are other implications, such as:
This new technology can make attorneys' and clients' lives easier. Of course, it could also lead to the replacement of some legal jobs. It is expected that new jobs will open up that focus on blockchain compliance, regulation, and securities law as blockchain becomes part of the mainstream.
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