New and emerging technologies come with their fair share of hype about how they’ll shake up and disrupt the current state of affairs. Some of these technologies purport to change legal practice as we know it. But there’s no reason to be intimidated. This is part one of a three-part series dispelling the hype (and consternation) surrounding developing areas of legal tech. Be sure to stay tuned for parts two and three.
Legal tech is a hot topic and seemingly inseparable from the term “innovative”. So much so that a firm’s level of innovation seems to be judged by how much legal tech they’re packing. But innovation in law isn’t all about technology (for more on what it means to be truly innovative, give this a read).
At the same, advances in legal tech shouldn’t be brushed off as merely being fads. It’s imperative that modern-day lawyers embrace changes in technology to better serve their clients and the profession. This starts by knowing what these technologies actually are (and no, they’re not just buzzwords). So, without further ado, let’s dive into our first hyped-up tech topic: blockchain.
What blockchain is
Blockchain is way to secure the movement of information. One of the most prevalent uses of blockchain is in recording financial transactions. But generally, it’s useful where high volumes of information need to be securely stored, updated, and accessed.
There are two characteristics that make blockchain secure: 1) the block and chain structure, and 2) the distributed ledger. Without getting into the technical nitty-gritty, here’s how blockchain works.
- Blocks and chains: When series of transactions are made (for example, financial transactions or movements of assets), they are recorded in groups called blocks. Each new block is added sequentially to the previous blocks, forming a chain of historical transaction data (think of the blocks as beads being added to a string). The security of blockchain comes from the fact that each new block is embedded with a trace of all the blocks that came before it. This makes it almost impossible to tamper with any particular block, since the trace would no longer match with the other blocks in the chain. Altogether, the block and chain structure creates a ledger logging every transaction that occurs
- Distributed ledger: Everyone who is involved in the transaction has a copy of the ledger that only they can access. Every time a change is made to the ledger, each user’s copy is updated so that they have the most recent version. There is no central copy (hence the term “distributed”), and only the most popular copy is accepted as being the true version of the ledger. This adds another layer of security, since a hacker would have to manage to both successfully alter the blockchain and hack individual users to ensure that their hacked version is the most popular one on the network.
What blockchain is not
Blockchain is not just cryptocurrency. These days, the two terms appear to be synonymous. However, cryptocurrency is simply one of the many ways blockchain can be used to improve the security and efficiency of transactions.
Smart contracts, for example, also use blockchain to facilitate the execution of contracts. A smart contract establishes a set of rules by which a transaction must occur and electronically monitors and enforces the terms of the contract. They are useful in industries like shipping where there are many moving parts and transactions that must occur in a particular order and be recorded accurately and securely.
As blockchain is being applied to more areas like logistics, healthcare, and digital rights management, it is becoming increasingly likely that clients will come to you seeking guidance on blockchain matters. Understanding blockchain can help you serve your clients better.
How blockchain can help your practice
Blockchain can be used to enhance the practice of real estate, securities, and intellectual property law, as well as litigation. In real estate, property ownership and transfers of land deeds can be recorded using blockchain, and smart contracts can be used to enforce mortgage transactions. Smart contracts can also increase the speed and efficiency of securities trading by connecting buyers directly with sellers and executing trades without intermediaries. For IP, blockchain can be used to secure the transfer of digital assets and record usage. And for litigation, blockchain can be used as a database to securely store documents and evidence and to track chain of custody.
In order to successfully navigate blockchain, it’s important to understand the risks associated with using it. Among others, there are privacy, regulatory, and general liability issues that may arise with the use of blockchain. If you want to learn more about how blockchain affects you, drop us a line. We’re here to help.
