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Gray Rule
October 2017 | VOLUME 18, NUMBER 4
Gray Rule
Blockchain, Bitcoin, and Law: A Distributed Disruption
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»Blockchain, Bitcoin, and Law: A Distributed Disruption
»The Power of 360-degree Feedback Assessments: Improve Your Leadership Effectiveness
»People, Process, Technology – In That Order
»Market Restructuring and Lateral Partner-hiring
»The Revolution of Autonomous Software
»Knowing Value: The Rise of the Law Firm Chief Knowledge Officer
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Blockchain, Bitcoin, and Law: A Distributed DisruptionBy Rohit Talwar, CEO, Fast Future Research, London, UK, and Alexandra Whittington, Foresight Director, Fast Future Publishing, Houston, TX
The future of the legal industry is being reshaped by a number of rapidly-advancing technologies and the disruptive ideas they enable. Today's lawyers are being advised to learn to code, develop an artificial intelligence (AI) application, and outsource discovery to machines. One of the many new technological drivers impacting law firms is the secure information exchange platform known as blockchain. Blockchain is known as the structure underlying Bitcoin and other digital currencies, but its applications in the legal sector are still evolving.

Blockchain and Bitcoin

Blockchain and Bitcoin have recently gained notoriety as potential solutions to an outdated system for managing financial transactions. Today most of these transactions are settled via financial intermediaries, which adds time and cost to the settlement process. Blockchain offers a distributed ledger model. The parties settle directly with each other; the transactions are recorded, secure, and immutable; and the counterparty identities remain anonymous. This would enable a simplified and trustworthy financial ecosystem—but, these digital peer-to-peer networks challenge the authority of institutions (banks, regulators, and governments) and create disruption.

According to its advocates, the decentralized nature of blockchain will cause much-needed disruption, with reverberations far beyond the financial realm. There is an element of social revolution in blockchain—thus it is often portrayed as a conduit for challenging the status quo. Though Bitcoin, a digital currency, is an explicitly financial innovation (i.e., for payments, transfer of funds), blockchain is far less specific. Blockchain serves a critical role in the administration of Bitcoin, and that of other digital currencies, but it can actually be used to track the movement, transfer, and ownership of other things (ie. luxury goods, education credits, property titles, and patents, to name a few). Though blockchain is structured like a traditional accounting tool—it's fundamentally a ledger that tracks deposits in and payments out, and maintains a running balance—its uses go far beyond counting coins. Blockchain technology has captured the attention of global business and industry to the tune of millions of dollars. Among banks alone, one source projects that spending on blockchain solutions will grow to over $200 million in 2017, $300 million in 2018, and $400 million in 2019.1

Applications to Law Firms

While the basic metaphor for blockchain is an automated checkbook register that instantly reconciles transactions, several of its concepts are ideally suited to law firms. Current industry activity ranges from the simple (payment for services rendered, verification of contracts, representing companies conducting business on the blockchain) to the highly complex, such as the formulation of an entirely new legal system. This might usurp local laws to create a global set of codes that govern rights. One can see how large in scale blockchain's legal applications could potentially become. In terms of contracts and payments, though, the firms that have adopted blockchain are attracted to its practicality. For example, Goldman Sachs estimates that $11 to $12 billion per year could be saved with blockchain-based clearing and settlement of cash securities, and $2 to $4 billion yearly savings from moving real estate titles to distributed ledgers.2

A growing number of industry examples demonstrate the diversity of applications of blockchain and Bitcoin to legal services:

  • International law firm Steptoe & Johnson helps its clients manage application of the blockchain in their businesses, and accepts Bitcoin as payment for fees.3
  • King & Wood Mallesons (headquartered in Hong Kong) has lawyers who focus on blockchain, including smart contracts.4
  • Perkins Coie LLP partner Dax Hansen (US) launched the first blockchain legal industry practice in 2013, which has grown to over 40 lawyers who focus on blockchain technology, digital currencies, and distributed applications of all types.5
  • Selachii (UK) will implement self-executing smart contracts on blockchain, starting with wills, title registries, and shareholder agreements.6
  • Allens (Australia) wrote a report suggesting that the future of the legal business model, which profits from an absence of trust between organizations, is imperiled by the rise of blockchain technology.7

Outside of law firms, the startup ecosystem is packed with examples of services geared toward marrying procedural business practices with blockchain:

  • Juro uses blockchain technology to underpin the creation and signing of legal contracts.8
  • The Decentralized Arbitration and Mediation Network (DAMN) operates as a network of smart contracts on the Ethereum blockchain, creating an "opt-in justice system for commercial transactions" as a new form of cross-border dispute resolution.9
  • CommonAccord is creating global codes of legal transactions by automating legal documents such as master service agreements.10
  • DAO.LINK is an initiative which facilitates brick-and-mortar business interactions with blockchain-based organizations.11

Timeline of Possible Future Blockchain Developments in Law

As projected by the authors.

