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Emory Law News Center

Blockchain Technology and its transformative potential for the legal industry

Candace Gibson |
Nicole Morris, director of TI:GER and professor of practice
"Blockchain is an extraordinary technology platform that will transform many current business processes."

Technology seems to evolve at an ever-faster pace, and lawyers cannot simply opt out of educating themselves about dramatic shifts and trends in technology. In fact, the ABA’s Model Rules of Professional Conduct state that lawyers must understand “the benefits and risks associated with relevant technology.”

A nascent technology that is beginning to emerge for a variety of uses is blockchain technology. Blockchain is the backbone for Bitcoin, the most famous cryptocurrency. But this technology goes beyond Bitcoin. 

Blockchain technology has the potential to dramatically change document storage management and to transform how people authenticate a variety of transactions. It also stands to reinvent the time-consuming processes of writing, revising, and handling contracts. The adoption of blockchain technology could happen so seamlessly that unsuspecting lawyers may see some of their key tasks disrupted, if not eliminated. Accordingly, lawyers must do their best to understand this potentially disruptive technology. 

A crash course in blockchain

Any understanding of this technology requires knowing how exactly blockchain technology works, for which tasks it is appropriate, and what the technology actually is not. 

First, blockchain is not synonymous with Bitcoin. Reducing blockchain’s capability to Bitcoin production would be like simplifying the internet to a place to check stocks or build an iTunes library. Blockchain’s potential is truly limitless because of its inherent governing attributes.

Bitcoin was the first, and likely most famous, adopter of blockchain technology. Blockchain is the foundational technology that has made cryptocurrencies — simply, digitally encrypted currencies, such as Bitcoin —possible. Bitcoin is a purely peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution. A user can acquire Bitcoin by accepting it as payment from another user, buying it on an exchange or from local sellers, or through transacting with a Bitcoin ATM. At its essence, Bitcoin is a digital, decentralized currency. Whereas most currencies are backed by a government or central bank, Bitcoin is authenticated by the peer network that produced it. Blockchain enables Bitcoin users to interact with one another using pseudonyms, and their real identities are encrypted. Everyone who purchases a Bitcoin knows it is valid, because the same blockchain network has tracked it, and all other Bitcoins, since each was created. This is especially valuable for international payments, and it is incredibly secure.

The notion of decentralized digital currency started in 2008 when Satoshi Nakamoto published specs for the Bitcoin system. Today, Bitcoin is one of many cryptocurrencies. Some popular blockchain-based cryptocurrencies include Ethereum, Litcoin, and Minero.

Why so much interest in a currency that has no affiliation with any government? Well, in part, Bitcoin has moved beyond the digital realm; some brick-and-mortar businesses now accept it as payment. The website estimated that as of April 2017 the total value of all Bitcoins in existence was $20 billion.

Blockchain is a distributed ledger system for recording and storing transactions. The blockchain is derived from the way transactions are stored. For example, every time a Bitcoin is created or changes hands, the ledger automatically creates a new transaction record composed of blocks of data, each encrypted by altering (or “hashing”) part of the previous block. Blockchain relies on established cryptographic techniques to allow each participant in a network to interact (e.g., store, exchange, and view information) without preexisting trust between the parties. Since blockchain is a decentralized system, transaction records are stored and distributed across all network participants. Interactions with the blockchain become known to all participants and require verification by the network before information is added, enabling trustless collaboration between network participants while recording an immutable audit trail of all interactions.

What’s more, due to blockchain’s decentralized structure, so far it has been impervious to hackers (though it is worth noting that Bitcoin has been hacked). It may be difficult to imagine putting trust in a community of coders rather than a government or financial institution, but the key here is consensus. No single user has authority over another, and the community profits off collaboration and building applications from the platform.

Just as a spreadsheet populated with seemingly static data becomes a dynamic tool when a user applies a formula, so does blockchain contain potential for coding and useful applications. Beyond blockchain’s capability to store sensitive documents pertaining to the legal and medical fields, blockchain can be used as a platform for developing smart contracts. We’ll discuss both of these possibilities and how they stand to impact transactional law. 

