It was a ton of fun recording this podcast with the omniscient and ever engaging Joseph Gartner at the ABA Center for Innovation – (full transparency, I sit on the Council). With Joey’s new role as Director and Counsel, we chatted all things #blockchain, #cryptocurrencies, and #NFTs and their impact on the legal industry. It is fantastic to be a part of a group pushing on #innovation in the legal industry at the ABA with Chair, Don Bivens and the entire Center for Innovation Governing Council.
Originally published on the Legal Executive Institute.
By Gina Jurva – Joseph Raczynski
Is the COVID-19 pandemic more quickly moving the world to a cashless society? One where almost all financial transactions are not conducted with physical banknotes or coins, but rather through the transfer of digital information via a smartphone?
Thomson Reuters technologist and futurist Joe Raczynski explains why cash may no longer be king and how the fear of banknotes carrying and passing the coronavirus itself may help get us there more immediately.
Legal Executive Institute: The World Health Organization (WHO) recently indicated that washing your hands after handling money, especially if handling or eating food, is a “good hygiene practice” but they stopped short of issuing any formal warnings. How can technology help guide this conversation?
Joe Raczynski: Sooner than we thought, we will be moving away from the possibility of literal dirty money, meaning legal cash tender. Believe it or not, the United States was on the cusp of issuing a digital dollar on at the end of March. As part of the early draft for the COVID-19 stimulus package, bold and powerful policy makers vied for the creation of a Digital Dollar.
Having presented on this topic for the last four years, I was ecstatic to see this development. The concept was to have the US Department of Treasury issue FedAccounts to everyone in the country. Normally, FedAccounts are only issued to qualified banks.
In essence, these accounts would create digital wallets for everyone. Once released, stimulus money could be sent directly to each person in moments. Ultimately, the concerns around logistics and privacy became too significant a barrier, but clearly it is only a matter of time before we have a digital wallet issued by the US government.
Legal Executive Institute: China has taken measures to sanitize their cash. Is this really a path forward for global payment systems?
Joe Raczynski: Yes and no. Multiple news reports claimed that China was burning their paper currency to prevent passing bank notes infected with the virus. Based on the scientific evidence for how long the virus can stay on surfaces, it is logical to reduce the risk by avoiding paper or metal currency.
Fortunately, China had already transitioned to a nearly cashless society. With AliPay and WeChat Pay, nearly everyone in China is using QR Codes to exchange money digitally in person and through digital wallets online. From what I understand, payments via these two platforms make up roughly 80% of all payments in China. That’s huge! The next step will be the People’s Bank of China issuing a Digital Currency Electronic Payment (DCEP) sometime in the next six months. More than likely this will utilize the benefits of blockchain technology — immutable, secure, and transparent.
This last benefit is potentially problematic for the Chinese people. When their digital currency is used, China will have direct insight into the finances of everyone in the country, and beyond, as China’s plan is to roll this out globally, especially in Asia and Africa. The Chinese government has stated that this will help them fend off money laundering, as suspicious transactions can be immediately audited and examined with ease.
Legal Executive Institute: Prior to COVID-19, how close were we to moving to contactless payments?
Joe Raczynski: Most countries in Europe and Asia currently have available some sort of contactless payment system. In the UK and the rest of Europe, the popular payment method is hovering your debit or credit card over the terminal and the payment is processed immediately. They have been doing this for years. The US is just beginning to use the contactless card payment system. Apple Pay, Samsung Pay, Android Pay, all have been around for years now, and are popular with a younger demographic.
With the virus outbreak, more establishments have been pushing for these transactions, which still use banks and credit card processers like Visa, Mastercard, and American Express.
Legal Executive Institute: How feasible it is for retailers use contactless payments as a primary payment method?
Joe Raczynski: We are at a point where most, if not all transactions could be contactless. Many startups, semi-casual restaurants, and small businesses aim to only use contactless payments — for example, like Square does.
Similarly, individuals transacting with others can send money to each other via private bank enabling systems like Zelle, Venmo, Apple Pay, or Google Pay. Clearly credit cards and virtual gift cards have been popular with online merchants for years.
The primary setback for pure contactless and credit card transactions are the unbanked — US adults who do not have a checking, savings, or money market account. According to the Federal Reserve, about 6% of US adults fall into this category.
Legal Executive Institute: Are mobile payments the answer?
