Bye-bye, banks! Hello DeFi… Our bankless society has officially begun

Decentralized Finance (DeFi) is a multi-billion-dollar movement that may end up changing the way we all bank

Imagine a time where banks are not needed. Think about all the financial instruments we use today — currency, loans, insurance, bonds, credit cards, stocks, futures, options, interest bearing accounts — being converted to a new model, one that doesn’t require a traditional banking institution.

This is happening now. For those of you who sit on the bleeding edge of technology with me, this has been looming for a few years. However, I have purposely held off writing about it until the data was sound. Now, we have the data.

Decentralized Finance (DeFi) is a multi-billion-dollar movement involving several intermingled concepts. At its core it is blockchain-based and uses an immutable, trustless computer network that verifies transactions without human intervention. The most established platform on which DeFi is built is Ethereum, which was the first major blockchain to move beyond a simple currency replacement, such as Bitcoin. Instead, Ethereum has moved toward completely revolutionizing our ability to automate actions with the introduction of smart contracts, which themselves enable code to facilitate actions stored on that blockchain public ledger.

What is pivotal here is that you can establish complex financial ecosystems that run based on rules; thus, eliminating the need for traditional third parties, like banks and brokerage houses. These rules can dictate action, lock-in value, automate transactions, and create immense efficiencies in the marketplace at a fraction of the cost of our current systems.

DeFi

There are hundreds of examples of DeFi applications on the Ethereum ecosystem today. For context, Ethereum has a $475 billion market capitalization, just shy of JPMorgan Chase and Visa, making it the 14th largest company in the world. We are extremely early, and I project Ethereum to be the most valuable asset in the world within the next few years; and there is $90 billion invested in Ethereum-based DeFi protocols as of this writing. Addressing concerns since its inception, the platform is currently being upgraded to speed transactions — that is, provide scalability — as well as moving from proof of work to proof of stake, meaning that the previous maladaptive environmental impact will be reduce dramatically.

Prepping for DeFi

Practically speaking, how does this all work, and where is it going? Your blockchain-based “digital wallet” — such MetaMask — is your new on-ramp to DeFi. This will be a nearly universal tool all over the world in the coming years. And while the majority of people in this space now use a wallet stored on a centralized exchange, the path forward will be to “own your own keys”, meaning the private and public keys (which are essentially two elongated number-letter strings) that prove you own that wallet. The private key is akin to your password and should never be given out, while the public key is your address (like your mailing address) to where people can send you assets.

When you use a central exchange, like Coinbase, you do not own your own keys. Once you own your wallet you can load any number of assets into that wallet, including Non-Fungible Tokens (NFTs). Soon this wallet will contain all your assets, including deeds to your house, car, health information, your own digital identity, and much more.

How do you interact with DeFi?

To navigate this process, you begin with an asset (like Ethereum, or ETH, for example) in your wallet. Now you have countless possibilities to go bankless. With that token, you can simply hold it and hope its value appreciates. Each token has a fluctuating value in currencies from around the world.

Another option would be to “stake” that token, which means you are paid to offer that token up as collateral to participate in the network which confirms transactions from one person to another. When you stake a token, a binding smart contract is being created on the blockchain. You are committing to offer your 1 ETH to the network for a set amount of time, and during that time, you may get 10% or more interest. The legal contract is in the code.

Progressing down the complexity scale of DeFi, nearly all financial instruments can be leveraged on this platform through various applications. You could loan out that 1 ETH and receive a yield, which tends to be very high these days, at around 7% to 100% per annum. There are hundreds of tokens on the Ethereum platform that have distinct purpose, although there are other competing blockchain platforms in this space. These platforms too are building out DeFi solutions.

One of the most prominent examples of DeFi is Uniswap. It is the most popular Ethereum-based decentralized exchange (DEX), which allows people to swap tokens that run on the Ethereum network. What is special about Uniswap is that it is an Automated Market Maker (AMM), which means it uses algorithms to price assets instead of buy and sell orders. Individuals can also earn money on the platform by providing liquidity by locking up tokens they own; others can then borrow the tokens and pay interest to the liquidity providers. All of this is using smart contract code without human intervention. All of these assets can be sent from one wallet to another without a bank — this DeFi in action now.

DeFi

But what does this mean for the legal industry? In short order, government agencies, law firms, corporations, and others will be impacted by DeFi. Each party will need to look at it through their own lens, examine the benefits and understand the risks as well.

  • If you are a law firm with a big bank as your client, partial short-term disruption is a risk. DeFi offers firms the opportunity to leveraging this technology for the “banks” of the future, which of course, will be code-based. The long-term disruption to the traditional banking sector is real. Unless banks can figure out how to compete when code can facilitate what they’ve been doing for the last 200 years.
  • For government agencies that provide guidance, this technology can usher in opportunities that previously were only available to the wealthiest people and organizations. The vast amount of “unbanked” individuals — those without access to a bank or credit — can now participate in the economy. However, these same agencies need to determine if there are enough regulatory rails to prevent harm to individuals or businesses.
  • As for corporations, if they see themselves as “middlemen” that facilitate loans or provide currency, bonds, credit cards, stocks, futures, options, or interest-bearing accounts, they might have to pivot.

DeFi will change the way we bank and interact with assets of all sizes. This shift is as large as the move onto the internet with the tokenization of all assets and value represented digitally.

The legal industry needs to lean into the conversation now, to better digest how to help their clients, and possibly properly guide regulation for the coming codification of our financial world. Because the next iteration of this space will be Decentralized Autonomous Exchanges (DAOs), which will not only impact the financial industry, but will carry over to any entity — firm, business, or government agency — that can and will be run by code.