Next 18 months ETA 2018

  • Smart contracts
  • Accepting digital currencies as payment for legal services
  • Consortiums to integrate blockchain into business practices
  • Startups acquired by large banks, law firms, and consulting firms
  • Working with clients interested in engaging in blockchain transactions
  • Fighting counterfeits and patent violations with blockchain
  • Real estate transactions, deeds, and new financial instruments on blockchain

Next 3 years ETA 2020

  • DAOs: Distributed autonomous organizations with no workers and no bosses, just algorithms

  • Merger and acquisition on "auto pilot"
  • Elimination of some jobs and roles (banker, advisor, lawyer)
  • Merging AI and blockchain; robolawyers on blockchain

Next 5 years ETA 2022

  • DAMN – a global legal system for international dispute resolution
  • Automated arbitration, dispute resolution, and various legal and banking processes eliminating more roles in law firms and banks
  • Creation of new professional roles to deal with legal ramifications of blockchain

5-10 years ETA 2027

  • Algocracy: Law is code, code is law
  • DAS: distributed autonomous societies with automation of services, justice, rights, and laws

Blockchain and cryptocurrency have gained unprecedented ground in 2017. The Royal Chinese Mint is piloting a blockchain-based cryptocurrency, a very loud signal about its rising legitimization.12 Another recent indicator came in the form of headlines about Bitcoin's price trends, which have earned millions for investors.13 We expect that for every big wave of change, there are dozens of small ripples. The revolutionary nature of Bitcoin and blockchain means it will disrupt businesses of all kinds. Because it involves money, contracts, and ownership, these disruptions are under special consideration for lawyers and firms.

Law firms owe it to their staffs and teams to start a conversation about blockchain, Bitcoin, and other digital currencies. Information, in this case, is power—blockchain's distributed disruption of banks, laws, and most traditional social institutions will generate new conflicts, anxieties, and tensions for which legal remedy will be the only solution. Keep in mind that the best way of describing blockchain is "distributed," or absent of central authority. A lot of the projects seek to apply this thinking to society at large through distributed autonomous societies (DAS) and distributed legal systems. If a distributed mindset prevails, this will concern lawyers, judges, law enforcement, and anyone in occupations that rely on a centralized legal system.

Furthermore, the entire basic model of business conduct stands to be disrupted on the same scale as it was during the rise of the internet. Blockchain, in combination with other technologies, will eventually transform the basis of business and productivity, possibly even money itself. By decentralizing the powers that be, blockchain seems to be the high-tech disruption that will challenge law at every level and function.

Sources

  1. Hans Lombardo. "Major US Law Firm Highlights Blockchain Revolution in Financial Services." All Coins News, 15 Mar 2016. http://allcoinsnews.com/2016/03/15/major-us-law-firm-highlights-blockchain-revolution-in-financial-services
  2. James Eyers. "Blockchain 'smart contracts' to disrupt lawyers," Australian Financial Review, 30 May 2016. http://www.afr.com/technology/blockchain-smart-contracts-to-disrupt-lawyers-20160529-gp6f5e
  3. Alison DeNisco. "Bitcoin & Blockchain, Attorneys at Law: One firm's big switch," TechRepublic, 2 Aug 2016. http://www.techrepublic.com/article/bitcoin-blockchain-attorneys-at-law-one-firms-big-switch
  4. Ron Friedmann. "Will Blockchain Affect Your Practice or Firm? (Perspective)," Bloomberg Law, 17 Aug 2016. https://bol.bna.com/will-blockchain-affect-your-practice-or-firm-perspective/
  5. ibid.
  6. Grace Caffyn. "London Law Firm to Digitise Contracts Using Bitcoin Technology," Coindesk, 22 Oct 2015. http://www.coindesk.com/london-law-firm-to-digitise-contracts-using-bitcoin-technology
  7. James Eyers. "Lawyers prepare for 'driverless M&A' as smart contract era dawns," Australian Financial Review, 19 June 2016. http://www.afr.com/technology/lawyers-prepare-for-driverless-ma-as-smart-contract-era-dawns-20160616-gpknyz
  8. Jon Card. "Blockchain businesses embark on world-changing projects," The Guardian, 2 Aug 2016. https://www.theguardian.com/small-business-network/2016/aug/02/blockchain-businesses-embark-on-world-changing-projects
  9. James Eyers. "Blockchain 'smart contracts' to disrupt lawyers." Australian Financial Review, 30 May 2016. http://www.afr.com/technology/blockchain-smart-contracts-to-disrupt-lawyers-20160529-gp6f5e
  10. ibid.

  11. Stephan Tual. "Announcing DAO.LINK, the bridge between blockchain and brick-and-mortar companies," Slock.it, 26/4/2016, https://blog.slock.it/announcing-dao-link-the-bridge-between-blockchain-and-brick-and-mortar-companies-9510ba04d236#.4kdirkn1a
  12. Joseph Young. "Russia and China May Digitize Their Currencies With Ethereum," BTCManager.com, 10 June 2017. https://btcmanager.com/russia-china-to-digitize-currency-with-ethereum
  13. —. "Simply WOW: $10,000 Bitcoin Investment in 2010 Now Worth $200 Million, Gold $9,900," The Cointelegraph, 14 May 2017. https://cointelegraph.com/news/simply-wow-10000-bitcoin-investment-in-2010-now-worth-200-million-gold-9900

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