Sharing and storing secrets

Document management systems vary widely across practices, but all systems have the same objective: protecting a client’s confidentiality. Keeping documents secure has added implications beyond protecting attorney-client privilege: privacy practices also help safeguard information that may be trade secrets, confidential information, or other proprietary information that a client doesn’t want unilaterally disclosed. 

Whether paper, digital, or some combination, legal records must be stored safely, with their protections adhering to the highest standards of maintenance. Negligence in protecting these documents could have significant consequences, including the potential for disciplinary action by the bar. Technological advancements, of course, have made it easier to share and copy documents.  But therein lies the problem. How secure are third-party applications for document sharing? How safe is cloud storage for storing confidential documents? How impenetrable are on-site and off-site servers? Beyond these questions, the sheer volume of documents is staggering. In significant litigation, raw data, emails, and other collected documents might number in the tens of thousands or greater. Where do lawyers store these documents so they are safe? And what about the meta-data attached to some of these documents? How can a firm be sure to purge any data to ensure that work product is not inadvertently revealed through, for example, comments in a text document or through the deletions apparent in a redline version?

In a paper system, documents are typically kept under lock and key within individual offices or within a dedicated file room. Depending on the size of the firm, those files might be moved to offsite storage eventually, and, at a certain point, the documents will be offered up to the client
or destroyed.

Paper, of course, has its own problems in terms of cost and environmental impacts. The advantages of digital document management systems became clear decades ago even to the most ardent hardcopy practitioners. Digital files take up less space. They can be accessed remotely, allowing practitioners to work from home (and potentially bill more hours, of course). An attorney should be able to find digital files more readily by using efficient, user-friendly interfaces, as opposed to rummaging through manila folders or using a physical index. Putting documents on a shared server or a cloud-based system allows multiple users to access and edit documents. These documents are kept safe with password protection, and when the documents are no longer current, they can be moved off a local drive onto a shared drive. For long-term, archived storage, these files can be backed up to a tape cartridge device. Anyone attempting to poach information would need to hazard a guess at which tape contains the relevant information, then locate the right software to read the data.

But lock-and-key and username-password protective measures don’t necessarily keep the files tamper-proof. Information could still be stolen or deleted if the wrong hands achieve access to the files. Moreover, people log onto Wi-Fi in coffee shops and other communal spaces, making their files vulnerable over public connections. A simple text message or email reminder of a password sent to a colleague could be intercepted by the wrong audience. In short, the best training and internal practices can’t give a failsafe solution for every security issue.

Enter blockchain. With a fundamental understanding of how this technology works, it’s evident how this platform makes document management more secure. Within  a blockchain, any data that is accessed is only seen in part —the hashed information, or the summary, of the document. In order to get the digital asset in full, the user needs both a private key known only by that user and a public key. The public key is a series of numbers; transactions within a blockchain identify the user by the public key associated with the action. And, if the data were altered in some way or deleted, the constantly syncing nodes maintaining the permissioned blockchain would instantly notice the discrepancy. This kind of inherent check and balance helps to keep data safe and ensures that unauthorized uses or alterations will be detected.

Working smarter

Document management is just one of the challenges lawyers face. The other is handling contracts. Common roadblocks to writing, revising, or validating a contract include delays among reviewers, reader confusion over unclear language, challenges in securing and verifying the necessary signatures, and storing the contract safely. Blockchain is poised to transform these practices, too.

With a typical contract, the terms are set once the parties reach an agreement. Any change requires renegotiation and agreement by all parties to the contract. Imagine, instead, a dynamic document — a smart contract — built on a blockchain platform. Using blockchain technology, a smart contract that is coded to assimilate new information could update automatically as the permissioned blockchain syncs. Roadblocks from lengthy delays and escalating costs during renegotiation are eliminated; concerns over the security of the contract are dispelled because all updates are made available to everyone with access to the document, and to only those interested parties. There are no questions about who is making the changes because accountability is provided by the timestamp and digital signature.

