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Debunking the blockchain for lawyers

 

Introduction

Technology has brought a lot of benefits to various sectors. No one would have imagined that there could be another discovery capable of revolutionising the world to the same extent as what the internet did when it was invented. Blockchain technology is now being dubbed as the ‘re-discovery of the internet’ due to the varied application to which it can be used. It is very likely that lawyers will encounter this technology in one form or another. This could be through advising clients or using the technology as consumers in law organisations.

About Blockchain Technology

The starting point to understanding blockchain technology is to understand the problem which it was aimed to solve in the first place. It is almost impossible to mention the term blockchain and avoid a discussion of bitcoin as this is the technology underlying the famous or infamous digital asset (depending on one’s persuasion). This has resulted in the new phrase ‘crypto-currency’ being coined. Bitcoin was founded by the shadowy Satoshi Nakamoto. Mystery still shrouds who Satoshi Nakamoto is or whether it is an individual or an organisation.

Nevertheless, the problem which was solved was that of double spending. The easiest way to explain this concept is through fiat, the conventional currency such as USD and GBP which is issued by governments. Each money bill gets issued with a unique serial number, making any other note of the same denomination bearing the same unique number a counterfeit note. With digital assets, this question of double spending was of fundamental importance as there was a need for a mechanism to ensure that a digital asset is not used to honour different transactions without any means of verification by the other party receiving it. Through a whitepaper, Satoshi proposed a way of solving this problem by implementing a public ledger which records a transaction instantly and keeps a permanent record of it. The successful implementation of this concept marked the inception of the blockchain- which is a distributed digital ledger.

Mechanics of first use case

To ensure the integrity of the ledger, Satoshi proposed a network of computers all over the globe known as miners. These miners were suggested to be ‘guardians’ of the ledger who would validate all transactions for a fee by making use of computational power to solve complex algorithms and storing the information in blocks with timestamps. It is for this reason that blockchain technology has proven to be hack-proof as one would have to conspire with the entire network in order to compromise the concept. The element of distributed ledger comes from the fact that every computer on the network stores pieces of information about the transaction. A series of these blocks of information when filed is what makes a blockchain.  Once the filing has taken place, there is no way of changing the transaction as one would have to also change all past transactions and all subsequent transactions.

Although crypto-currencies have become the most popular application of the blockchain, this is only a tip of the iceberg. Block-chain has proven to have far much wider application and the rise of crypto-currencies, though a positive development, fails to do justice to the wider use of this technology. In order to demonstrate how widely this technology can be applied a few examples would be useful.

Other Use Cases of the Blockchain

Recently in Sierra Leone, the power of block-chain was put through the paces through a pilot[5] of blockchain voting on what is called a permissioned blockchain. This enables selected participants to view the ledger and it can enable real time monitoring of votes which has the potential to eliminate the counting process at the end. This can bring efficiency and reduce costs of running elections. However, the negatives are that if the system is compromised, the effects could be irreparable. Still related to voting, another use case which has been floated is for company shareholders to vote remotely on a permissioned blockchain in situations where a shareholder resolution is required. This could take away the need for shareholders based across borders to use proxys thereby bringing efficiency to this sector. Another use case proposal is for legislators to be able to vote for critical legislation without having to turn up at Westminster. These are all use cases which show the potential which the blockchain might be able to deliver.

In divorce proceedings, digital assets are already causing complications for divorce lawyers. It was reported[6] that a UK law firm handled transactions where bitcoin and other crypto assets became the subject of contention. The law firm which was named in the media has since issued some useful information on dealing with crypto assets[7].These assets pose a lot of complication as the law is not privy to this asset class. This leaves the lawyer in a precarious position where some understanding of the basic mechanics of this technology can come in handy.

In Carlifornia, Sweden and Georgia, blockchain technology was trialled for land registry purposes to record land ownership and the benefits of this were found to include the degrading of capabilities for fraudulent disposals in land transactions. It has also been established that this can bring efficiency[8]. In relation to Intellectual Property Rights (IP), blockchain technology is expected to afford effective protection of IP rights, as once ownership is recorded on the blockchain, it becomes difficult to claim ownership of the same invention. A verifiable and immutable record would be available to refute any new claim with proof being held on the blockchain.

Lastly, smart contracts have already taken off and these will eventually remove the need for lawyers to draft lengthy and costly agreements as this can simply get executed with precision using computer code once conditions are met. Some blockchain enthusiasts even go to the extreme of declaring that lawyers will soon get replaced by code.

Conclusion

It might be too soon to make these sweeping claims about blockchain technology and how it will transform the world as it still in its infancy- the jury is still out on digital assets and the blockchain. However, what remains clear is the fact that lawyers would have to come to grips with how this technology works in order to be able to best serve their clients.

[1] https://www.nasdaq.com/article/sierra-leone-pilots-blockchain-based-voting-for-political-elections-cm938309 accessed 31/05/2018

[2] http://www.bbc.co.uk/news/business-43070849 accessed 30/05/2018

[3] https://www.roydswithyking.com/solicitors-for-life/family/hiding-bitcoins-in-your-divorce/ accessed on 30/05/2018

[4] https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-blockchain-app-in-public-sector.pdf accessed 230/05/2018

[5] https://www.nasdaq.com/article/sierra-leone-pilots-blockchain-based-voting-for-political-elections-cm938309 accessed 31/05/2018

[6] http://www.bbc.co.uk/news/business-43070849 accessed 30/05/2018

[7] https://www.roydswithyking.com/solicitors-for-life/family/hiding-bitcoins-in-your-divorce/ accessed on 30/05/2018

[8] https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-blockchain-app-in-public-sector.pdf accessed 230/05/2018

Written by Prosper Mwedzi

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