Joe Raczynski: Unequivocally yes! Most semi-modern mobile devices have the capability to add credit or debit cards by mapping them to your mobile app payment system of choice. This is a partial solution, for those with access to the banking system, which is the majority in the US. However, to cover all, the idea of the Digital Dollar in a government-issued wallet would be ideal.
Legal Executive Institute: In the US, major mobile payments apps had adoption rates of less than 10%, according to the Pew Research Center. What are the major hurdles for adopting mobile payments as a primary payment method?
Joe Raczynski: While smartphone use is at roughly 81%, according to Pew, the primary hurdle for contactless payment in the US is actually habit. We are accustomed to swiping cards or inserting them into a device for chip reading.
Education is also key — many people are unaware they can hover their card over a payment terminal to do the transaction. (Look for the wireless symbol on your card to see if this is feasible.) Clearly migrating to app-based transaction on your smartphone will grow in popularity too. And with the pandemic, the push to contactless payments is a given.
Legal Executive Institute: What might payments look like in the future, and how can we protect against fraudulent activity?
Joe Raczynski: I honestly believe some dramatic shifts are about to take place with our primary forms of money. With the advent of blockchain technology, there will be a fission between state-sponsored fiat money and privately-run currencies. The philosophical and theoretical concerns, challenges, and opportunities are innumerous, but not insurmountable.
Facebook’s Libra project, for example, is an effort by a private company to issue a global currency. The idea is to create a permissioned blockchain where a set number of trusted participants (100 or so) control the rules and define total circulation of the coin. While Libra has met with significant headwinds, this is very likely our future, in some incarnation. Facebook, or more likely, a large private company outside of the US will succeed here. If Facebook perseveres, it could create a global currency usable by half the world population overnight, which is extremely powerful, albeit a bit threatening to sovereign nations.
What will be fascinating to watch is the push by governments around the world to issue their own digital currency in the next few years to counter the private company coins. According to the International Monetary Fund, 50 countries are now exploring issuing their own digital currency.
The major dilemma for state-sponsored digital money, however, is the question of whether they pursue blind payments or clear payments. That means, will they allow people to use the digital currency like paper currency by concealing private information through cryptography? Or will they wander down the Chinese model and make it all traceable by the government, which would certainly help curtail nefarious transactions but could ebb civil liberties.
Last week I created a checklist for those organizations that have not had people, at scale, work from home. There are two lists. The first list helps someone who has not worked from home previously checkoff that they have all the necessary resources from A-Z to do everything they would normal do at their office. The other list helps technology teams prepare their internal systems to allow remote work. You can find these lists here:
Law Firm Employees: Work Remote Checklist – Firm Legal and Support Staff – 3-18-2020
Law Firm Technology Teams: Work Remote Checklist – Firm Technology Admin Staff – 3-18-2020
In this week’s episode, I am joined by the preeminent thought leader in legal tech, and Chief Knowledge and Client Value Officer at Shearman & Sterling, Meredith Williams-Range.
Taking us on a journey from her small-town, rural upbringing just outside of Memphis (where you’ll find the absolute best BBQ) to the bright lights of New York, Meredith tells how family tragedy and a decade-long lawsuit led to a career in law.
Meredith talks about her career at Baker Donelson, where she worked with colleagues steeped in American history, including President Reagan’s Chief of Staff, and eventually became involved with legal tech. The hustle led to a fascinating new position at Shearman & Sterling, a position that Meredith notes was designed on a napkin! The firm’s great vision and wonderful people meant that Meredith knew from the start that she could do great work there… and have the best geeky conversations.
In a fascinating discussion about the growth – and the daunting pace of growth – of legal tech and big data analytics, Meredith and Joe consider the biggest legal tech changes of recent years, and talk about the exceptional new tools that serve a true need, with the added bonus of giving the enormous power of data to lawyers.
Originally published on the Legal Executive Institute
By Joseph Raczynski
WASHINGTON, D.C. — The Government sector strives to ramp up its efforts to more widely integrate cutting edge technologies like blockchain, artificial intelligence, and the Internet of Things (IoT), it is running into a myriad of challenges.
Not the least among them, is separating the reality from the hype of these miracle tech solutions.
At Thomson Reuters 4th Annual Government Day, panel attempted this separation by focusing on blockchain, working to uncover the reality of this technology today for governments and cut out the hype of this innovative technology.
Government supply chain management
One area the panel focused on with blockchain is the tech’s potential to change supply chain management, offering a scenario in which a state or federal agency needs to identify the ground zero genesis of a fruit or vegetable foodborne illnesses. The newest proof of concepts utilizes a blockchain-enabled IoT supply chain management technology ecosystem that can save lives by greatly reducing the time it takes to track contaminated tomato from the salad bar back though delivery, distributers, wholesalers, to pickers and finally to the farm.