Amazon law and innovation take center stage at Legal Geek’s Uncertain Decade summit

What do you enjoy about your Amazon experience? Likely everything. The company’s success is derived from a few simple words of company CEO Jeff Bezos’ ethos: “Delight your customers.”

Yet, when you think about innovation, what does that look like inside a law firm? To be honest, it’s probably very different than perhaps it should look. These were the headline topics of discussion at last week’s Legal Geek Uncertain Decade Summit held virtually with Mark Cohen, Executive Chairman of the Digital Legal Exchange, and Richard Susskind, President of the Society for Computers and Law. In their respective lectures, they laid out in stark fashion where they believe law firms are missing the mark on innovation for their clients.

As was artfully illustrated by Cohen in the first of the two talks, Amazon is a corporate conquistador whose North Star is its customers. His premise is that law could learn a great deal from Amazon, and one day be as much of a disrupting force as the Seattle colossus.

What Cohen suggests the legal industry do, is think more like Bezos. While technology is a core component to the company, it is only an enabler. Where Amazon excels is with data. That means, law firms must get to know their clients much better, in order to delight them, Cohen explains, and that means everything must be measured. “You need to know your customers better than yourself,” he adds.

Unfortunately, very few law firms are operating under this ideal, according to Cohen.

If you think about the entire beginning-to-end process of engaging with that client, can you anticipate how they may feel through each gate? “It’s about what happens when they buy something,” Cohen states. “It’s how they buy something, what they want, and when they want it.” Ultimately, it is an end-to-end customer experience, and tech is an enabler to make it happen.

And Cohen did warn — if you read the clouds forming on the horizon — that Amazon law could enter into the legal industry, noting the company’s early inroads into legal with its IP Accelerator, a trademark registration arm that automates IP registrations for people and or companies. Cohen also mentioned Amazon Marketplace, where legal technology companies can add their wares to a legal app store to be downloaded and used. That means that even though Amazon isn’t involved in the practice of law, it is integrating into this space by enabling legal technology as part of delighting customers.

Legal Geek

In the second section of their talk, Susskind takes law firms to task on innovation, saying many of them have overpromised and underdelivered. Over the last five years, lawyers have spoken a lot about innovation, he said, but it was often vague as to what that meant. For some firms, innovation means process improvement, for others it means transformation, and for yet others it means marketing.

Susskind outlined 10 features that separate law firms on innovation, placing them in two different camps — second-generation innovation firms that baked innovation into their planning; and first-generation innovation firms that just want “quick wins”.

Here, according to Susskind, is what second-generation firms are doing:

1. Process improvement first, rather than new business models — Often law firms are thinking of innovation as “process improvement”, but that is not enough. Firms need to think bigger and ask themselves, “How might we reinvent the business model to delight our customers?”

2. Marketing noise rather than progress — One of the most popular first-generation innovation models is the marketing bullhorn. Many law firms still churn out noisy press releases declaring various “process improvements” as innovation. However, if you pull back the layers, “there isn’t much there,” says Susskind, adding that the focus should be on real innovation, with major steps forward in re-examining their business model.

3. Automation v. transformation — Automation is certainly popular and important, but transformation is even more critical. In the second-generation mindset, the lens is on the long-term vision for the firm — and that’s better for the firm and its clients. With second-generation innovation, the goal is to transform the business and the practice of law.

4. Pilot programs rather than fully operational systems — Pilot programs are playgrounds to learn, even if many of these pilots never make it beyond the jungle gym. And while that is naturally the case with pilots, Susskind emphasizes that second-generation innovation firms push to go beyond the playground. On this new plain, the goal is to learn and create new fully operational systems.

5. Little impact on figures as compared to serious revenue profits — Another concept Susskind discusses is the idea that innovation will have little impact on returns. Attorneys tend to believe revenue generated from innovation is inconsequential. Yet, if an organization pursues the second-generation path, there can and will be serious revenue profits from these new approaches if they’re done thoughtfully.

6. Arguments v. evidence — Many firms are still in the mindset that they can argue for or against the importance of innovation. Indeed, there are many firms that argue against it. Instead, the focus should be using evidence to support the case for innovation, and that evidence is all around us. However, it needs to be uncovered, cited, and then used to support innovative movements inside the organization.

7. Minority of partners involved rather than majority — In the early stages of innovation, it is usually the stakeholders that support it, Susskind says, but that is not always enough. When a firm sees the majority of partners actually buy in, that is when the real innovation takes place. Firms need a collective majority.

8. Intellectual grasp, rather than emotional grasp — In a very relatable narrative, Susskind talks about stakeholders who “get it” intellectually, but again, that is not enough. As he physically pounded his chest with his fist, Susskind says he knows when firms “get it” because that’s when they get emotional about it. You can see that firms leaders feel it in their guts and understand the importance of innovation at its very core. Then they will make sure it is the lifeblood of the organization.

9. Avoiding competitive disadvantage rather than seeking competitive advantage — In first-generation innovation, firms are generally attempting to hold their own against their competition, Susskind describes. They simply try to emphasis preservation, such as asking, “How can we stay alive in this pitch?” Second-generation innovation means firms are thinking differently, and asking “How can we steal the business from our competition?” The latter is far more aggressive as a result of baked-in firm innovation that came from long-term planning.

