Forum Magazine: Blockchain’s Promise – Verifying Value One Block at a Time

Originally published in Forum Magazine 

by Joseph Raczynski

Blockchain technology is truly transformative, impacting almost every industry. Over the next decade, this technology will significantly transmute the legal landscape as well – a process that has already begun.

Blockchain was initially considered a ridiculous notion – the idea of a digitized ledger beholden to no single owner was derided as unusable. However, the conversion of blockchain from joke to genuine is stark. For example, the top 50 banks in the world have unified in the realization this technology could disrupt the financial industry.

For those newer to blockchain technology, here’s a brief history: In its simplest form, the term “blockchain” refers to a peer-to-peer network of computers running a common software protocol that includes a database replicated on each computer connected to the network, where each user interaction (other than a query) is recorded as a new entry. (Each computer is called a “node,” while the database is often referred to as a “distributed ledger.”)

Further, each blockchain has a mechanism, referred to as a “consensus algorithm,” for ensuring that each copy of the ledger is updated in a consistent manner and is otherwise identical to all other copies of the ledger across the network. Thus, once a transaction has been recorded on the ledger, that record is shared among all the ledger’s users, and generally, it can’t be deleted or overwritten.

Is this technology ushering in an era that creates an undeniable source of truth for contracts and digital identity? How else might it impact how law is practiced and how the legal industry operates?

The Smart Contract

Central to any discussion of blockchain and its legal impact is understanding “smart contracts,” a term that has been around for decades but in this landscape has a specific meaning. A smart contract is a few lines of computer code that creates an “if/then” statement, e.g., if Amazon® stock is at $2,000 on January 1, 2019, then sell it. What is special about smart contracts on the blockchain is that once an agreement has been reached by two parties, it is programmed onto the platform and becomes self-executing and immutable – without any human intervention. For example, Ethereum, the first blockchain platform to popularize the idea of the smart contract, permits people to code “if/then” statements onto the blockchain or into a database with ease, allowing for infinite applications.

Clearly, self-executing legal documents will at some point be the norm. This is one of the most significant efficiencies that we will see in the transactional space.

Forum

Early on, legal industry experts saw that blockchain’s smart contract applications alone had the capability to revolutionize how transactional attorneys practice law, dramatically changing how they interact with documents and clients.

Indeed, it may change the way lawyers view their very function. “These systems embed legal logic, require review by legal counsel and raise unique issues around the proper scope of the lawyer’s review versus the engineer’s,” says Joe Dewey, partner at Holland & Knight. “On an ongoing basis, corporate counsel will need to ensure that the systems are updated when necessary to account for changes in law and company policy.”

The Future with Blockchain in the Legal Profession

Besides the revolution in smart contracts, blockchain is already changing many other aspects within the legal industry, such as:

Cryptocurrency and the Tokenization of Assets – The creation of cryptocurrencies like bitcoin, which use the technology to keep track of ownership and trades, is how most people know blockchain. Digital tokens that represent real value or ownership of other tangible assets has become one of blockchain’s most widely watched developments. With companies and others issuing these tokens via Initial Coin Offerings (ICOs) – raising more than $10 billion thus far this year – attention is being paid.

In the future, we could see all assets represented by these tokens, e.g., a car, house or painting, each a store of value represented by a token and making the transactions of leasing, renting or selling that asset far easier. This will have an impact on how we create and distribute wealth, further impacting the legal industry.

Digital Identity – With the 2017 Equifax breach of 160 million individuals’ private data, our Social Security numbers are nearing the end of their usefulness and a newer identifier may be created to replace them.

Recently at an MIT event, an organization named Sovrin described a new world where each of us will have a digital wallet containing all of our private information, including money, health records, log-ins to websites, birth certificate and driver’s license. Behind all of this information will be blockchain, enabled so there will no longer be a central point of breach where millions of people’s information can be exposed at once.

Legal Industry – Many have predicted that most administrative work now completed by law firms will be replaced with blockchain-enabled solutions – and in more specialized legal matters, such as due diligence, blockchain will have a similar oversized impact. Share ownership tables and company records will be transferred onto blockchain, allowing investors, acquirers and third parties to complete their diligence in less than one hour instead of the typical weeks or months. IPO registration offerings could be processed is less than a week instead of the typical six to nine months.

