Implications of blockchain to the law sector
In this article, we will cover a selection of important implications that warrant further investigation by the legal profession, with the transition to Web 3.0 likely to be disruptive if not properly managed.
This is partly because current legal practices are typically administratively heavy and largely paper-based, meaning significant time is spent transferring information and keeping records. This likely won’t be the case for blockchain-based systems, which will be based on a store of verified information in a digital ledger that can be accessed with appropriate permissions.
Another reason that blockchain stands to be disruptive to the legal profession is the potential features offered by digital forms of interactive contracts. These interactive contracts would be able to undertake a range of automated actions based on agreed conditions inside a secure non-sovereign and independent digital ecosystem, which will be much harder to renegotiate after the fact, as is common for current forms of contracts.
Smart contracts are designed to have actions that are self-executing, meaning that all parties involved are very clear on the terms and conditions and have agreed for such actions to take place when conditions are met. Not only will this save time, but it will also reduce the potential for misinterpretation of contract outcomes. This will reduce the likelihood of such terms being renegotiated in a legal proceeding following the action. However, this is not likely to be a reality for some years, with the current focus typically on simply how a static digital agreement is actioned (such as clicking a box, signing with your finger, or using document signing functions).
It is conceivable, however, that in the near future law firms will have sets of pre-designed smart contracts that can be tailored to client needs, that are designed to run on, and interact with, a number of blockchain and off-chain databases. This will significantly reduce the administrative burden and allow lawyers to focus on higher value-adding activities. There will also likely be a number of groups that provide services to build smart contracts that will compete with law firms as their use becomes more mainstream.
A key implication for the legal profession from blockchains is that they can be used to record ownership rights and conditions that can easily be transferred, for example, in the event of a sale, without the use of legal instruments – effectively a form of automated digital conveyancing. For instance, the transfer of entitlement of property currently requires a government department to provide the required verifications. However, a blockchain solution can store verified information about the property and the parties involved and establish a change in owners through the relocation of an associate NFT. Blockchain may also provide the means for automated arbitration, with smart contracts interacting with each other to manage the arbitration process and even enforce awards.
An early mover in this space is the Georgian Government with Papuna Ugrekhelidze, the former chairman of the National Agency of Public Registry in Georgia, saying:
“by building a Blockchain-based property registry and taking full advantage of the security provided by the Blockchain technology, the Republic of Georgia can show the world that we are a modern, transparent and corruption-free country that can lead the world in changing the way land titling is done and pave the way to additional prosperity for all.” [1]
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Share your thoughts
In the previous article, Sir Geoffrey Vos was quoted as stating that “every lawyer will require familiarity with the blockchain, smart legal contracts and cryptoassets”. Reflecting on the implications explored in this article, what do you think some of the potential consequences could be if lawyers are not fully aware of these implications that blockchain presents to the legal sector?