10. Preference for short-term ‘tactical’ v. long-term ‘strategy’ — Most of the firms that are just wrapping their arms around innovation still think in the short term and tend to be more tactical. Instead, firms should be thinking of how they can think differently along a decade-long strategy rather than a year-to-year outlook that’s focused mainly on profits per partner.

Cohen summarized the landscape in regard to innovation within the legal industry. “We are at the foothills now, and our clients are scaling the mountain.” Both Susskind and Cohen agree that most law firms are lagging behind where they should be in transforming themselves through innovation. And they feel that the Amazon ethos of delighting your customers should be emblazoned on the border bezel of every attorney’s computer.

Indeed, the acceleration of change is only increasing, and law firms face increasing competition from alternative legal service providers (ASLPs), and the Big Four consulting companies. Clearly, the clock is ticking.

“Don’t wait to change your model when you get pressure to do so by your competition,” Susskind warns. “It will be too late.”

The Law Firm of the Future

Interview with Joseph Raczynski, written by Michelle Worrall Tilton

Kanas City Metropolitan Bar Association

Attorneys look to precedent to solve today’s legal problems. “Steeped in tradition” is how we often describe the legal profession.  As result, it’s no surprise that there is inherent tension between emerging technology and the legal profession. The American Bar Association’s 2020 TechReport, which surveys firms and tracks attorney use of technology in their practices, reported that only 7% of attorneys are using tech tools, such as Artificial Intelligence (AI), for document review and research.  Firms with more than 100 attorneys are more likely to use AI, as well as firms that engage in mass tort litigation. Despite promises of increased efficiency, productivity, and profitability, a significant number of attorneys cite distrust of the technology and underlying algorithms.

Even though the legal services market is estimated to be a $1T industry globally, Forbes reports that it is also one of the least digitized:

– Joseph Raczynski

That is, until the COVID-19 pandemic forced the legal community to remote hearings, yoga pants, and dining room tables seemingly overnight.  Prior to the pandemic, the ABA’s 2019 TechReport estimated that the vast majority of law firms of all sizes – other than solos – worked in traditional law firm environments. Now, many managing partners are rethinking their office space needs because technology allows attorneys and staff to work from home.  Cloud-based document storage doesn’t demand the physical space once required for the paper detritus of the legal practice. 

According to commercial real estate brokers with expertise in law firm office space, firms have been downsizing for some time – and the trend is expected to intensify post-pandemic.  It’s anticipated that firms will increasingly implement a hybrid model where employees schedule the use of a community workspace or a conference room, but otherwise work remotely.  This provides the opportunity for collaboration and meetings with clients in a professional and inviting setting – think chic hotel lobby – while reducing the real estate footprint and attendant expense. 

Despite the occasional mishap of appearing in virtual court as a cute kitten, the legal profession has progressed in dog years with respect to the use of technology during the pandemic.   Remote hearings provide greater access for certain types of cases and hearings.  Litigants and their attorneys are saving time and money by not having the hassle of travelling back and forth to court. It’s easier for litigants to attend hearings remotely without having to take off as much time from work or to arrange for child care.  Corporate clients are now accustomed to remote environments and online meetings.  Many companies, such as Salesforce, American Express, and Microsoft, have reverted to permanent work-from-home arrangements for some employees.  A silver lining of the pandemic is that the legal industry has had no choice but to embrace technology.  So, what will the practice of law be like in the next twenty years?

-Joseph Raczynski

Fortunately, we don’t have to guess how technology will transform the legal profession in the years to come nor do we need to rely on a DeLorean time machine with a mad scientist sidekick.  Thomson Reuters Corporation has a forward-thinking technology specialist on the payroll with the title of “Futurist.”   Joseph Raczynski is a Technologist & Futurist, Manager of Technical Client Management for the cutting-edge legal products and services company. Raczynski, who is based in Washington, DC and focuses globally specializes in the future of technology and its impact on the legal profession. He has expertise in cybersecurity, blockchain, artificial intelligence, cryptocurrency, and drone technology.  Raczynski also hosts a popular podcast, The Hearing, which focuses on legal innovation.

After talking with this fascinating tech expert via halo-conferencing (not really, but made you wonder), it’s clear that technology will play a significant role in the future of the practice of law.  While firms were pushed to adapt and use new technology during the pandemic, some firms that have operated for decades with little change, may revert back to that mindset.  Firms, however, that buck the system and invest in technology will thrive in the long term. According to Raczynski:

-Joseph Raczynski

Firms that are willing to embrace technology will provide better services for their clients. They will be better able to quickly sift through and digest immense sums of information. “In the decades ahead, data and services to understand that data will reign supreme,” Raczynski predicts.  Facing pressure from corporate clients to cap rates and reduce billings, some firms are incubating legal tech companies to speed development of software and other products to facilitate the efficient delivery of client services. Those that are successful will license their internally developed tech services to other firms or sell the technology to companies. Either way, these entrepreneurial firms are generating new revenue streams while developing tools to better serve their clients. For example, national plaintiff personal injury firm, Parker Waichman, developed case management software, which it licenses to other firms to help them manage mass tort litigation. Not to be left out, smaller firms are banding together in collaborative settings to invest in technologies together that they wouldn’t be able to manage financially on their own.

With insight from Raczynski, let’s zoom ahead for a glimpse into the future. 

Raczynski predicts that current roles undertaken by attorneys will change significantly over the next twenty years. “Much of the rote work being performed now, will be gone,” he says. “That said, many new facets which we haven’t even conceived will likely supplant some of those activities.”  Certainly, AI imbued eDiscovery tools will be the norm for document review.  This technology eliminates the “amounts of eyes on pages,” he says.