In a similar vein, Holland & Knight’s Dewey sees a significant change to law firms’ back offices. “When a law firm closes a loan for a bank it needs to send over copies of the executed loan documents and other post-closing deliveries… often, this doesn’t happen,” says Dewey. Blockchain, however, would allow the law firm and the bank to share a common repository and tracking functionality, even if different front-end software solutions are used. “The increased efficiency of such a system would be significant and benefit both the firm and the bank.”

Clearly, blockchain is ripe for disrupting nearly every industry going forward, and the practice of law may feel the impact the most. Still, these are early days. Significant infrastructure must be built, and a great deal of legal guidance will be needed.

If there was ever a time to study blockchain technology and embrace it – and the opportunities it will create – the time for the legal industry is now.

Podcast: The Hearing With Kevin Poulter & Joseph Raczynski – Future Legal

Episode 2 of THE HEARING is now live!

In episode 2 of The Hearing Podcast Kevin Poulter speaks to futurist Joseph Raczynski on #legaltech #AI #blockchain and the future of the robot lawyer.

Listen now and subscribe to #thehearingpodcast on:

iTunes – https://tmsnrt.rs/2swyzmz

Spotify – https://tmsnrt.rs/2kOOpVw

SoundCloud – https://tmsnrt.rs/2Js4deI

How to Launch an ICO Token on Ethereum in 90 Minutes

By Joseph Raczynski

So you want to have your own cryptocurrency, eh?  It is surprisingly not too cumbersome to create.  If you have some very basic coding skills, general understand of a digital wallet, and the ability to follow point by point instructions, this should take about 90 minutes.  I will guide you through the process of launching your own token to fund your company, or more than likely simply test how to create an Ethereum (ERC20) token.  I am not responsible for anything that comes from your use of this code or the outlined process.  Use at your own risk.

Recently I was asked to put together a more formal booklet on how someone could technically launch an ICO (Initial Coin Offering) in order to create a blockchain enabled cryptocurrency.  I wrote up all of the various components and loads of caveats around all of the considerations.  In order to do this properly, you should have a full blown business plan, marketing master plan, have sought legal compliance, and a whole host of other services.  To that end, there is a new cottage industry surrounding taking companies through the ICO process.  ICO Box is one such company that specializes in this end to end consulting.

For the sake of this guide, I will walk you through all of the steps to create your first token for your project right here.  Some context, I based this off of my upcoming ICO for DC WiFi as the example.

Part 1: You will need the following:

  • Buy some ETH (if you are new to this, buy it from Coinbase)
  • A text editor for your code modification (Open a Text file on Windows)
  • Download a digital wallet (MetaMask)
  • Easy Compilier (via the web Solidity Remix IDE Compiler)

Part 2: Business Decisions

You shockingly need very little to get started with your token creation.  You will need four pieces of information;  1) Name of the Token, 2) Token Symbol (like a stock ticker), 3) The Token Decimal Places (making the token divisible), and 4) The total number of tokens in circulation.

In short:

  1. Number of Tokens You Will Assume (Will be all of the coins initially)
  2. Total Tokens in Circulation (ranges from 10,000 to 1,000,000,000)
  3. Name of the Token
  4. Token Decimal Places (usually 18 places)
  5. Token Symbol (use three or four letters)

My real example: (see live)

  1. Number of Tokens You Will Assume = 1,000,000,000
  2. Total Tokens in Circulation = 1,000,000,000
  3. Name of the Token = The Joerazz Crypto Token of Greatness 
  4. Token Decimal Places = 18
  5. Token Symbol = JoRa

Part 3: The Contract Coding

Now that you know the basics, copy and paste all of the code below into your your code editor, or a text document.  Simply focus on changing the five facets from above in the red section of code below. 

pragma solidity ^0.4.4;

contract Token {

    /// @return total amount of tokens
    function totalSupply() constant returns (uint256 supply) {}

    /// @param _owner The address from which the balance will be retrieved
    /// @return The balance
    function balanceOf(address _owner) constant returns (uint256 balance) {}

    /// @notice send `_value` token to `_to` from `msg.sender`
    /// @param _to The address of the recipient
    /// @param _value The amount of token to be transferred
    /// @return Whether the transfer was successful or not
    function transfer(address _to, uint256 _value) returns (bool success) {}

