Blockchain and Smart Contracts
Blockchain is the latest LegalTech trend. The Harvard Business Review recognizes the blockchain technology as one of the top technology trends to watch out for, concluding that they will disrupt entire industries (HBR, 8 Trends to Watch in 2016, December 2015).
The term “blockchain” refers to a “decentralized digital ledger that combines powerful cryptography algorithms with a system of decentralized computing power that redundantly verifies transactions, which are ultimately recorded on a public digital ledger available to the world.” (Joe Dewey/Shawn Amuial, Blockchain Technology Will Transform the Practice of Law, retrieved from bol.bna.com). In short, blockchains can be used to replace anything that needs authentication or a signature. The core innovations of blockchain technology lie in the principles of decentralisation and trust. A fundamental prerequisite of any transaction is trust. If a person enters into a transaction with a stranger, he needs some underlying trust-building mechanism. We trust transactions even with complete strangers, because we trust centralised intermediaries (such as banks) and the legal system. The blockchain technology makes centralised intermediaries redundant by providing a digital ledger which ultimately verifies every transaction.The blockchain technology is a platform upon which many applications can be built. There are some use cases of the blockchain technology which are of special interest or relevance to lawyers. The most interesting use case for lawyers is probably smart contracts. Smart contract “is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.” (Nick Szabo, Smart Contracts: Building Blocks for Digital Markets, 1996, 1). In other words, a smart contract is a software application that replaces part of or all of the contract through sets of computer codes that, essentially, automate contractual functions among parties. Many smart contracts are self-executing and selfenforcing which means that they do not need inputs to be executed or enforced. This could mean, for example, to conclude a smart insurance contract when hiring a rental car. The smart contract would automatically adjust the premium upon predefined risk factors (average speed, driving style etc.) which are automatically gauged and processed without any human involvement.
The blockchain technology can also be used for notary and registry services. The blockchain, as a decentralised ledger which cannot be altered by third parties, may be used to give unique digital identifier to documents. That identifier verifies all subsequent versions of the document without the need to share the document.
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