AI and machine-learning will continue to facilitate and expedite research and trial practice.  Raczynski describes how attorneys will have computer applications at their .  Research platforms will have semantic and nuanced understanding of the actual meaning of legal opinions and will go well beyond key-word matching.  The applications will quickly access every case and ruling on point and “spit out decisions,” which will likely be “the final decision,” or at the very least be “augmented intelligence” to assist the judge or jury, he predicts.  Litigation will become less burdensome and more efficient for the majority of cases.  Perhaps, too, this will result in significant financial savings to clients.  Interestingly, Raczynski anticipates that technology will reduce courtroom drama as finders of fact will make decisions based on data – and be less influenced by attorney performance.  Courts will be virtualized with mixed reality 3D glasses for the judge and jury that will bring crime scenes, accident reconstruction, and other cases to life.

Outside of the courtroom, Raczynski anticipates that technology will automate transactional work.  While contract negotiations will still exist, “everything will be interactive, voice automated, templated, intuitive, and securely stored on a blockchain,” he says.  Blockchain creates an immutable, digital record of transactions. It eliminates human error, which is commonplace in contract drafting.  Retinal scans will be used to confirm the validity of executed documents.

-Joseph Raczynski

Blockchain technology, according to Raczynski, will be run so that triggering language on this platform will automatically negotiate deals or execute contractual obligations. “What we are talking about is fully codified contracts,” he predicts, “with the ability to interact with factual data and either negotiate on its own, based on Party A’s and B’s preferences, or even self-litigate when something in the code goes awry.”  While blockchain is still somewhat nascent and the stuff of computer scientists, it will transform global commerce and the practice of law.

Technology will also transform law practice management and allow attorneys to spend more time serving clients instead of handling administrative issues.  Thomson Reuters conducted a study on time management and reported that with smaller firms, approximately 61% of their time was spent practicing law.  The balance of their time was spent on the business of running the firm, which is crucial, but not a billable activity. The larger the firm, the less time spent on administrative work.  In the future, law practice management will be facilitated through the use of a decentralized autonomous organization or DAO.  This is a business model structured on self-executing smart contracts that function without the need for in-person decision-making.  Smart contract governance doesn’t require boards of directors or firm management committees to meet, analyze data, and make decisions.  Rather, a DAO outsources the analysis through smart contracts allowing for token-holder network consensus.  Voting attorneys would hold tokens based upon their seniority, billings or pecking order status.

Admittedly, much of this technology is difficult to explain let alone visualize in practice.  However, there are steps that law firms should be taking now to better position themselves to be able to leverage emerging technology. “Opportunity abounds in the legal market right now,” Raczynski says. He portends a golden age for the practice of law: the intersection of where the legal industry marries technology.  While firms of all sizes were once reluctant to spend disposable income on technology – even on network security – large firms, in particular, are starting to increase their IT spend and budget for the future. Planning and budgeting for the proactive use of technology are key first steps. 

There has been a significant shift in law firm operational budgets allowing for an increase in technology spending. As attorneys have become more technologically advanced, there has been less need for clerical staff to draft pleadings and correspondence, perform filings, mail letters, and other tasks.  Younger lawyers, who have never used a Dictaphone or fax machine, have long been drafting their own briefs. Since the recession in 2008, firms have been increasing attorney-to-clerical ratios and spending less on clerical support staff. A legal secretary, who once supported one or two attorneys, is now working with eight or more.  As described earlier, firms are spending less on their office leases by reducing square footage.  Technology has filled the void left by these drastic operational changes, while freeing up cash for reinvestment in IT products and infrastructure.

Importantly, technology also levels the playing field. Solo and small firms are poised to benefit as the cost of technology decreases.  “If they decide to embrace technology, Raczynski says, “it enables them to automate, find answers quickly, and respond to their clients with aplomb.” He recommends that solo and small firms connect with the growing LegalTech community to see how they can learn, interact, and leverage new ideas to benefit their practices.  Additionally, law schools are excellent sources for technology training and incubating new ideas.

In Tomorrowland, there will be significant opportunities for tech forward iGeneration attorneys.  Law school graduates, who grew up with mobile devices in their strollers, will have key leadership roles.  Attorneys with degrees in engineering, network security, computer science and coding will be valuable hires.  As technology is second nature for them, they can undertake important IT operations and reverse-mentor firm members who aren’t as tech savvy.  

Finally, corporate clients aren’t going to wait for their hometown attorneys to become comfortable with emerging technology – especially when some firms are deploying high tech tools in their practices.  Corporations are investing in their own technology infrastructures and expect the same commitment from their professional service providers. They also expect law firms to engage in vigorous network security to protect sensitive client data from malicious actors, which is a real threat.  Ideally, law firms will automate routine research, drafting, and discovery review, so that attorneys can focus on customer service, including responsive and timely communications, learning about their clients’ unique business needs so they can be proactive instead of reactive, and cultivating new client relationships.

There is no time like the present to prepare for the future.  Attorneys should attend technology conferences, network with legal service vendors, join cyber law committees, and connect with futurists like Raczynski to gain a better understanding of the technology that is already transforming the practice of law.  Learning something new will feel uncomfortable at first, but it will get easier. The DeLorean is idling out front and ready when you are.

Podcast: The Hearing – Andrew Fletcher, Director at Thomson Reuters Labs

Lots of fun this week on The Hearing Podcast with my colleague Andrew Fletcher, Director at the Thomson Reuters Labs.  If you enjoy uncovering what the future (and the now) of the legal industry might look like, take a listen.  We toss aside the fluff, and meet at the cross section of AI, APIs, Design Thinking, Innovation, and how it all impacts the legal industry. 

