The Advent Of 'Blockchain' And What It May Mean For Lawyers
Blockchain will bring disputes -- and good lawyers need to be ready.
The financial world may be headed for a major change. As with any change to society, there will be disputes, and good lawyers need to be ready.
“Everything that can be invented has been invented” — these words are generally attributed (perhaps erroneously) to Charles Duell, commissioner of the United States Patent and Trademark Office from 1898 to 1901. As the story goes, Duell said this just a few years before the invention of both the typewriter and the telephone. The advent of either one would have been enough to prove the falsity of his pronouncement.
When the industrial revolution began in England and then the United States two centuries ago, people in every walk of life in both of those countries and then the world were angry (or, more likely, scared) at the daunting prospect of progress. As the first caravan owners thousands of years ago learned once seafaring ships were built, and as we’ve all learned every year since, as new industries arise, old jobs are phased out.
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Hopefully, as Americans we can also recognize that as new industries arise there are new opportunities. And as lawyers we can hopefully see how these new opportunities allow us to serve our clients better. Today, a new industry has arisen known as “blockchain.” Many claim that the technology — a new type of decentralized network — will replace the internet, offering a model in which fraud and lack of integrity can be stamped out immediately.
Blockchain represents a major shift in information management, in a time some have called the Information Age. In the past, to make a database, someone would spend time crunching numbers on Microsoft Excel. Today, there’s an opportunity to collaborate on what essentially is a secure, global spreadsheet shared by multiple parties. One of the most promising examples of blockchain technology is Ethereum, and it contains some exceptional opportunities to disrupt the legal industry.
Blockchains determine what is truthful by using a so-called “consensus mechanism” effectively to compare each party’s statements immediately, alerting the parties involved as soon as there is a discrepancy. As an example, imagine a blockchain being used for a legal case. The relevant legal texts would be fed into this blockchain so that particular laws could be cited and referenced. The software could then identify if there is an incorrect statement by either party in a brief or other filing. Companies are already using databases as powerful tools for legal teams. One such example is Tim Hwang’s FiscalNote, where changes in legislature are tracked in real-time and lobbyists are also alerted to changes in real-time. The software supposedly can even predict the probability with which a certain lawmaker might vote given past opinions from prior votes.
In law perhaps no concept is more central to the role of the blockchain than what are called “smart contracts.” These are agreements that are written in computer code that automatically monitor the actions of the individuals involved, and will immediately provide notice when a violation takes place, or when a contractual obligation has been fulfilled. If provided adequate, accurate information, these processes would be nearly instant, because a computer is reviewing the actions, rather than a person. This would be equally beneficial for corporations and individuals. London-based law firm Hogan Lovells has already begun to involve smart contracts in their practice.
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An example of how this could work would be a charitable donor or investor who writes a check with a smart contract that provides, “I’d like to fund your project and I’ll give you $10,000, but only if you have raised the $1 million that it’s going to take to fund your entire project. Otherwise, the money reverts back to me.” This allows people to turn contractual terms into computer code and govern the way they are executed. In the code, the money would automatically be returned without the need for making a claim if a counterparty did not fulfill the pre-conditions for non-reversible execution of the wire.
Lawyers are needed here (if not necessarily for the grunt work). A contract is only as smart as the humans writing the code. Humans have not been made perfect here; we will need lawyers to guide the code writers. And, of course, for trial lawyers like us and our colleagues, there will be a role to play when things go wrong.
Applications of blockchain technology offer great promise and potential that may give rise to major upheaval in industries all over the world. The practice of law may be one of the industries most primed to benefit from the immediate, anonymous, verifiable, decentralized, and truly fair power of the blockchain. And of course there will be disputes. As lawyers, we need to be ready.
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John Balestriere is an entrepreneurial trial lawyer who founded his firm after working as a prosecutor and litigator at a small firm. He is a partner at trial and investigations law firm Balestriere Fariello in New York, where he and his colleagues represent domestic and international clients in litigation, arbitration, appeals, and investigations. You can reach him by email at john.g.balestriere@balestrierefariello.com.
Sam Tabar is special counsel at Balestriere Fariello with a focus on complex commercial transactions, litigation, including business and contract disputes. He advises clients on reducing litigation risk in their transactions, and represent clients as general counsel in their corporate dealings including regulatory matters. You can reach him by email at sam.v.tabar@balestrierefariello.com
