Overcoming the block in blockchain

Lawyers need not fear this new technology, but should see its potential to transform business transactions
Overcoming the block in blockchain

JUST AS THE PREDICTIONS that robot lawyers will replace humans are starting to subside, a new and more menacing technology that threatens to crush the legal profession rears its inorganic head. Like artificial intelligence and many other technologies before, distributed ledger, or blockchain, technology has hit the scene with all of the same hype and prognostications of doom for lawyers. 

Once again, though, we need to take a breath, and ask ourselves what this technology really means and how it will affect our work. Is blockchain poised to make lawyers obsolete? Or, is it instead about to usher inventive lawyers into a brave new world of legal practice?

For those open-minded lawyers prepared to engage the possibilities, blockchain a decentralized database shared across a network of computers creating an immutable record in which no single party can alter the data presents a tremendous opportunity to participate and play a critical role in shaping how the technology gets used in practice. As we have done in developing commerce throughout history, the legal profession will be crucial to shaping blockchain’s regulatory structure; and, of course, lawyers will mediate the inevitable disputes that will surface as parties navigate the new business models that blockchain breeds. We also have the opportunity and, one might argue, responsibility to lead the conversation around how blockchain technology can be used most effectively to transform business interactions.

While cryptocurrencies and initial coin offerings attract a lot of attention, it is self-executing and self-managing contracts living on the blockchain so called “smart contracts” that have the potential to truly disrupt the world of legal work. With smart contracts, the operative clauses are reduced to software code, essentially automating performance tracking and enforcement. Consider, for example, a smart-car lease on a blockchain. If a monthly payment is missed, the leased car’s ignition could be set to automatically disable. And, in the very near future of self-driving cars, three missed payments might trigger the car to drive itself back to the dealership. All of these events and consequences happen without the intervention of Collections or Enforcement.

Supply-chain management is also well-suited to blockchain. Imagine all terms, conditions and events relevant to a supply chain living on blockchain. Payments could be made automatically on delivery to reduce credit risk and adjusted automatically to reflect volume discounts and rush deliveries. Penalties for late, incomplete or damaged deliveries could be automatically calculated and applied. The provenance or of goods could be recorded and traced through the blockchain to manage customs and duties, health and safety, fair trade, and more.

Processes built on blockchain are a mix of business, technology and law. Recognizing this, Dentons joined the Global Legal Blockchain Consortium to have access to blockchain space where we can collaborate with our clients on developing practical applications.

Lawyers must take care not to mire ourselves in the many ways blockchain treads on legal work. If our job is to build a sustainable structure and regulatory scheme for blockchain’s effective use, we must first understand it. Ignorance breeds fear; the more we educate ourselves in what blockchain is (and isn’t), the more we will see the real potential and value of integrating it into our environment.

Legal skills will be required to develop and test multiple hypotheses and reveal blockchain’s most practical applications. Lawyers will be instrumental in designing the rules of conduct needed to build trust in the systems relying on blockchain technology, which originated as a reaction against centralization and rules. Yet despite these roots, even the minds behind blockchain acknowledge that trust will remain fundamental to parties’ interactions.

Kate Broer is Dentons’ Partner, Global Client Development, where she oversees the firm’s global client engagement and development program, and is responsible for the leadership and operation of various initiatives around innovative client service strategies and approaches.