    /// @notice send `_value` token to `_to` from `_from` on the condition it is approved by `_from`
    /// @param _from The address of the sender
    /// @param _to The address of the recipient
    /// @param _value The amount of token to be transferred
    /// @return Whether the transfer was successful or not
    function transferFrom(address _from, address _to, uint256 _value) returns (bool success) {}

    /// @notice `msg.sender` approves `_addr` to spend `_value` tokens
    /// @param _spender The address of the account able to transfer the tokens
    /// @param _value The amount of wei to be approved for transfer
    /// @return Whether the approval was successful or not
    function approve(address _spender, uint256 _value) returns (bool success) {}

    /// @param _owner The address of the account owning tokens
    /// @param _spender The address of the account able to transfer the tokens
    /// @return Amount of remaining tokens allowed to spent
    function allowance(address _owner, address _spender) constant returns (uint256 remaining) {}

    event Transfer(address indexed _from, address indexed _to, uint256 _value);
    event Approval(address indexed _owner, address indexed _spender, uint256 _value);
    
}

contract StandardToken is Token {

    function transfer(address _to, uint256 _value) returns (bool success) {
        //Default assumes totalSupply can't be over max (2^256 - 1).
        //If your token leaves out totalSupply and can issue more tokens as time goes on, you need to check if it doesn't wrap.
        //Replace the if with this one instead.
        //if (balances[msg.sender] >= _value && balances[_to] + _value > balances[_to]) {
        if (balances[msg.sender] >= _value && _value > 0) {
            balances[msg.sender] -= _value;
            balances[_to] += _value;
            Transfer(msg.sender, _to, _value);
            return true;
        } else { return false; }
    }

    function transferFrom(address _from, address _to, uint256 _value) returns (bool success) {
        //same as above. Replace this line with the following if you want to protect against wrapping uints.
        //if (balances[_from] >= _value && allowed[_from][msg.sender] >= _value && balances[_to] + _value > balances[_to]) {
        if (balances[_from] >= _value && allowed[_from][msg.sender] >= _value && _value > 0) {
            balances[_to] += _value;
            balances[_from] -= _value;
            allowed[_from][msg.sender] -= _value;
            Transfer(_from, _to, _value);
            return true;
        } else { return false; }
    }

    function balanceOf(address _owner) constant returns (uint256 balance) {
        return balances[_owner];
    }

    function approve(address _spender, uint256 _value) returns (bool success) {
        allowed[msg.sender][_spender] = _value;
        Approval(msg.sender, _spender, _value);
        return true;
    }

    function allowance(address _owner, address _spender) constant returns (uint256 remaining) {
      return allowed[_owner][_spender];
    }

    mapping (address => uint256) balances;
    mapping (address => mapping (address => uint256)) allowed;
    uint256 public totalSupply;
}


//name this contract whatever you'd like
contract ERC20Token is StandardToken {

    function () {
        //if ether is sent to this address, send it back.
        throw;
    }

    /* Public variables of the token */

    /*
    NOTE:
    The following variables are OPTIONAL vanities. One does not have to include them.
    They allow one to customise the token contract & in no way influences the core functionality.
    Some wallets/interfaces might not even bother to look at this information.
    */
    string public name;                   //fancy name: eg Simon Bucks
    uint8 public decimals;                //How many decimals to show. ie. There could 1000 base units with 3 decimals. Meaning 0.980 SBX = 980 base units. It's like comparing 1 wei to 1 ether.
    string public symbol;                 //An identifier: eg SBX
    string public version = 'H1.0';       //human 0.1 standard. Just an arbitrary versioning scheme.

//
// THIS IS WHAT YOU NEED TO DO - CHANGE THE BELOW TO REFLECT YOUR CHOICES FROM WHAT YOU CHOOSE ABOVE IN RED
//

//make sure this function name matches the contract name above. So if you're token is called TutorialToken, make sure the //contract name above is also TutorialToken instead of ERC20Token

    function ERC20Token(
        ) {
        balances[msg.sender] = NUMBER_OF_TOKENS_HERE;               // Give the creator all initial tokens (100000 for example)
        totalSupply = NUMBER_OF_TOKENS_HERE;                        // Update total supply (100000 for example)
        name = "NAME OF YOUR TOKEN HERE";                                   // Set the name for display purposes
        decimals = 0;                            // Amount of decimals for display purposes
        symbol = "SYM";                               // Set the symbol for display purposes
    }

