Originally published in LegalBusinessWorld

By Joseph Raczynski

Blockchain, a Disruptive Force Now Impacting the Legal Industry

Defining the technology and citing real world examples in Legal

Basics of Blockchain

We are at the precipice of transformative change in nearly every industry.  Blockchain or Distributed Ledger Technology (DLT) is the cornerstone of this rapidly evolving new era of efficiency and disruption impacting the legal industry.  Blockchain is generally defined as a distributed database or ledger.  This differs from the traditional record, in that a database is usually centralized, generally in one location or system.  With DLT, it evolves from a central database (a single store of information), to a database that is spread among multiple computers (sometimes thousands) saving a copy of the information.  Ultimately each computer will have a duplicate of the data.  It is encrypted, immutable (cannot be changed), driven by consensus (all computers have to agree), and is not owned by any single entity.

A natural question that arises.  Why would anyone want a database to be distributed?  The financial crisis of 2008 taught us many valuable lessons, one of which was that massive organizations who wielded all of the power (think a single database) can be a weak link for the broader system.  If that one entity should fail, the entire system likely will follow.  From these financial reverberations, Bitcoin was born, which has as its underlining technology, the original Blockchain.  The intent, distribute data over a massive network, for verification, authentication, and transparency without one person or organization having dominate control over the system or data.  At its heart these are ideological motives that clearly have anti-establishment roots.  However the technology it is starting to flourish at an exponential rate.

Real World Blockchain Examples

As you may gather there is certainly much hype around what can be done with this technology.  Below you will find several examples that I discussed recently with industry experts at Consensus 2017, a massive Blockchain conference in New York City.  Here I met with and examined several smaller startups and their quest to build out solutions with DLT which will impact the legal industry.

Government – Blockchain Powered Land Registry:  Thomson Reuters Tax and Accounting states that 70% of the world’s land is unregistered.  Ownership of land leads to significant empowerment and growth of wealth for individuals.  An organization called BenBen is endeavoring to help lock in property rights for citizens of Ghana, Africa using the Blockchain.

Problem: In this use case, land records are stored in a centralized database with no other benefits besides a paper registry. BenBen states, “It is virtually impossible to collateralize property rights in Ghana because other paper registry system is unenforceable in court.  Because of unenforceability, banks will not accept land as collateral.  This situation leaves millions without the possibility of leveraging their property to rely on the rule of law for protection – continuing the ongoing cycle of poverty for much of the population”.

Solution: BenBen is working with BigchainDB, a new Blockchain organization to create a “top-of-stack” land registry verification platform.  Essentially it is a new infrastructure built on a Blockchain and integrated with financial institutions to update current registries.  Essentially BigChainDB are “enabling smart contracts and distributing private keys for clients to allow an automated and trusted property transaction between all parties.”  So people would be able to verify that they own something in order to more easily obtain loans and build wealth.     

 

Intellectual Property – Music Ownership and Distribution:  Currently there are dozens of entities that get paid out on a single song that you may download from iTunes.  The labels, marketers, distributors, and finally the artists all get a cut of the proceeds.  The current payout model looks like a bowl of spaghetti with a myriad of entangled strings connected, each piece of the business seeking their $auce.

Problem: The control of the music in the traditional model is in the hands of the corporations and labels.  A fraction of the funds are eventually paid back to the artist.

Solution: Resonate, another Blockchain startup, is working on a solution to use this technology to bypass the corporations and labels.  As you listen to music, you can make micropayments to artists – directly to them.  Micropayments are cents or fractions of cents that are possible through the newer cryptocurrencies, which may be divisible by tiny fractions of a penny USD.  All of these transactions are stored on the distributed ledger, essentially cutting out all of the middlemen.  Baked into this are smart contracts which are encoded into the chain and automatically perform actions that normally humans would be oversee, i.e. the payouts.

 

Identity – Verified Identity Credentials: When a job is posted, how do you know that the person applying for the role graduated from the school they listed?  One area being explored is how to leverage the Blockchain to verify who someone is and what they are stating is true.

Problem: In the traditional Resume or CV people sometimes forge, alter, or falsify documents in order to buoy their chances.

Solution: Recruit Technologies has built a prototype resume authentication database for people looking for jobs and employers.  BigchainDB is working to leverage DLT to store applications and their documents.  Through the natural immutability, the files offer greater trust and auditability.  Built on this platform, a company could be better positioned and hold less liability.

 

With hundreds if not thousands of use cases forming that leverage Blockchain technology, the legal industry is perfectly positioned to adapt and assist in this space.  The three aforementioned use cases are directly connected to people and business; therefore have a direct play within legal.  While Blockchain may impact certain parts of how a law firm works, government agency interacts with people or a corporation works, there is little doubt that the early adopters will have a major head start compared to their counterparts by engaging in Blockchain.