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The application of blockchain in the legal sector

Image credit: REUTERS/Dado Ruvic​

As the role of technology increases within the legal industry, the question of how and in what ways it can best be used in the practice of law is of top concern among law firms, corporate legal departments, and of course, law schools. From predictive analytics to machine learning, the message is clear: technology will underpin innovation in legal services in an increasingly rapid evolution.

And yet, there is one type of technology that frequently makes its way to the top of trending conversations—blockchain. Mick Atton, VP and Chief Architect at Thomson Reuters Westlaw, spoke on the subject recently at Hofstra University’s Legal Tech Boot Camp 2018, in the US. The event was geared towards law school students, faculty, and alumni, and was focused on the role of technology in the practice of law and the professional opportunities available to tech-savvy law associates.

While some sessions explored the larger tech landscape, the focal point of Atton’s session was on blockchain technology and its implication within the legal profession. With a brief overview of blockchain technology—including an example of virtual cats, known as “CryptoKitties”, that are being sold for thousands of real dollars on a blockchain platform—Atton dove into how the current state of the legal industry provides an opportunity for transparent, efficient blockchain processes.

Adopting blockchain technology in the legal industry

As Atton described, blockchain is a replicating, distributed ledger that creates a record of peer-to-peer transactions without the need for a trusted authority. The model is effective because it’s based on a distributed consensus, meaning that all parties agree on the value and transaction consistency. Not surprisingly, the technology found initial acceptance because it allowed a place where funds payments and transfers were immediate and transparent without the need for intermediary financial institutions. Additionally, once the data has been recorded, it cannot be altered without impacting all existing “blocks” of data.

There is a wide range of practice areas where blockchain technology can become a major player, from supporting the changing nature of legal work to enabling new lines of business and differentiating service offerings.

And while many still associate blockchain with its first big application—with cryptocurrencies such as Bitcoin—many other organisations are starting to consider how this technology might also help automate day-to-day operations.

Law firms that are facing challenges, such as diminishing demand from corporate clients and stronger competition from non-traditional players, are considering blockchain for two primary reasons. The first reason is smart contracts, which involve scripted logic relating to simple Ricardian contracts. Essentially, smart contracts are sets of terms and conditions that can be automated, and blockchain appears to be the best way to do that.

“An example of this may be serial renewal of a lease for real estate,” explains Atton. “There might be some termination clauses in commercial agreements in which you can automate the execution and invoke. These are repeated functions that don’t need a human to curate and manage”.

The second reason law firms are interested in blockchain technology is its ability to record events for long duration. This might include irrefutable intellectual property claims or even criminal charges relating to a certain case or criminal procedure.

And beyond these few examples, there is a wide range of practice areas where blockchain technology can become a major player, from supporting the changing nature of legal work to enabling new lines of business and differentiating service offerings, Atton says, adding that those players that are embracing new technology are already providing a new way of thinking about legal processes.

“Perhaps one of the most novel ideas of blockchain was brought to me by a law school student,” Atton adds. “It was around this idea of fashion law and the ability for blockchain to record copyright of high-value fashion items, such as designer handbags. I had never considered an idea like that before”.

The legal future of blockchain

On the other hand, given the fact that blockchain technology has only been around for about a decade, it still requires business to tread lightly around its legal implications.

In fact, in his presentation, Atton pointed out that while about eight US states have statutes enacted relating to blockchain technology, it has only been examined at trial in six US states with five appeals enacted. This indicates that there is still a lot of unknown around the governance of this emerging technology.

What is known, however, is the value and necessity for lawyers to learn and understand advanced technologies, such as blockchain. Whether it will be implemented for self-sovereign identity or to streamline judicial administration processes, law firms are turning to smart, tech-savvy thinkers to lead the way.

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