    /* Approves and then calls the receiving contract */
    function approveAndCall(address _spender, uint256 _value, bytes _extraData) returns (bool success) {
        allowed[msg.sender][_spender] = _value;
        Approval(msg.sender, _spender, _value);

        //call the receiveApproval function on the contract you want to be notified. This crafts the function signature manually so one doesn't have to include a contract in here just for this.
        //receiveApproval(address _from, uint256 _value, address _tokenContract, bytes _extraData)
        //it is assumed that when does this that the call *should* succeed, otherwise one would use vanilla approve instead.
        if(!_spender.call(bytes4(bytes32(sha3("receiveApproval(address,uint256,address,bytes)"))), msg.sender, _value, this, _extraData)) { throw; }
        return true;
    }
}

This code is from the good people at Code-Factory.  You can see if they have any newer code here. The above code is displayed in three parts, combined into one section for ease here.  The code is from February of 2017, v 0.4.4.

When you are filling in the four fields, one funky aspect that you will want to pay attention to is the decimal portion.  Examples: If I wish to create 1,000,000,000 billion tokens and I want 18 decimal points, then I have to add 18 zeros onto the 1 billion number.  This number is added to two fields in your code.  So for 1 billion coins with 18 decimals point would look like 1000000000000000000000000000 and do not add commas to your code.  Another example, if you do not want any decimal points then you would not add any extra zeros.  Last example on this, if you want 8 decimal points, you would add 8 zeros to the 1,000,000,000 billion so it would look like 100000000000000000.  Most cryptocurrencies have 18 decimals.

  • Number of Tokens You Will Assume = 1000000000000000000000000000
  • Total Tokens in Circulation = 1000000000000000000000000000

Part 4: Testing via Ropsten Test Net

It is time to take your modified code – all four lines – and test it out.  You could test this in Ethereum’s live environment, but that would be a waste of money (a few dollars up to $8) for each time it doesn’t work.  So make sure you are on the TestNet of Metamask.

Download MetaMask Chrome plugin.  This is a digital wallet which can store Ethereum bmetamaskased tokens (ERC20), like the one you are going to make.  You can also deploy smart contracts via this robust little app.  MyEtherWallet, is also another option, but for this overview, I am using MetaMask for ease.

 

 

 

When you create any digital wallet, the seed (a bunch of random words) is something that you will want to take the utmost care around securing.  If you lose these words (essentially your password) you will lose complete access to your wallet on the blockchain and there is no way to recover this – none.  So keep it safe and secure – preferably offline.

The next step is to drop your doctored code into a compiler, which reviews the code for errors, identifies code that could be better defined, and then publishes that code directly to Ethereum’s blockchain.  Click on Solidity Remix IDE Compiler and copy and paste the code you modified in your text editor into the compiler.

Open your MetaMask wallet, which should be a tiny icon on the upper right corner of Chrome.  When it is open, make sure you change the network to “Ropsten TestNet” by clicking the little arrow.

testnet

Once you do this, you will need to add fake ETH to the TestNet.  Since this is a test network, you get free fake ETH from the network, but you have to request it.  If you don’t have any of the foe ETH, you will not be able to send your contract to the blockchain.

code

If you get a bunch of yellow errors in the right panel, don’t worry, these are cautionary and not fatal.  It may look like this.  Again, it should pose any problems.

errors

Next you will need to go to the actual version of the compilier and make sure you are not using a “nightly” version.  It defaults to the correct version for me, but just make sure it does not say “nightly”.  The arrow drop down is where you can change the version, if necessary.  Make sure you write down which version you choose, as you will need this later.

version

Now head back to to the “Run” tab on the same screen and click “Create”.  What is fascinating is that the compiler automatically connects to your MetaMask Wallet in your browser to create the contract.  As previously mentioned, more then likely the first time you do this you will have to request or add fake ETH to the TestNet.  Since this is a test network, you get free fake ETH from the network, but you have to request it.  If you don’t have any of the foe ETH, you will not be able to send your contract to the blockchain.  This sometimes take a bit of finagling.

