It has become almost impossible to avoid conversations about blockchain. Most of us are familiar with at least one form of blockchain: digital cryptocurrencies like bitcoin. But this technology has a much wider reach than bitcoin alone. Blockchain is not only a new technology that may revolutionize the internet, but one that will also have a profound effect on the practice of law.
It is important that business lawyers know what blockchain is — at a minimum to be able to answer a question from a client — but also over time to embrace this technology to the benefit of your career and firm.
What is Blockchain?
The “block” of a blockchain is one unchangeable piece of electronic data. For example, a block could include the location or ownership of an asset, a transaction or part of a transaction, or even an entire contract. If multiple, successive blocks of data are strung together it becomes a blockchain.
What’s really interesting, and more significant, is how the information is stored. A blockchain is a string of information, distributed across a vast network of computers that maintain a detailed record while being less susceptible to hacking or tampering.
In a blockchain, there is no central depository for these pieces of information, making it near impossible for a hacker to compromise the data. Rather, each successive piece of data is stored on a “distributive ledger” and spread across a number of unrelated computers (known as peer-to-peer computers). Each block is unchangeable and is identical on each computer that has a copy because each successive piece of data is added to the chain only after clearing a consensus-based proof of validity. When the blockchain is written (coded), it includes an agreed-to means for adding successive blocks of information to it.
Why Business Lawyers Should Be Aware of Blockchain
Business is embracing blockchain. For example, a joint venture between IBM and Maersk (the world’s largest container shipping operation) recently announced a major blockchain initiative to organize and streamline Maersk’s global shipping. It’s also believed that blockchain technologies will reduce friction in the form of intermediaries that control information or processes for a fee. Understandably, banking, accounting, and major technology companies are spending large sums to understand and be in a position to use blockchain technology.
The role of the business attorney is also evolving. For lawyers, one of the most important uses of the blockchain technology will be smart contracts, which are contracts coded on a computer rather than written out on paper. The contract may be designed to be self-executing so that once the product is shipped, the payment (in dollars or a cryptocurrency) is automatically made. Each part of the transaction, including transfer of the asset and payment, would be entered as a block of information on a distributive network. Mediators take note, as smart contracts become more complex, they will probably contain a neutral third party (known as a “regulator”) that can, by terms coded into the agreement, step in and resolve a dispute. This may open a potentially enormous new market for the ADR practitioner.
Some have expressed the opinion that blockchain technologies, including smart contracts, will rid the world of business attorneys. I don’t put much faith in this prediction; at the very least, there will always be a need for someone competent to tell a coder what code to write. But for sure blockchain technologies will change how lawyers go about their work and the core competencies they will need to have.
Blockchain technology touches on so many concepts that we deal with — contracts, title, provenance, and currencies, just to name a few — that just ignoring it or criticizing it is not a good option. And in my opinion, this technology will open up new opportunities for lawyers willing to embrace it. I anticipate that some commercial law firms will soon have in-house or contracted computer programing competency that can draft smart contracts and assist the firm and its clients in dealing with or even developing blockchain technologies. Some large firms have already begun to form internal practice groups to keep the firm up to date on blockchain developments and how they can be used to enhance the firm’s practice.
Only time will tell what effect blockchain technology will have on the practice of commercial law. My bet is that it will have a profound effect, and while it will need to be embraced defensively, it also presents a major opportunity for those lawyers willing to be pioneers.
A version of this article originally appeared in the Business Law Spring Newsletter.