Listen here:

https://podcasts.apple.com/gb/podcast/ep-75-andrew-fletcher-thomson-reuters-labs/id1389813956?i=1000517742116

or

CodeX FutureLaw 2021: Computational contracts create a Big Bang in legal

Originally published on the Legal Executive Institute.

By Joseph Raczynski

The bleeding edge of the legal industry is now building interfaces at the intersection of code and law through computational contracts.

These computational contracts (sometime called smart contracts), according to Stanford University, are a universal Contract Definition Language that will allow terms and conditions to be represented in machine-understandable way. As a result, computers will be able to process and reason over the contracts automatically with a guaranteed degree of accuracy. The Stanford project sees this as not only a significant reduction of legal transaction costs, but it also opens a variety of new options to create better contracts.

With these building blocks taking shape, we can finally peer into how technology will guide legal into a fundamental paradigm shift around legal contracts. This idea, among others, were discussed and debated at the recent CodeX FutureLaw 2021 conference, held virtually.

Before the legal pyrotechnics on self-executing contracts, the conference began in more of a reflective state. Thomas Kim, Chief Legal Officer and Company Secretary at Thomson Reuters, spoke about the industry transformations ahead, emphasizing the intelligent, thoughtful adoption of new technologies. In crafting his message, Kim focused his attention on the compelling need to establish industry standards around technology, where companies must create global values. Pivoting to regulation, which he believes will ramp up, Kim explained that is vitally necessary for companies and their technology to weave a fair fabric of social consciousness and awareness.

Finally, Kim described the key principles around artificial intelligence which Thomson Reuters has offered to the industry, prioritizing safety, security, privacy, and humanity.

codex

In another session, Allen Kay, a preeminent American computer scientists and Turing Award Laureate, led an eccentric yet nuanced keynote on intellectual curiosity and bias. He purposefully quizzed the audience, asking: “With so many bright people on the Supreme Court, why do we have such different opinions?” Utilizing theatrical metaphor throughout, he unpacked a theory of human perspective, with the theater in our minds. “Humans are easily fooled, want to be fooled, pay to be fooled, fool ourselves, and we pay to fool others,” Kay said, adding that most of our mind is still operating on instinct from 200,000 years ago.

Kay’s incisive vision on the human condition laid out the inherent concerns surrounding the next era of computational power and the biases built into them. Our malleable minds can be shaped by those in power with their narrative, he surmised, and without the legal industry applying critical thought, the producer of the play will create a scene in their own vision, i.e. bias within the code for the legal industry.

Forming the law into computational contracts

The conference then shifted to the concept of computational contracts covered by two different panels, which both were in near uniform agreement that we are going to see serious disruption to the contractual components of legal agreements in the near future.

Harry Surden, Associate Professor of Law at the University of Colorado, moderated the panel and described the complexity of helping computers understand the English language, which is no easy feat. Michael Genesereth, professor in the Computer Science Department at Stanford University, then began with a premise that we need to rethink how contracts are written, stating that there’s a need to “form the law into computable contracts.”

To do so, however, first we have to create a domain ontology, which is the first vocabularies and vernacular that can be used to describe a universe of the legal discourse. In this instance, we are referring to dependencies between types of knowledge in legal reasoning. It sounds easy, right?

codex

One surprising theme the panel offered was the interstitial nature of using AI to convert contract language to a form of computational contracts. “We are currently trying to rebuild the horse out of metal and machines rather than progressing to the car,” said Oliver Goodenough, Law Research Professor, University of Vermont. Instead, he said, we will get to a point where we need to rethink the contract itself and then code around it.

What panelists proposed was a system that used the ontology of a legal system, coupled with interdependencies and outside data to build a dynamic contract. Eventually, this would be a no-code solution that would be akin to the WYSIWYG (What you see is what you get) web pages that people build today, rather than using HTML.

The second panel focused on computational contracts by using the insurance industry as a backdrop. Michael Pieciak, Commissioner of the Vermont Department of Financial Regulation, described what computational contracts look like, noting these contracts are so rich in technology that it took a 122-page report to describe the algorithm they use for insurance underwriting.

Roland Scharrer, Group Chief Data & Emerging Technology Officer at AXA, described the complexity of what his company has built and how it works, adding that contract creators can get insights from data within the industry and then write the contracts. “This technology is real and being used now,” Scharrer said.

Panelists also observed that in the not too distant future, the contracts will be more complex, and users will be able to leverage external data with the contract itself. Eventually, the contract will be able to execute itself. We also will see an increase in the use of decentralization components, which is being embraced by the FinTech, eCommerce and insurance industries.

While sessions touched on automation and disruption, the binding element which connected all of the day’s debate was a focus on creating a more equitable, open, and fair legal landscape imbued with thoughtful, unbiased technology. Reflecting on the keynote, it’s fair to surmise that the opportunity is immense — yet, we must commit to critical thinking, challenging traditional norms, and re-conceptualizing how technology can enable access to justice and better legal services for all.

Non-Fungible Tokens (NFTs): Asset ownership via blockchain rockets into legal

In a two-part series, we will look at Non-Fungible Tokens, explaining what they are and how they will impact numerous industries; and how decentralized finance (DeFi) is critical to understanding NFT’s importance within the legal industry.

Originally published on the Legal Executive Institute.