So below, click “create” and the MetaMask wallet will pop up over your browser.  As mentioned, if you don’t have any fake ETH, will ask you to generate them – request 1 ETH.

run

Click “Submit” to generate the contract.

confirmcontract

Now click on the date listed below and it will take you to the live generation of the contract via Etherscan.

wallet confirm

If all went well, you will see something like the below.  A green check is great.

success

If you made it this far, now it’s time to load your tokens into your wallet.

Part 5: Loading New Token in Your Wallet

contract

Grab (copy) your contract address which will be different than what you see above and go to MetaMask.  Click “Add Token”

tokenadd

You should see the following where you enter your Contract Address which you copied from Etherscan.  Also add the Token Symbol and Decimals and click “Add”.

token18

There you go!  It should be added to the list.  I have 1 billion JORA tokens now.

listoftokens

Part 6: Verify Your Code

One item, which is not essential, but shows that you are not too shady is verifying the code you used.

On the Etherscan page, where you have the contract ID, click on that link.

contract

Then on the following page look for the “Contract Code” tab and click “Verify And Publish”

proof

The next screen will look like this with the contract ID already populated.  You need to fill in the “Contract Name” with “ERC20TOKEN”, then select the correct “Compilier” – make sure it is the same version you wrote down earlier which is not the “nightly” and change “Optimization” to “No”.  Then copy and paste the whole section of code from the compilier into the big text box.  Forget all of the other parts and click “Verify” at the very bottom of the page.

verify2

Now if that all worked, you should get the following:

finalconfirm

If that all worked, you are good to go!  The next part is actually doing on the real official Ethereum blockchain.

Part 7: Launch Your Token on Prod

Now simply go through the same process by on the live Main Network site.  So go to MetaMask and hit the drop-down box and change it to “Main Network”.

mainnet

Now go through Part 4 – 8.  You will need ETH for this final stage.

Part 8: Verification:

If you want to be verified, look to do so by filling in the following information on Etherscan.  This is vetted by the organization so you do need this to be approved for this portion.

To update your ERC20 token information please provide us with the following information:

Firstly, check that your token contract source code has been verified.

1. Contract Address: 0xd5XXXXXXXXXXXXXXXXXXXXXXXXX

2. Official Site URL:

3. Link to download a 28x28png icon logo:

4. Official Contact Email Address:

5. Link to blog (optional):

6. Link to reddit (optional):

7. Link to slack (optional):

8. Link to facebook (optional):

9. Link to twitter (optional):

10. Link to bitcointalk (optional):

11. Link to github (optional):

12. Link to telegram (optional):

13. Link to whitepaper (optional):

14. CoinMarketCap Link (PriceData):

 

That is it!  Please let me know how this goes for you.

 

 

Reference @maxnachamkin

 

 

 

 

 

MIT Legal Forum on AI & Blockchain Busts Open New Thinking

By Joseph Raczynski

Massachusetts Institute of Technology’s Media Lab – Cambridge MA – October 2017 – In one of the more unique and unusual conferences I have participated, the inaugural MIT Legal Forum on AI & Blockchain was a meeting of 200 minds from across academia, law firm, and corporations big and small.  It included IBM Watson as well as CodeX, NASA scientists, Baker & Hostetler, a host of other Am Law firms, and startups galore.  Led by the gregarious MIT visiting scientist, Daniel “Dazza” Greenwood, who served as the master of ceremonies for the two day workshop.

20171031_091458

Dazza Greenwood – MIT Scientist – summarizing the day

What was so unusual was that after the keynote each day, the planning for the remainder of the breakouts happened in real-time.  Dazza asked the crowd who would like to run a session and to describe the topic.  Once that individual did so, Dazza then asked who would like to join that working session.  The sessions were added to the agenda immediately followed by the commencing of those sessions.  From the attendees the following topics bubbled up on day one:

  • Identity Management & Records Keeping – Chris Jagers and Joseph Raczynski
    • How do we begin the discussion of digital records on blockchain?
  • Automated LLC – James Miller and Harrison Perl
    • Project to checklist requirements to incorporate or register legal entities in all 50 states
  • VAT Coin – Joseph Kessler and Brian Ulicny
    • Governance is 75% of entities. Is that correct?  Does it fit this context?
  • Energy Utility Token – Jonathan, Michael, and Harrison
    • How can such a process be securitized and how do we get the revenue back in a way that is sustainable and trusted by investors?
  • Supply Chain – Jaipat and Gurvinder
    • Is there a need for a new area of law called, “Provenance Law”?
  • Bankruptcy – Bob Craig and Nina Kilbride
    • With cryptocurrency as collateral, how do you classify the property? How do you perfect ownership rights?

