The Legal Chain is an organization aiming to encourage open discussions about blockchain technology and the legal industry, exploring how the technology works and its potential impact and application within the legal profession. Throughout the year we will be hosting webinars considering a broad range of applications using blockchain, covering issues such as access to justice and security enhancement of corporate transactions. Our first webinar was kindly hosted by Tom Grogan, an associate at Mishcon de Reya who ranked number 1 in the Legal Technologist’s ‘Top 10 Most Innovative Junior Lawyers in the UK’. If you missed our first webinar you can access a a live recording of it as well as a summary article after each event via our website and LinkedIn page.
Blockchain is an incredibly complex concept. Lawyers, however, are not required to hold a detailed understanding of what’s going on behind the screen to benefit from the system. How many of us really understand the numbers and code processing through our computers and phones as we use the internet every day? It is uncommon for most to know the inner intricacies of how technology works, despite this, we still use these systems with ease. Having a fundamental understanding of blockchain’s functions will prove invaluable in the future. Staying abreast of future trends and legal implications is paramount to a lawyer’s role, which is why it is essential for the future generation of lawyers to engage with this technology irrespective of their future practice area. If clients aren’t asking about it now, they will be in the imminent future, and lawyers will need to understand in order to advise.
For the past few decades, we’ve had an internet of information. If A sends B a document, it would be considered the copy – not the original. This is a useful tool for democratised information, but when it comes to assets: stocks, bonds and intellectual property, individuals must rely on a large intermediary to establish trust in our economy, a third party such as banks and credit cards companies. Upon scrutinization, it is evident that these intermediaries are not without their problems, which continue to arise in line with our society developing digitally. One major area of concern is security. Corporations have vast amounts of data and information stored on centralised systems, a convenient design that carries significant flaws, including a lack of sufficient safety and exposure of data prone to be accessed by hackers. Examples of such include JP Morgan’s data breach in 2014 that affected 76 million households. The legal and financial ramifications for such instances are vast, which is why law firms and large financial company’s spend hundreds of thousands on cyber security every year.
So, what is blockchain, and how can its decentralised nature revolutionise a vast number of social and economic sectors by tackling issues of access, security and efficiency? We began to approach these questions in our first webinar which looked at what blockchain is and how it works.
What is Blockchain?
Imagine an internet of value, in other words a global digital ledger to record and transact assets - the next generation of the internet. The design of blockchain creates such a database, and thus its system is referred to as a distributed ledger and on a blockchain this ledger is replicated across a distributed network. It works by bundling several records together in a chain using a cryptographic signature. Essentially, the network polices itself through a commonly held view of the truth. It is maintained by multiple participants (nodes) on the network and every record is secured by its own cryptographic key, which is virtually impossible to hack. Bitcoin is the first example of a blockchain in use and studying how a Bitcoin transaction works will help you to understand how the technology can be used by other systems. Here’s how a bitcoin transaction works on a blockchain:
This makeup enshrines trust in the technology, computer code and mathematics, removing the need to place trust in institutions and people. Ledgers can be used to record, monitor and transact all forms of assets, from physical ones such as houses to intangible assets such as medical data, thus the technology can and will impact numerous areas of society leading to inevitable legal and regulatory questions as well as use within the legal sector.
Why you should care:
If you practice commercial law or plan to go into this field, your clients will most definitely make use of blockchain in the future – especially in financial services and energy sectors. With the ‘more for less’ challenge looming, as a lawyer it is useful to have an understanding of how blockchain works as its uses will increasingly encroach on our daily tasks. Equally, it is important to stay up to date as we are fortunate enough to be a privy to an age of intrusive technological development, where blockchain pioneers and computer programmers are working every day to look at new uses and applications of this technology.
More specifically to law, smart contracts are a significant application of blockchain in the legal sector. Saving the technicalities for the next webinar, a smart contract is a computer program stored inside of a blockchain. It is essentially a contract on a distributed ledger. We can program a smart contract so that it holds the total received funds until the terms of the contract are fulfilled. If the terms are fulfilled the funds will go to the recipient. If not, the money returns to the original party. As the asset is stored on a blockchain everything is completely distributed and immutable, so there is no single entity in control of the asset until the terms are completed.
Our next webinar is on the 28th October and we will be looking at the inner workings of a smart contract and the potential it has in the legal industry.
Follow us on LinkedIn and Eventbrite to receive further updates:
Article written by Jakub Dinnen.