By Joseph Raczynski

Welcome to the early days of where blockchain goes mainstream, and the legal industry needs to take notice.

While Non-Fungible Tokens (NFTs) have been around for several years — remember CryptoKitties or even the original NFT, called CryptoPunks? Even if you don’t, NFTs have officially exploded into popular culture, begging the question: So, what are they?

A Non-Fungible Token is a token stored on the blockchain, which itself is a secure distributed database with redundancy, immutability, and clarity into tracking data or ownership. A token proves ownership of an asset. For example, a deed to your house is a sign of ownership to that plot of land and building. In the case of the first digital token, Bitcoin, a single Bitcoin is the title of ownership to the underlying value of the Bitcoin.

The best part about a token on the blockchain is the ability to track ownership and therefore authenticity, undeniably proving ownership.

CryptoPunk #7129 Sold for $90,000 recently

Fungible refers to an asset that is easily exchangeable. In the classic example, a dollar is very fungible — you can hand a dollar to me in exchange for some gum, and I can then re-use that dollar for a can of soda. The physical dollar maybe different because I swapped with another in my wallet, but it is easily replaceable and exchangeable, so it is fungible.

Now, it gets interesting. A non-fungible token is a unique token that is not easily exchangeable or replaceable with another. With the mania that is occurring with NFTs, the best example is with art. Recently, Mike Winkelmann, known as @Beeple, a renowned artist who has worked with Nike and Apple, sold 20 pieces of his own work on the digital marketplace Nifty Gateway for a total of $3.5 million. And in the latest eye-opener, he sold a collection of many of his works combined into a masterpiece, titled EVERYDAYS: THE FIRST 5000 DAYS at Christie’s for $69 million. These transactions occurred on Ethereum, the primary blockchain platform of record for storing value, but Winkelmann’s art itself was simply digital images.

With the NFTs, we are proving that rare and scarce representation of things can create value, and that value can be captured on the blockchain. Let your imagination run wild for a moment: What this means is that nearly anything and everything that is represented digitally could also carry provable value.

Would you pay 2.5 million for ownership of Jack Dorsey’s first Tweet?

For example, Jack Dorsey, CEO of Twitter, is in the process of selling his first Tweet, the original Tweet of Twitter. It is, as of this writing, estimated at a value of $2.5 million and projected to go higher. Why might you ask? Well, it is feasible to collect royalties on that tweet once you own it; or, you could hopefully resell it in the future. Lastly — and again, I beg your imagination for this thought — in the not too distant future, with people living in virtual reality, these pieces of art will have a home inside those worlds, too. Other examples, the NBA has now gotten in on the action by leveraging NBA Top Shot, selling limited edition, finite numbers of virtual basketball cards, including a short clip of a LeBron James dunk, which recently sold for more than $200,000.

In the past, I discussed asset tokenization, which is the simple idea that nearly anything could be represented on the blockchain as having value. It this is now happening. This could be a painting, your car, a house, or even a Tweet. Essentially, if you have something original, that you can then prove is yours, that item can derive value.

Through the lens of the legal kaleidoscope, we are entering a complicated but colorful place, and there are an incredible number of areas this will touch. As technology push us to rethink what we know, NFTs shall do the same. In this nascent area, contemplation about the impact on both the practice and business of law will hit multiple fronts. Here are just a few:

  1. Intellectual property — NFTs carry a huge target on their virtual backs from the IP angle. At the heart of these tokens is uniqueness and ownership, and that means that eventually, litigation will follow.
  2. Trust & estates — Possession comes in the form of a digital wallet. Access to the private and public keys will need to be accounted for and administered for these sorts of new assets.
  3. Anti-money laundering — One worry, at the moment, is that the buying and selling of these digital assets could be a way to disguise or launder dirty money. Although the underlining technology of the blockchain is leveraged, a general misunderstanding of its complexity makes it a temporary safe haven for the scofflaw.
  4. Tax & accounting — Millions of dollars are being transferred, soon to be billions; and those in the tax & accounting field will need to better understand this space to assist their clients. How are sales treated? What does appreciation impact? And how can we account for the transactions?

NTFs are likely here to stay. They will continue to evolve, however, representing nearly every assets class going forward. Law firms, corporations, tax & accounting firms, and government agencies will need to pay attention to this space in order to account for how this new technology impacts their individual [digital] pictures of the law.

Understanding the lessons of the pandemic and human nature at Legal Geek

Originally published on Thomson Reuters, Legal Institute.

By Joseph Raczynski

The pandemic was “the great equalizer” for the legal industry, combining the good from before with the great from the now.

A recent half-day virtual event, Legal Geek Presents Thomson Reuters Takeover, underscored this idea and offered a glimpse into the latest legal insights on the future of the legal profession and the impact of the opportunities arising in legal technology.

Lizzy Duffy, Senior Director of Global Client Services at Thomson Reuters Acritas, gave a sharp keynote that cut to the heart of the changes we all experienced during the pandemic over the last year. She shared the vision we lived, a sense of humanity, where we peered into each other’s homes, met pets, and universally heard one of our colleagues quip, “You’re on mute!” Raising important lessons from this time, Duffy focused on the positive, examining what we can learn from the last year and how we can push away the unhealthy habits we once had.

Turning toward numbers — since Duffy specializes in data around current legal trends — she said one major lesson of the pandemic (and potential benefit) is the renewed focus on doing more with less. Over the last year, the pandemic created a surge in work for law firms and corporations, specifically around contracts and financing. Alas, legal budgets did not grow in tandem, she said. While corporate general counsel experienced an uptick in disputes, for example, the spending did not follow, Duffy said, identifying an imbalance in legal organizations desire to provide more to clients and customers, but doing without any increase in resources. The pinch of the increased need for services coupled with less resources became real in lockdown.