I had the opportunity to join several of these discussions over the two days.  Honestly there were one or two slight misses, where the tables were large and attendees from various backgrounds of familiarity on blockchain and AI led to a mixed conversation.  However, the hits – they were transformative.  How often do you have top legal minds from Am Law firms, NASA engineers, MIT data scientists and nonprofits mix together on a process surrounding “smart contracts” that leverage algorithms to develop an automated workflow?  The session called ditDIY Composable Smart Contracts, Modular Law – led by Vienna Loi, was a hit.  The NASA scientist and her team are actively building this concept out.  Think of it as code (smart contract) that when a certain event is triggered kicks off another event which continues to invoke other acts, all of which are recorded and maintained on a blockchain.  It is the future of this space.

The excitement was palpable.  You could see the evolution that is beginning to take place in Legal as we go from a general awareness of these technologies, to conceptual design of possible solutions.  MIT is fostering the creativity through this platform in their first attempt at bringing all parties to the table.

In the next post, I will dive deeper into Digital Identity using blockchains.

Exploring Blockchain Proof of Concepts in Deployments and use Cases in the Finance Industry

By Joseph Raczynski

October 2017 – Blockchain 360 IoT Conference – InterContinental New York Times Square – An esteemed panel took the stage to discuss the state of the union surrounding proof of concepts in the financial industry.  The focus of the six; to delve into what is working with blockchain, what is not, and what is ahead for the industry.

I had the good fortunate to moderate the group including Igor Telyatnikov, President & Chief Operating Officer at AlphaPoint; Ron Quaranta, Chairman, Wall Street Blockchain Alliance; Scott Matsumuto, CISO, Circle; Morgan Hill, Managing Partner, AxionV; and Yorke E. Rhodes III, Global Business Strategist, Microsoft.

The first topic lent itself to a deep dive in our current perspective within finance.  Quaranta, who comes from a background in the financial markets spoke about how blockchain has developed incredibly fast.  He has the perspective of an association where many groups of all sizes engage with the Wall Street Blockchain Alliance.  While the financial institutions have been involved with this for several years, there are other groups flocking into the space.  He said, “Now that you see the lawyers and accountants opening their eyes to it, you know it has legs”.  They need to be involved because those two groups will help “aid the industry” and create structure around the new technology as it is applied to the financial industry.  There was a bunch of head nodding on the panel in agreement.

Rhodes focused on what is preventing wider adoption of blockchain.  One of the primary areas he cites is a lack of trusted sources or oracles in the space.  These are known entities which can be a verifiable source of information.  Think of the Social Security Administration and their records of death certificates, or a known source which can verify the price of Facebook’s stock on a particular date.  While this data might be available currently it is not as well developed and built out to interact with the blockchain just yet.

Hill jumped into the fray by discussing integration and interoperability.  Right now most blockchain’s cannot interact with other blockchain’s.  They are siloed.  Rhodes said that Microsoft is looking at how to resolve this issue.

The panel discussed how ICOs (Initial Coin Offerings) impact POCs.  Telyatnikov described this phase as a mania that is currently a bit frothy, but noted this is a “new asset class” that will be here for the foreseeable future.  The ICOs are almost POCs, but in the nascent stages, as “often these companies have concepts, which are not built out yet”.  It is hard to have a POC when a company only has an idea spelled out via a whitepaper – with no working model.

The panel answered questions from the audience, including one around regulation.  What is ahead for the law makers when it comes to blockchain and the financial industry?  The panel chucked.  Quaranta and Yorke summed it up for everyone by stating these are the early days of blockchain.  “Legislators and other agencies are in the information gathering stage.  We are beginning to get a sense from them about guidance, but much more is on the horizon.

Blockchain, a Disruptive Force Now Impacting the Legal Industry

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.

ILTACON 2016: When Will Blockchain and Smart Contracts Be Important in Legal?