A smart contract is coded with “if, then” logic. The permissioned blockchain checks for conditions to be met and can settle transactions accordingly. What’s more, Bitcoin or some other cryptocurrency can automate payments associated with contracts once all “if, then” conditions are met. If the technology works, lawyers need not lift a finger beyond the initial effort to collaborate on writing the smart contract — and since this is the collaborative blockchain community, there may come a time when publicly accessible templates exist for almost any type of contract. Lawyers would simply fill in the specifics. This could work for any number of transactions: real estate purchases, title transfers, or probate matters, for example. Of course, this is all speculative at this point. While one can envision such innovations, adopting blockchain technology is another matter entirely. 

The first wave

Doubtless, blockchain will have a profound effect on ways of doing business, even if Bitcoin and other cryptocurrencies are a passing technology fad. There are newly established groups working to promote blockchain’s integration into the industries that could benefit most from the technology. The Global Blockchain Legal Consortium is one of these, stating on its website that in the absence of “convenience and standards” set by “major intermediaries (cloud-based software, cloud-based document storage, etc.)” it will “adopt policies that promote a universal, blockchain-based technology infrastructure for law.” Its mission is to “organize and align stakeholders” of blockchain technology to set industry standards regarding “security, privacy, productivity, and interoperability of the legal technology system.” Members include major law firms IBM Watson Legal and Integra Ledger.

There’s also the Enterprise Ethereum Alliance, whose goal it is to “connec[t] Fortune 500 enterprises, startups, academics, and technology vendors with Ethereum subject matter experts... [to] learn from and build upon the only smart contract supporting blockchain currently running in real-world production — Ethereum — 
to define enterprise-grade software.” Its Legal Industry Working Group members include the Duke Center on Law & Technology, the Wharton School’s Department of Legal Studies and Business Ethics, ING, and JPMorgan Chase & Co., and other large businesses and law firms.

Ethereum may already have a working smart contract on the market, but Integra Ledger (aligned with the Global Blockchain Legal Consortium) is marketing itself as a legal-industry-specific service for smart contracts and more. “At the heart of Integra Ledger,” the company says on its website, “is a new concept of universal, blockchain-based identities for legal information — matters, documents, clients, contracts, etc. These identities can be used by existing software, preserving legacy investments of law firms and clients.” The service goes on to describe its “foundational object” within the blockchain as a “Ledger Matter (‘LMat’) … that records the existence of a unique legal issue or matter.”

Innovation Conference

Emory Law is participating actively in conversations about blockchain to prepare students for the inevitable integration of the technology into the legal industry. On January 25, 2018, the TI:GER® program held its annual Innovation Conference, focusing on the business and legal implications of blockchain technology. Nicole Morris, director of TI:GER and professor of practice, said, “Blockchain is an extraordinary technology platform that will transform many current business processes ... It creates a system of digital trust between unrelated parties.”  

Morris brought together conference panelists who offered insight into blockchain technology’s potential applications in real estate, healthcare, legal services, banking, and cryptocurrencies. Current and future practitioners of law will likely find their lives touched by blockchain in some way, and Morris predicts the technology will have a positive effect. “Blockchain technology will reduce redundant systems that currently involve intermediaries or reconciliation processes,” she says. “This has huge implications in the legal industry because it creates the possibility of authoritative systems of record that are securely shared between law firms and clients.” 

If blockchain technologies are adopted, lawyers stand to benefit greatly from more secure document storage management and nearly seamless contract negotiations. How far off are these changes? And what — if not everything —will blockchain replace? It’s hard to say for sure, but in an office where paper files, fax machines, dedicated server rooms, and cloud computing co-exist, blockchain could be one more workaday tool — or it could be the technology that completely disrupts the workday as we know it.