Law firms also have refined their drivers as a result of the pandemic, according to Duffy. The parameters now include, what is delivered, how it is delivered, and who is delivering it. First, law firms have to distinguish themselves with what is delivered, by offering highly specialized, experienced talent, while also increasing their range of services provided. Second, technology and thinking innovatively greatly influenced how it is delivered, and leveraging alternative resources were accelerated. Third, diversity, equity & inclusion (DEI) became an important standard for all parties as to who is delivering it, while trust and personal relationships —  seemingly omnipresent, were even more important in a virtualized environment for clients and law firms.

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The struggles highlighted during the keynote demonstrated a divide between virtual and in-person experiences. Acritas found that 15% of practitioners experienced an overall deterioration in their perspectives by being less efficient and productive, missing collaboration with colleagues and learning opportunities. Conversely, 34% said they felt they were more efficient, enjoyed leveraging technology, and felt more productive.

Duffy noted our human existence of commonalties, yet juxtaposed our differences. In the end, the path forward is a hybrid approach, where law firms and corporations acknowledge these different experiences and adapt to allow individuals the latitude of picking their own Tao-ish professional path towards balance, flexibility, and order.

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In the session Now What’s Trending?, Rawia Ashraf, Senior Director of Legal Practice and Productivity, and Jim Leason, Vice President of Customer Proposition, both at Thomson Reuters, led a discussion making sense of the latest trends in legal technology. They dove into a panoply of topics including, working from home, alternative legal service providers, the Cloud, and transaction management.

Ashraf recalled a conversation she had in 2018 about Cloud adoption, where a leader in the industry mentioned that it was going to take a pivotal event to push the legal industry fully into the Cloud, thinking it was going to be a major security breech. It ended up, of course, being COVID-19.

During a participant poll in this panel, Ashraf asking attendees what percentage of law firms were not comfortable with the Cloud, based on the 2020 ILTA Technology Survey. While most respondents thought it was 28%, Ashraf informed the audience that it was only 11%. Clearly Cloud technology has grown in importance over the last handful of years, and this was greatly accelerated over 2020.

Another issue that Leason and Ashraf tackled surrounded cost. With projected real estate footprints falling, where do the unallocated savings go? Leason believes a good percentage will be invested in technology; and with a multitude of newer applications and services coming into play, it is a natural progression for efficiency and productivity in the marketplace.

Lastly, Legal Geek brought us breakout sessions around artificial intelligence, discussing ethics and contract review, which are strong themes in machine learning. The session highlighted Thomson Reuters’ recently launched AI Principles, a set of guidelines designed to ensure the organization is promoting the ethical research, development, and adoption of AI. Given the bias that can be found in various algorithms which can be greatly exacerbated by AI, it was comforting to learn the industry is conscious and actively doing something.

The Legal Geek event really brought home that 2020 has been a time to reflect, learn, adapt, and adopt. While we all have commonalities in our goal of serving a client, we may do it differently. Leveraging technology, what we have learned about ourselves, and tapping into our own basic nature will make the path forward easier and better for everyone. That will be especially true if we can embrace the flexibility we have recently enjoyed and combine it with the good of the old, thereby creating a healthier ecosystem that’s well enabled by technology.

Podcast: The Hearing – Federico Ast – Cofounder & CEO – Kleros

From the producer: Here at The Hearing HQ we’ve really missed travelling. So being whisked (virtually) to Buenos Aires for this week’s episode was a real treat!

Meet Joe’s guest, Federico Ast, the CEO and founder of Kleros. He’s deeply intelligent, thoughtful and one hell of an aggravator in the world of justice. Federico has a philosophy-centered approach to improving judicial systems around the world, and talks to Joe about how deliberative democracy can fast-track access to justice.

Kleros is an online dispute resolution system based on blockchain, crowdsourcing and game theory. We hear how Federico has used his experience of the Argentinian economic collapse of the 90s to problem-solve dispute resolution for the internet age.

Listen Here:

Apple: The Hearing – A Legal Podcast – EP. 73 – Federico Ast (Kleros) 

Google: The Hearing – A Legal Podcast – EP. 73 – Federico Ast (Kleros) 

Podcast: The Hearing – Karim Sabbidine – Associate at Thompson Hine

From the producer: On The Hearing, we’ve talked to people at the top of their game about their experiences of lockdown. We’ve gained advice from experts on how businesses can best weather these unprecedented times. And this week Joe chats to Karim Sabbidine, an associate at Thompson Hine, about what COVID-19 means when you’re at the legal coalface.

Pre-pandemic, life as a New York litigator was a heady mix of high pressure and excitement – tiring yet fun. But for Karim it quickly transitioned to being cramped in a small apartment with two equally busy flatmates, while trying to navigate a virtual trial.

Karim has an international and multicultural background, and has an enviable résumé of on-the-job training. He talks to Joe about the realities of being a litigator, the benefits of writing every day, and why it’s important to always dress the part.