By Joseph Raczynski

“Blockchain is Hot: More than $1.5 Billion has Been Invested in Blockchain in the Last 18 Months”

  • Tori Adams, Booz Allen Hamilton

 

NATIONAL HARBOR, Md. — If someone had told you in 1993 that the Web would be integral to your life today, would you have believed them? Well, the discussion around blockchain technology at ILTACON 2016 harkened back to that same scenario of the early ‘90s. This is a reboot, where another new technology will revolutionize the world.

Moderated by the esteemed Ron Friedmann, Partner at Fireman & Company, we were led down the path of what to expect with blockchain. Rohit Talwar, CEO of Fast Future Research, started us off with his futuristic vision on what we can expect over the next five years. Joe Dewey, Partner at Holland & Knight, who specializes in blockchain, discussed the law and smart contracts. Lastly, Tori Adams, a data scientist at Booz Allen Hamilton, illustrated her predictions on the reality of this technology in the near term.

Current Landscape

All major industries are looking toward blockchain — most pointedly, the financial sector. Talwar focused on one platform that is pushing this new space forward quickly — Ethereum — a pseudo-Bitcoin 2.0 that allows users to code on top of the blockchain. This can create huge advances in how the blockchain can interact with the world; utlizing smart contracts and digital identities, an even executing stock trades. In fact, Talwar stated that Goldman Sachs estimated a legal savings of $11 billion to $12 billion per year from streamlining clearing and settlement of cash and securities through such technology.

Near Future

The next significant phase developing now is the DAO (Decentralized Autonomous Organizations) which means that processes and companies are completely autonomous. This technology has the ability to disrupt a disrupter, e.g. Airbnb. Let’s say you visit a DAO-enabled travel site. The condo owner places an ad on the site to rent their place weekly. You choose their place in Miami, agree to the terms (date of check-in and -out, etc.) and agree to the fee and deposit (paid automatically). When you arrive at the condo to check-in, simply enter the password at the door through an Internet of Things (IoT) tech-enabled doorknob (check out Slock.it) and you gain access. That lock at the front door knows who you are and how much you paid, and it can also see your contract for the rental of the condo and knows when you are to be out. The DAO can do all of this with one employee running the entire operation.

Law Firms Start to Embrace Blockchain

Several law firms are starting to make a foray into this space. Recently Steptoe & Johnson began a multi-disciplinarian practice to help manage the blockchain for clients. They will also be accepting Bitcoin as payment. Most importantly, they co-founded the Blockchain Alliance6, a coalition of 25 blockchain companies and 25 regulatory and law enforcement agencies — including Interpol, Europol, the Securities and Exchange Commission (SEC) and the FBI — to educate enforcement agencies about digital currencies and blockchain technology. Other law firms including Holland & Knight see exponential growth of attorneys laboring in this discipline.

Smart Contracts

Holland & Knight’s Dewey said he believes the definition around smart contracts can be varied. For the purposes of this conversation, it is snippets of code that can change the ledger or a legal contract that is implemented on the blockchain. Of course, he outlined several benefits and challenges to this new innovation in the area of smart contracts:

Benefits:

  • Smart contracts are coded so there is less ambiguity than prose;
  • Verification can be achieved even within a trustless environment;
  • Self-executing; so once released, it is difficult to impede execution; and
  • Integrates well with IoT, artificial intelligence (AI) and machine learning.

Challenges:

  • Must balance transparency with privacy concerns;
  • Infrastructure needs to be updated;
  • Lack of experience with blockchain technology in IT departments;
  • Lack of education and understanding of the technology in other departments, including compliance;
  • Development of uniform standards and protocols; and (of course)
  • Need to overcoming custom and tradition (e., change is hard.)

So a real world example of how a smart contract was implemented can be seen in how Barclays did it with an interest rate swap prototype. Essentially, the investment bank set up an incubator of coders who worked with their legal department to understand how these swaps (trades) worked legally. They distilled three lines in the process that could be coded — (x) the amount of cash; (y) the interest rate; and (z) the currency. Once this information was garnered, the transaction could be solidified and then stored on a blockchain.

One of the most surprising revelations of the session came from Dewey when he stated: “Big news for attorneys, existing law — passed well before blockchain technology was contemplated —not only validates transactions, including the trading of credit interests accomplished through the use of the technology we are discussing, but as a matter of policy, strongly supports it.”

