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Blockchain (Video)
Hello and welcome to this video on blockchain which is the technology that did the most to enable smart contracts. Blockchain is shrouded in mystery. No one even knows who invented it. When you talk about blockchain, the first thing that most people think of is Bitcoin. And Bitcoin skyrocketed in value and then partly crashed. So people made and lost a lot of money. So the whole thing must be risky, right? Well, no. Blockchain is the technology that Bitcoin was founded on. Blockchain and Bitcoin are not the same thing. Think of blockchain as electricity, and Bitcoin as the light bulb. Electricity can be used in a lot more ways than just light bulbs.
Blockchain is a giant database, it records who owns what. Bitcoins solve the problem, how can a virtual coin have a value if it can just be copied? Digital things like digital pictures can be copied multiple times. The sender and the recipient are both likely to have a copy. So how could that work with a currency? The sender and the recipient shouldn’t both earn money. Blockchain gives you a register of who owns what. The coins now can’t be duplicated. Because they are not just digital copies. They are only valid if verified by the register. Encryption makes the register safer. And blockchain pairs a public key with a private key to ensure safety. For all intents and purposes, it’s unhackable.
So blockchain was the first system to solve this double spending problem, two copies of the same money. » So far, this doesn’t sound very different to a system that a bank uses. Banks record who owes what and they’re secure. But Bitcoin created what is known as a decentralized or distributed ledger. A decentralized ledger means that there is no one person or company keeping a record. Instead, people using the system keep a record. So instead of having the land registry record all the transactions, the people who use the land registry would have their own copy of every transaction. » This has several key benefits. No central body, secure, transparent, permanent.
There is no central body, which means it’s cheaper and quicker to process transactions. There is no single point of failure. No one has to get permission for you to do anything. That means no waiting, no fees, you are essentially removing the middleman. Blockchain is very secure. Changing an entry via fraud is almost impossible. Because it is checked against thousands of other copies of the ledger. If Jane or a hacker changes her copy of the ledger to give herself an extra million bitcoins, all the other copies of the register will reject this change. They call this tamper-evident. Blockchain is also transparent. The ledger is open to all users to see.
The names may be anonymized, but the fact that participant x owns a, b and c and when they bought them will clearly be shown. Blockchain has permanent, histories can’t be erased or changed. It’s great for certainty, but not so good for the right to be forgotten. It doesn’t mean it can’t be censored by anyone. » Imagine you wanted to buy a second hand car. At the moment you’ve got two main options, a private sale. Probably advertise through a website or going to a car dealership. The private sale is better value, but you run the risk of buying a car with something wrong with it or possibly even a stolen one.
Now the dealership is more expensive, but it gives you certainty because it’s reputable and it does checks for you. System running on blockchain would be even cheaper than the private sale and even more certain than the dealership. Blockchain would be able to show you in one place, which cars of sale and all their features. It would have details of who bought the car, who they sold it to, when it was serviced if it was involved in an accident. When the MOT was done and many more facts. All this data is recorded on a database, that is virtually impossible to tamper with. And you could buy the car, pretty much instantly.
And without the need for a lot of paperwork and wasting time having someone check who you are, who the seller is, the details of the car, the origin of the money you’re transferring, etc, etc. The net result is that transactions like car purchases, would be reduced to a few minutes instead of a few days. Travel agents effectively died as a profession because they were a middleman that were charging a fee but not adding value. Online reviews and online booking got rid of the need for travel agents. A lots of intermediaries don’t add value. They just facilitate transactions. Intermediaries in general check the idea of the parties, create trust, settle the transaction, keep records validated by the auditors or regulators.
But they also cost money and are generally slow. For example, sending money abroad using an intermediatry, especially to travel the countries, can take five days and cost 50% of the money you were transferring. Because of the features described earlier, blockchain has what is often called automated trust. On blockchain systems, everyone can trust each other and the information in the database because it’s so secure. So you can trust a perfect stranger to pay you or deliver a service. What’s even better is that this trust is instant, no checks, no fees, no waiting. Blockchain could get rid of the middleman in a wide range of industries.
This could be the end of not only the car dealers, but also any sort of intermediary that does not add value, such as Airbnb, eBay. And even the stock exchange. The decentralized nature of blockchain also means that there is no single point of failure. Imagine a catastrophic IoT system failure to bank or when the tsunami hit the land registry in Japan. These events could destroy all records. Or the very least prevent access to them for several days. This is because there is a single point of failure. » There are also wider uses of blockchain. Imagine the application for a public company or a government’s accounts. Blockchain records every transaction they enter into, in real time, visible to everyone, instantly.
No possibility of mistake, fraud or manipulation. There’s no waiting for the year end to publish the accounts. Blockchain also makes use of a clever mechanic called hashing. Hashing transforms an unlimited amount of data into a 256 character string. The data could be a single letter, a bank ledger, or the entire contents of the internet. They can all be represented by a 256 character string. It can also be used to verify the contents of a document or ledger, because changing anything would change the hash it generates. So if you know what the hash should be, you can instantly spot any changes from the original. A 256 character string is easy to send, receive, and verify.
And it massively reduces the amount of data being transferred and processed. » The hashing technology is what allows the blocks of blockchains be build. And is how blockchain got its name. The entire current state of say Bitcoin can be hashed into a 256 character code. Who owns which coin, when they were transferred, all the history, everything in 256 characters. And this creates a block. The next time a change is made, it uses a hash from the previous block as the changes and creates a new hash, a new block. Each block is built on the last and previous blocks cannot be changed. Bitcoin is the most famous example of blockchain and it uses a permissionless system.
Which means anyone can join and no one has special permissions or different access levels. Users are all equal. You can create permissions networks, where different access rights can be granted and only selected individuals or companies can join. Permission blockchain networks are usually of more interest law firms. » However, there is one major problem with blockchain systems. It can only process around six transactions per second. They are working on this and efforts have been made to speed it up. But this low transaction rate would be a major problem for high volume transactions like visa payments, the stock exchange. Or other financial transactions which would require tens of thousands of transactions per second.
This is probably the only reason blockchain hasn’t made a huge impact on the world so far. Let’s talk about costs as well. The people storing the decentralized ledger incur electricity costs, even though they’re quite small. Bitcoin, for example, rewards people who mine and they give them new bitcoins. But really all that’s happening here is that users are rewarded for their support of the decentralized network. Payment is easy when you’re dealing with money as money is moving around and fees are so low that it isn’t an issue. But there are cases where the intermediary uses advertising to pay its costs. And users do not usually pay money at all. Things like social media, for example.
Getting users to pay even a tiny fee when they want to update social media would be quite a challenging thing. Blockchain is a technology that allows a lot of innovations. It has several key features, creates trust. Strangers can trust each other without needing a third party to verify their identity. Reliable, decentralised, encrypted, and using hashing technology, it is extremely robust. Speed, blockchain can conclude in minutes what it would previously take days to do. And cost, removing middlemen reduces the costs of a huge number of transactions.

It’s the technology that BitCoin was founded on, but in many ways Blockchain remains an enigma. As you will learn, no one is even sure who invented it!

Join Cem and Simon from the ULTRA team to guide you through the mysteries by explaining what Blockchain is and how it may be used in law.

Do you think Lawyers will adopt Blockchain? Comment below.

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Introduction to Innovation and Technology in Legal Services

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