Bermuda: Law Firm Disruption: The Inevitability Of Blockchain Everywhere

Last Updated: 18 October 2017
Article by Christopher Garrod

You should have already heard of the term: blockchain. If you haven't, you will. And assuming you have, you're going to hear it a lot more.

As much as artificial intelligence appears to be the primary buzz phrase in 2017's business world (I've also written about its potential impact on the legal industry in general), the use of blockchain technology will over a rapid period of time have a dramatic impact on how we function on a daily basis.

So what is blockchain?

Very simply: blockchain is a networked, decentralised, secure ledger – or a database - which can be used for any recordable transaction (not just for digital cryptocurrency use which it sometimes can be mistaken to mean). Transactions are grouped into "blocks", part of a secure network (consisting of hundreds of computers and servers worldwide) and the data is stored into the blocks. When it is intended for a transaction/block to enter the chain, it must be validated by this worldwide network and therefore becomes digitally signed. The key is that the blockchain is decentralized and secure. How? Any change to this worldwide ledger requires the authentication of the entire network of global servers. One change will change all of them. That results in the decentralised nature of blockchain: there is no need for a central authority to approve transactions. This also means that the ledger, the blockchain, is very difficult to alter - unlike a bank or financial institution, with one or a few network servers, there is no central point of vulnerability, making it incredibly difficult for hackers to infiltrate. Blockchain is, simply, secure.

Potential uses of blockchain

There has been a lot of hype around the use of cryptocurrencies, including their potential benefits, their potential risks: Bitcoin being the most popular example. So much so, many confuse cryptocurrencies and the term "bitcoin" with "blockchain". But they are totally separate. Blockchain is just a platform, and its technology allows those cryptocurrencies and their digital tokens to operate within a blockchain. The security of the blockchain helps control and verify the transfer of these digital currencies. This is actually one example of the immediate use of blockchain, which is in the financial sector - a means of financial transaction payments which are digitally based and secure, what is more broadly known as "fintech".

How else can blockchain potentially be used? Essentially, any transaction capable of being recorded can look to the use of blockchain.

Some quick examples include (a) healthcare: keeping electronic medical patient records, hospital and insurance claims information and data which can be shared with other hospitals or health insurers on a secure basis, (b) electoral voting: such as casting votes using someone's smartphone over a secure blockchain network, (c) shipping and transport: shipping and transport companies using a secure blockchain to track cargo globally on a reliable basis with a secure infrastructure, (d) insurance: the administration and processing of insurance claims, where the data is kept on a secure blockchain, and (e) homeland security: data collection by governments regarding the digital identity of citizens and potential refugees wanting to cross borders.

Think of any transaction or a way of collecting data, and blockchain can enter the frame. The application of blockchain is virtually limitless.

The law and smart contracts

So perhaps you are corporate lawyer. And a client all of a sudden wants to talk to you about smart contracts. Are you ready? As the name suggests, a "smart contract" is just that. A contract which is automatically generated - without human intervention - via a software application based on when certain variables or triggers coded into the contract are met. They are recorded and execute themselves on the blockchain and contracting parties aren't needed to confirm the transaction: the contract self-executes.

As mentioned earlier, any change or alteration of a blockchain network must be authenticated by the rest of the network, which therefore verifies its legitimacy – the same applies to any asset transfer recorded in the blockchain. Because the entire record of transactions is recorded by many different parties across the network, a blockchain reduces the risk of fraud. The aim with smart contracts is to provide security that is superior to traditional contracts. They also, of course, reduce many of the transaction costs associated with traditional contracting and therefore can be a very efficient form of doing business.

Ethereum is the most popular blockchain platform for smart contracts. Ethereum provides built-in software programming languages which can be used to write smart contracts for many legal purposes, including the transfer of tradeable cryptocurrency or digital tokens – its most prominent use, through the provision of a digital token, ether. Smart contracts can be used in various contexts: for example, in property transactions, money can automatically be released from escrow once a deed is transferred without human verification, or in the insurance context, claims monies can be paid to an insured immediately upon the occurrence of a verified insurable event.

But there is uncertainty regarding the enforceability of smart contracts. They currently are not mainstream and it is uncertain how courts would interpret them and apply basic contractual legal principles as they increase in use. Do the concepts of traditional contract law apply to smart contracts, where the contracts are self-executing without the involvement of contracting parties? An entire reexamination of the fundamental laws relating to contract may be required as smart contracts become less of a novelty and more of a reality.

Lawyers get ready

Blockchain is real and it is coming. Smart contracts are coming along with it. It is likely that in the future we will be faced with a new generation of lawyers who will have conducted their legal training based on an entirely different and unique body of law. That generation of lawyers will probably also know how to code.

And today? Clients in all sectors of various industries are now looking towards blockchain technology as a way of carrying on their business more effectively, efficiently and securely. For those managing law firms, note that the inevitability of blockchain is now upon you and expect clients to soon be asking your firm questions about it. Firms which take steps to become experts in the field will benefit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Christopher Garrod
 
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