How Blockchain and Smart Contracts are disrupting Legal Practice
When Blockchain cognoscenti are concerned, people mostly discuss Ethereum. Considered to be a rival and virtual currency, it allows ‘smart contract’ programming or computer code. This is to enforce or facilitate set or rules.
Its arrival is closely being tracked by the commercial lawyers. This is because Smart Contracts have the potentiality to disintermediate in the future their role in exchanging and drafting paper contracts. Currently, it is used for digitizing business rules. However, there are chances of its codifying legal agreements.
With Ethereum offering a liberal ‘scripting language’, innovation is now possible. Companies can now develop private blockchains and develop applications. There are already being tested apps meant for financial auditing, sports betting and music distribution. Ethereum is being used by the largest technology giants like IBM and Microsoft. Blockchain has also fascinated banks. This is because it helps to remove intermediaries as well as improve transactions with distributed ledgers, thus reducing costs. However, if banks opt for block-chains, then it becomes essential for the financial services lawyers to re-draft banking contracts to digital form. Law is also predicted to be disrupted by this technology.
Transferring to the digital era
Agreements are to be converted into the digital era. Value can be derived using this technology. Frustration and friction existing in the current network system are likely to be eliminated. Also, a new trust system can be developed.
Smart Contracts coding is perhaps the future of jobs. Lawyers across the globe have already started to learn to code as the new technology has computers monitoring corporate governance. For example, it is possible to program share certificates on Ethereum. This is to be sent to stock dividend owners as profits are derived.
‘Decentralized Arbitration & Mediation Network’ DAMN is among the initial startups to apply for funds. This is sure to interest lawyers. It also operates on the Ethereum block-chain as a smart-contract network. This way, for commercial transactions, there is developed an opt-in justice system. This helps create a new cross-border dispute resolution.
Rising currency value
On the Ethereum network, token or digital currency, namely, the ether, rose by about 50% recently. Ether’s price reflects future expectations concerning developer numbers eager to acquire currency for using the network. IBM is part of a community-driven approach seeking to know Blockchain’s impact on the legal profession. It explores avenues to enforce smart-contract legality in this technology.
During the concept stage, smart-contracts are used and are concerned about business rule enforcement. The question however is, can legal contracts be enforced. Other companies try to push forward legal agreement digitization. There is being developed automation of legal documents and legal transaction global codes like master service agreements. Transactions are carried out by synchronizing files with partners through various methods including Blockchain.
This technology is considered to be important since routine transaction functions can be automated. The legal text offers a frame to enforce legality. The pace of innovation in this technology is what has set the pace of the legal profession adopting it. Smart-contracts had been programmed to facilitate commercial paper redemption, secondary trading and issuance. R3’s Corda technology is being used by Barclays to develop smart-contracts. New versions related to standard derivative documentation are being experimented by International Swaps & Derivatives Assoc.
Summits involving venture capitalists, technologists and leading banks were held to feature sessions on the smart-contract application in the banking sector. Goldman Sachs had come out with an 88-page report to quantify savings for the legal industry and global capital markets. This was done by employing this latest technology. According to the prediction made by the investment bank, it was possible to save around $11 to 12 billion annually by streamlining clearing as well as for settling cash securities. At the same time, it was possible to save about $2 to 4 billion annually by moving to distributed ledgers from real estate titles.
Banks have been trying to derive that killer app. A hackathon was hosted recently, where the teams tried to come out with block-chain solutions. The categories in question were property, agriculture, healthcare, government and finance. One team for the property category had proposed a register to record underlying beneficial property ownership held through trust arrangements. The competition, however, was won by the team that had made researches on how to solve agricultural industry-related issues with Blockchain technology. Some of the issues were credit risk or counterparty, traceability to the consumer from source, stock reporting and reconciliations.
There is indeed plenty of hype surrounding this advanced technology. However, industry experts believe that it is not over-hype. With this technology, there is high potentiality and it is something that needs to be considered with great seriousness.
Perhaps, it will be wise to apply this advanced technology outside of the finance space.