Can Blockchain Shake up the Legal Sector for the Better?

In 2008, Apple’s creation of the app store led to the introduction of apps for everything. More than a decade later, it now seems there’s a blockchain for everything. The technology that’s best known for underpinning the Bitcoin cryptocurrency has spawned a new raft of ambitious startups looking to make the most of it.

The blockchain has a simple underlying premise: to allow people to share digital assets with another internet user. The transfer is carried out securely and can be seen by all users of the network it is shared upon, using a public record of all transactions. Blockchain networks can be open to anyone or act as a private system that’s only accessible to those granted permission.

Despite analysts at Forrester predicting that 2018 will be the start of the downfall for blockchain proposals that have been too optimistic, the technology’s combination of transparency and security has led to blockchain being developed for almost every industry – having branched out from its cryptocurrency origin. Many blockchain efforts are in their early stages, with developers still attempting to get wide rollout, but blockchain applications are being developed to track food safety information, distribute movies and store electronic medical records.

But how could blockchain be applied to the legal profession and regulatory environment? “Blockchain technology can affect the legal practice in two significant ways,” says Primavera De Filippi, a researcher at the National Center of Scientific Research in Paris and faculty associate at Harvard University. First: it has the potential to act as a secure database where documents, such as evidence, can be stored and then referenced later on if arguments arise.

The “use cases” for a blockchain that holds evidence are already starting to be developed. Evidence management company CaseLines is attempting to patent the use of blockchain tech for handling legal documents. In China, the country’s supreme court has ruled that evidence that has been verified on the blockchain can be admissible in local court proceedings. Separately, the UK’s Police Foundation thinktank has suggested [pdf] cases could be logged using a blockchain system, and that there could be “significant advantages” for the criminal justice system.

The second potential application, De Filippi says, is in creating a way for contracts to be created and transferred digitally, reducing the need for legal instruments. Smart contracts can remove the need for a middle-party in deals and reduce overall costs. “Blockchain definitely has the power to create more efficiency, with secure and transparent transactions,” adds Richard Anderson, product management director, legal risk, at Thomson Reuters Legal.

Smart contracts, in some cases, have moved beyond the concept stage and are starting to be used in the real world. For instance, the Open Law group creates legal agreements that are then securely stored on the Ethereum [cryptocurrency] blockchain. “Blockchain technology can significantly reduce the costs of entering into contractual agreements, by enabling people to transact directly with one another through a computer interface, as well as reducing the costs of monitoring and enforcement,” De Filippi says.

One industry in which this is already happening is shipping. IBM and Maersk have started to use smart contracts at more than 20 ports around the world to track the movement of containers and share shipping documents. The firms say more than 154m shipping events – including arrival times, customs forms, and invoices – have been recorded in the system and it has reduced costs to the industry.

The legal profession should ensure that uses of blockchain technology actually comply with the law

Primavera De Filippi

Anderson adds that the transparency around the document sender and creator within blockchain applications may also help banks prevent fraud. In particular, it could help easily identify people involved in financial transactions and prevent money laundering. Financial groups have to understand – through regulations referred to as “know your customer” – who owns accounts and is making transactions. Anderson says the blockchain can be used to verify the identity of those completing transactions. When it is used, it has the potential to disrupt the entire industry. “There is a significant chance that blockchain being heavily used by financial services reduces the ‘know your customer’ burden to the degree that certain regulatory solutions are cannibalised and no longer needed,” he adds.

However, most of these technologies aren’t in place yet. “People have seen this massive explosion of cryptocurrency and assume there must be a significant use of blockchain,” Anderson says. He likens the hype around blockchain to the recent surge in artificial intelligence. But AI has reached the stage where businesses now understand how they may be able to take advantage of it, Anderson says. “I don’t think that maturity has happened with blockchain.”

Primarily, for blockchain, there is one significant hurdle to overcome before it can be widely deployed. “The legal profession should ensure that uses of blockchain technology actually comply with the law and do not tamper with fundamental rights, like the right to privacy,” De Filippi says. Europe’s General Data Protection Regulation ( GDPR ), which started to be enforced in May 2018, strengthens the rights of individuals and increases the safeguards on their personal data. It may also have a stalling impact on the adoption of blockchain tech.

Around the world, regulators are currently creating plans covering how blockchain and cryptocurrencies should be regulated. The UK parliament has created a cross-party working group to look at the impact of the blockchain, regulators in Canada are drafting regulations due to be published in 2019, and analysis from PwC has suggested the biggest barrier to blockchain adoption for businesses is the amount of regulatory uncertainty around the tech.

In the short term, blockchain has a difficult future. “When you look at a hardening regulatory environment around data privacy – whether you think that’s right or wrong, it is definitely happening with GDPR – it’s clear that blockchain is going to come up against regulation,” Anderson says.