There is little question that this is an industry that will be growing rapidly over the next few years. Many firms are moving forward with practice areas and educating their attorneys on the technology to better position themselves for the coming wave.

Lastly, Dewey added some additional encouraging words surrounding the future of blockchain. In May, the State of Delaware — which is home to almost two-thirds of the Fortune 500 companies — announced a Blockchain Initiative so that corporate filings can be added to the ledger. “This is a clear sign that blockchain technology will have a significant impact on business,” he said.

ILTACON 2016: Re-Imagining Legal Technology for the 21st Century

By Joseph Raczynski

“The story of disruption was just the first act of 21st century business, now begins the tale of total transformation.”

— Mike Walsh

NATIONAL HARBOR, Md. — So reverberated the words of Mike Walsh a Futurist/CEO of Tomorrow, across an audience of more than 3,000 legal professionals at ILTACON 2016, a four-day conference that centers on the intersection of technology and the legal industry.

Walsh gave the keynote on the opening day of the annual conference, and the lens he cast enlightened the onlookers to a futuristic view of our current world. He then bridged that technological vision to the 21st Century Legal realm and focused on several thought provoking questions.

Can you think like an 8-year-old?

The key to transformation is to be ahead of it. Through the optics of an eight-year-old we can view the direction that technology is shifting. They embrace mobile — why? Because parents have pacified their kids for years with iPads and mobile phones. Their learnings began on those platforms which became almost intuitive to them and will now dictate our future.

When will we be a truly data-driven world?

Now! The biggest social shifts are shaped by the data-driven world. Disney World offers the most advanced of data collection and use. Their MagicBands are linked to a credit card and function as a park entry pass as well as a room key. They know who you are, where you are, and increasingly know what you want — predictively. Food can be delivered to you without you ever specifying a location. All of this is using data and machine learning to better understand consumer, and thus human behavior.

disney

WeChat, an app primarily used in China, was also offered as a good example of where we are going. With this app, people in China can play games, pay for things and buy insurance — the whole time interacting with a bot that is constantly gathering data and learning. This is what we will begin to see in all businesses in the near future.

In preparation for his transition into a discussion around legal, Walsh offered another thought. The children of today will be the first generation to be raised partly by artificial intelligence (AI). If you think about the platforms that are prevalent now, kids are interacting with them increasingly — Alexa, Google and Siri. Law firms have to start thinking about how these eventual employees will work and interact with each other both inside and outside of the firm.

How will a 21st century law firm differ from a 20th century firm?

The world is now global. The largest corporations and law firms have back office and operations support overseas. As an example, Walsh talked about something he saw in India which illustrated where we are headed. An AI machine (physical computer) is situated alongside other staff in a cubical at an office center in India. It is fully embraced and accepted as a highly efficient employee — and continues to improve rapidly with its own productivity.

Speaking of actual human employees, recruiting people will transform, Walsh noted. The next generation of hiring future lawyers, and collaborating with clients should focus on rethinking how we hire. Offer a prospect a clean sheet of paper and ask them to come up with a solution to a problem. Another idea, after a month on the job, ask what processes the newbie might change based on what they are seeing.

int-about-mike

What kind of mental software are you new hires running?

Going forward, the operating system of a 21st century lawyer is as much about the culture as it is about the code. All firms will have to be agile, and firms will have to hire people that think that way. Everything around our traditional culture and space is changing. People will increasingly be working from other locations, so this concept has to be reimagined. Walsh’s suggestion was to think about the person you are hiring — are they energized by solving problems? Additionally, environments have to be reconsidered. How do you design an office for people that do not need one?

Lastly, are you leveraging all of your data?

Law firms are rife with all sorts of data. One question that Walsh suggested was worth posing is how are firms using that data? Increased productivity can be gained by applying analytics to the whole.

In closing, Walsh pleaded for the legal space to adjust their mindsets, how we see and use data, which people are hired, and what technological processes are in place. We need to think like an eight-year-old to see how the world will change and adapt now, he explained.

The data inside law firms has to be better leveraged and analyzed with new tools. When hiring, do so by unearthing agile people and creating more social workspaces. One of the best ways to do that is by rethinking your communities, picking some high-profile projects and challenging those new teams to experiment.

In conclusion, Walsh noted: “When preparing for this new future, embrace that the future means challenging everything we know to be true.”