Apple:

https://podcasts.apple.com/us/podcast/ep-70-karim-sabbidine-thompson-hine/id1389813956?i=1000506479119

Google: https://podcasts.google.com/feed/aHR0cHM6Ly9wb3J0YWwtYXBpLnRoaXNpc2Rpc3RvcnRlZC5jb20veG1sL3RoZS1oZWFyaW5n/episode/aHR0cDovL2F1ZGlvLnRoaXNpc2Rpc3RvcnRlZC5jb20vcmVwb3NpdG9yeS9hdWRpby9lcGlzb2Rlcy9FcDcwX0thcmltX1NhYmJpZGluZV9taXhkb3duLTE2MTEzMzQwNTk5NzIyOTcyMjktTXpFNE56UXROekk1TURjek1UYz0ubXAz?sa=X&ved=0CAUQkfYCahcKEwiI15PG4LzuAhUAAAAAHQAAAAAQAg

Facebook’s Cryptocurrency Needs to Prove Itself, Expert Says

Published on Lifewire

Written by Michelai Graham – Interview with Joseph Raczynski

Facebook is scaling back its ambitious plans to move into the cryptocurrency sector while users on the platform aren’t showing much confidence in the site’s new addition.

The media giant will likely launch its smaller scale Libra cryptocurrency project as soon as January. Libra was originally supposed to be a new currency backed by fiat money (a currency established as money by the government) and securities (tradable financial assets). Libra will now work as a stable coin, meaning it won’t fluctuate in value as it’s pegged to something like the US dollar or a basket of currencies.

“It was only a matter of time before a private company went down the road of their own cryptocurrency,” Joseph Raczynski, a technologist and futurist for Thomas Reuters told Lifewire in an email. “I was very excited to hear this was going to happen last summer, but skeptical to see how it would transpire.”

What Exactly Is Facebook Trying to Do With Cryptocurrency Anyway?

Cryptocurrency is the private industry’s brand new way to exchange value over the internet, Raczynski said, and Facebook wants to take advantage of that. 

Raczynski has been working with cryptocurrency since the creation of Bitcoin in 2011 and has even created his own cryptocurrencies before. He said the most appealing aspect of cryptocurrency is the security and ease of use. Unfortunately, cryptocurrency is still just an idea of the future for some people, which may be a struggle for Facebook as it plans to launch soon. 

“At its most basic, cryptocurrency is the representation of value on the Internet,” Raczynski explained. “The first stage that people should be cognizant of is that a cryptocurrency will be similar to a digital dollar.”

“It was only a matter of time before a private company went down the road of their own cryptocurrency.”

Facebook plans to launch a single dollar-backed coin, and eventually a wallet called Novi, to send and receive Libra currencies. Digital wallets are encrypted, Raczynski explained, so only the user would have access to it. With Novi, Facebook users can manage their digital coins within Facebook’s apps, including Messenger, WhatsApp, browsers, and other connected apps. With the use of a single currency, Raczynski thinks it will make the barrier to do things much easier to manage.

“Anyone using Facebook around the world could exchange their local currency for the Facebook currency,” he said. “Anything you want to buy, services rendered, or simply exchanging money could happen across the world with a unified Facebook currency.”

Are Facebook Users Ready for Libra? 

With all of the changes to Facebook’s cryptocurrency plans, users may be skeptical of its efficacy, yet the appeal of being able to easily send and receive money digitally may (eventually) trump those doubts. The social media giant is no stranger to discussing privacy, so it better be prepared to talk about its plans to track cryptocurrency usage on its site.

“Facebook is a lightning rod for controversy,” Raczynski said. “What they do or don’t do with users’ personal data and tracking user habits is a constant in the news and most people’s minds. It really is a broadening of what Facebook can do to trace and track habits and data patterns.”

Facebook users are probably already using digital wallets like PayPal and Venmo, and Facebook’s Novi will work similarly to those. What they all have in common is the fact that the platforms own and manage users’ digital wallets. 

https://www.facebook.com/plugins/video.php?href=https%3A%2F%2Fwww.facebook.com%2Fnovi%2Fvideos%2F859686647872438%2F

In the “real” cryptocurrency world, users have full ownership of their digital wallets, which are protected by private keys—a public address to share with anyone to make transactions with and a private one that shouldn’t be shared and essentially makes the wallet yours. So, while your money would still be yours via Facebook’s digital wallet, you don’t “own” the system it runs on.

Another important aspect to note is that while Libra is slightly more decentralized than a country’s own monetary system, like the US dollar, it’s still centralized around a number of companies serving as validators. While it might be a better system to use, according to Raczynski, it’s still susceptible to hacks because there are relatively small sets of attack points.

Why Is This Important?

This new currency Facebook is creating won’t rely on the government, and will instead be backed by an extensive portfolio of companies, including those in the Libra Association. 

“They have developed a governance where mega companies run computer nodes/servers that verify transactions between people or companies,” Raczynski said. “Now, in concept, this is similar to what Bitcoin established 11 years ago, only Facebook is run by upwards of 100 companies and their servers, rather than tens of thousands of computers which are not influenced by those private companies.”

In the not-too-distant future, Raczynski said, every asset people have will be represented by a cryptocurrency, from cars to real estate and beyond. This reach could also help people around the world who don’t have access to physical banks.

“Anything you want to buy, services rendered, or simply exchanging money could happen across the world with a unified Facebook currency.”

“There are few things that will be as technologically transformative in the world as cryptocurrency over the next ten years,” said Raczynski. “I am most excited about how it has the potential to help the unbanked, and [help] people living in developing countries rise up and take ownership of their own assets and build wealth.”

Despite Raczynski’s confidence in the growth trajectory of cryptocurrency over the next decade, people will have to learn more about crypto to believe using it on Facebook is a real thing, just as online shopping prompted much skepticism across the world when it first became reality. That, however, is on Facebook to prove.