By Adriana Linares
Due to the relative infancy of blockchain, innovators are still defining how law firms can use blockchain technology. It’s an important consideration in discussing blockchain for lawyers – it has not operated at full-scale (yet). The industry has not gone through a market shakeout since it’s still growing and it is largely unregulated. That means there are platforms bound to pop up with advantages and disadvantages over the other.
The most common use relates to digital currency transactions, such as escrow accounts. However, there are other ways blockchain is creating impactful opportunities for lawyers to secure sensitive transactions.
Below are a few ways that blockchain will impact in the legal environment:
- Monetary transactions: Accepting cryptocurrency payments in specific practice areas, like criminal and family law may increase. Forward-thinking lawyers anticipate seeing an increased request to accept payments in this format.
- Identity verification: Blockchain is seeing exciting advances in terms of identity verification. It solves the problem of needing to verify passports or drivers’ licenses without revealing underlying sensitive data.
- Authentication: Proving that personal property is authentic is a significant concern, particularly when engaging in foreign transactions. Blockchain allows law firms to verify the existence or authentication of something without having to see it in person physically.
- Smart contracts: Rather than the traditional, static method of contracting, blocks in the chain can store template language and other boilerplate texts that lawyers can later use to write them. It can also automate and facilitate the escrow-and-release aspect of a contract.
- Evidentiary procedure: Evidence and discovery will change as blockchain unfolds. Knowing of their existence makes a discovery request relevant as more people use it. Lawyers must know the general terminology and prepare themselves to explain it to a judge.
- Automated securities: The routine transactions associated with contracts and real estate will evolve, such as automating the transfer of real estate or ownership of stock shares. Blockchain protocols can also handle the compliance and restriction components of the transaction.
- Intellectual property: The distributed ledger system allows lawyers to strengthen IP protections in both registration and evidentiary aspects. Blockchain technology can produce the evidence of creatorship, clearing IP rights, and tracking them.
- Notary services: Notary service is a cornerstone in the certification and record-keeping role of the law. This area can transform with blockchain by providing proof of existence, proof of ownership, and transferring document ownership.
- Corporate filings: Delaware is running a proof-of-concept pilot with IBM to investigate and legalize the use of blockchain in securities issuance and corporate record filings. Their findings and recommendations will play a significant role in this area of law and governance.
- Client expectations: The most significant driving force behind blockchain is consumers. Some practice areas will receive more requests for cryptocurrency payments over others. However, corporate-side firms will also see a B2B demand for document verification and authentication.
- Proof of title: Blockchains possess the capability to verify the individual or entity that owns a title to real property. The distributed ledger verifies this aspect while streamlining the proof of ownership process.
A 2016 report by the Office of the Vermont Secretary of State, the Department of Financial Regulation, and the Office of the Attorney titled “Blockchain Technology: Opportunity and Risks” explains the benefits and challenges associated with using the technology for state record-keeping. The report provided information on the possibility of adopting legislation that could give express legal recognition for private blockchain activity in Vermont.
“Providing legal recognition of blockchain technology may create a ‘first mover’ advantage with the potential to bring economic activity surrounding the development of blockchain technology to Vermont …” The report recognizes that capturing these benefits is a speculative matter, stating that “… this potential is difficult to quantify and challenging to capture due to the nature of the technology.”
Oliver Goodenough, an attorney and law professor heavily contributed to the report and authored the Financial Technology Report that was also submitted to the Vermont General Assembly. These papers heavily contributed to the passing of law that enables the formation of personal information protection companies (PIPCs) and blockchain-based limited liability companies (BBLLCs) in Vermont.
These preceding examples of how blockchain is changing the legal services industry are not entirely exhaustive. There are several blockchain pilot projects in the works that will continue to shape how law firms will transfer and manage transactions and then track them, so keep your mind open and consider the possibilities!
Adriana Linares is the San Diego County Bar Association’s Member Technology Officer.