By Block.one General Counsel Lee Schneider
Blockchain is a technology that could shake up the way legal services are delivered, managed and paid for. It’s an avenue being considered by law firms and legal departments looking to use technology more effectively to streamline operations and innovate. But to fully understand its usefulness, it has to be viewed and regulated as part of the existing industry, not in isolation.
According to research from PWC, ‘improving the use of technology’ is the top priority for business support over the next year. Some 41% of law firms are already using blockchain or plan to use it for transaction legal services. Meanwhile, 31% have earmarked the technology for high value legal services and 21% are using it, or plan to use it for business support. Currently, adoption of the technology is still in its infancy but the ambition is there to use it more in the future.
Smart contracts, where a decentralised ledger executes transactions with little or no involvement from humans, is one example of how blockchain could be used. These are already being deployed in a number of projects, including on the EOS public blockchain, where parties have seen the benefit of a fully automated, fast and efficient system that checks all conditions are met before execution while simultaneously verifying all the information.
Another is legal databases and libraries where each party that contributes to the chain gets paid for doing so. Blockchain has its advantages but law firms must bear in mind the implications of using the technology before venturing into this new world.
The new types of contracts that will be delivered using blockchain will be very different to those that lawyers have become accustomed to seeing and drafting as part of their day to day roles. Smart contracts will be a combination of natural language contracts and computer code contracts, because you’ll essentially be creating a series of commands that executes automatically when a certain trigger events takes place. It’s imperative that paper and the code match up. We’ll see lawyers working more closely with coders, or indeed more lawyers who are also coders, to ensure the proper smart contract reaction to every triggering action.
These professionals must also prepare for eventualities they haven’t anticipated. There’s an interpretation challenge in preparing for the unexpected. Computers traditionally don’t understand nuance in the way humans do. There’s going to be an ongoing battle to prepare for that. That isn’t just an issue that lawyers will have to look into; the courts will also have to be prepared for these situations. How will they settle disputes when an unforeseen event nullifies the terms of the smart contract? This is an ongoing debate that needs a solution before blockchain hits the main stage.
New rules for new tech?
With blockchain promising to be so transformative, the question many are asking is whether the technology needs entirely separate regulation. Do we need completely new laws or rules that solely govern blockchain assets and smart contracts? I would argue we shouldn’t take this route. In fact, it could become detrimental to the way legal services are delivered to throw away years of carefully developed precedent. If we move too quickly to develop new legislation to govern blockchain, we could potentially discard very good principles at the same time.
When I think about regulation of blockchain, context is so important. Currently, we don’t regulate technologies separately from the industry in which they are deployed. For instance, trading algorithms used in the capital markets are governed in accordance with capital markets regulation. , This is good news for those on the forefront of the implementation of new technologies such as blockchain. But it is also no different from the way we regulate the implementation of new ideas; it makes the most sense to look first at the context or industry in which they are used because the existing regulation tells us a lot about how to develop a reasonable, functional framework.
Yes, blockchain will bring about some changes to the legal services world, but it has to be seen first as an enabler of the same things we do today but with increased efficiency and security. If we see it as anything more than that at this stage, it literally starts to become a law unto itself. What we need is something similar to what we see with the banking industry where the Basel Committee, consisting of regulators from around the world, proposes standards and discusses the key issues affecting their sector.
Embracing the future
Law firms shouldn’t be afraid of blockchain, they should just be prepared for the new ways in which it will enable them to work. No business should implement blockchain technology without having the clarity on potential use cases and how it could benefit their bottom line. They should investigate how it will benefit their clients and to what extent.
They will, however, need to go deeper than the surface to gain real understanding of technology. Lawyers will need to get increasingly tech savvy to smooth the overlap between contracts written in normal English and those written in computer code. It will call for partnerships with informed third parties to help roll out new solutions and it will also require new hires of people with new skills. Blockchain will, among other things, rethink the way we deal with contracts and as such there may be a knowledge shortfall to fix to get an implementation off the ground.
There’s a lot at stake for the roll out of blockchain, particularly with a number of other emerging technologies such as AI, IoT and cloud computing also positioned to make their mark on the industry. We shouldn’t need to reinvent the wheel from a regulatory standpoint. The key issue should be looking at how technology is able to give a boost to the industry and enable new products and services to be developed and brought to the market. In that way, lawyering is not different than any other business.
Block.one is the world’s largest blockchain developer and author of the EOSIO software. Lee Schneider joined as global general counsel on June 4, 2018, having previously led the blockchain practices at two major international firms, most recently McDermott Will & Emery.