The panel also discussed how a Massachusetts-based farmer could partner with a technologist to track his tomatoes from vine to fork. The farmer uses IoT temperature gages from the pickers to the platers. This is an example of a public and private partnership where produce with clear data on temperature, handlers, and distributers can be audited through the entire supply chain, all supported on a distributed ledger.
Harnessing this collection of technologies, any listeria outbreak can reduce seven days of research to just seven minutes, ensuring that the U.S. Food and Drug Administration (FDA) have rapid response and control.
Another area the panel discussed included identity management solutions. Breeches to our own private information are commonplace. In fact, recently Facebook suffered yet another attack where 200 million users’ phone numbers were found in a publicly facing open database, including the number of Facebook CEO Mark Zuckerberg. (In case you are wondering, calling Mr. Zuckerberg’s phone number goes to a generic voicemail.)
Not surprisingly given the stakes, various federal agencies have been surveilling this space for some time. An emerging concept about how to prevent such breaches and other identity security mishaps in the future is taking form.
The panel also took up the “radical” idea that the U.S. Department of Homeland Security (DHS) could issue a new unique identifier to replace a citizen’s Social Security Number (SSN). In a major shift, this identifier would exist on a blockchain. This decentralize system would place the control of the identifying number into the hands of the individual, removing a central repository, which could be hacked.
Panelist Alan Cohn, a partner at Steptoe & Johnson, pointed out how this could more securely enable our current voting system, curtailing the chance of fraud and make voting easier for all.
Finally, the panel explored the shifting landscape of digital assets. Cohn said he expects a huge swing in the way we look at assets from a personal perspective and in how the government views it.
The panel concluded that with Facebook launching its own cryptocurrency, Libra, this process has been legitimized. The discussion amped up around what will happen next. I suggested to the panel that Libra could be dead in the water in the United States because of a heightened regulatory concern, but this blockchain-enabled asset cannot be placed back into the bottle. Indeed, with years of consternation ahead from regulators on Libra, companies around the globe will move forward, and the next organization to create what amounts to a world currency will be a messenger app which has 500 million users, Telegram. (Expect its launch before Halloween 2019.)
In all likelihood, governments around the world will be spooked by the immense power an app founded in 2013 will create. They will have a scalable, frictionless asset with features that could bypass anti-money laundering (AML) rules and Know Your Customer (KYC) regulations.
Panel moderator Jason Thomas, Manager of Innovation at Thomson Reuters, and panelist Gail Gottehrer, of the Law Office of Gail Gottehrer, noted that there is significant promise ahead with the intermixing of multiple technologies in combination with blockchain. Indeed, governments are beginning to adopt and adapt in this environment; and with a push from the private sector, state and federal agencies will continue to adjust.
The synthesis of technologies like IoT, AI, and blockchain will create processes which should stamp out farm- and distribution-based foodborne illnesses. New initiatives around the security of personally identifiable information through blockchain will place the control of information into an individual’s hands, removing central points of failure and reducing costly and damaging data breaches.
Lastly, one of the most significant changes ahead is the look and feel of our ownership of assets when everything becomes digital. The opportunity is immense, but so are the concerns around our government’s ability to counter AML as assets become increasingly liquid and frictionless across the globe.
Kleros.io is a blockchain startup which Thomson Reuters incubates in the Legal Technology space. They recently published a book about dispute resolution using blockchain technology. I had the good fortune to work with Federico Ast, Founder & CEO on a chapter for the book.
Please feel free to download a digital copy here:
Kleros’ Handbook of Decentralized Justice available for download NOW!
Here is a section from my conversation with Federico:
One of the cores of our work at Kleros is researching the prospects of legal tech and the impact it will have on the legal business in the coming years. Joseph Raczynski, Thomson Reuters’ resident legal futurist is one of the select few we always love discussing.
Joe has a wide view of the legal industry and the business and technology that will affect it in years to come. Let’s dive into the conversation!
What’s a legal futurist, what’s the job description of that?
There is none. I think they’re still working on that in some dimly lit back room. It comes down to this – I’ve spent a lot of time on the core pieces of technology, either building computers, working on networks, white hat hacking systems and delving into how businesses processes work by studying sociology and believe it or not, nature, which inevitably impacts how we interact and develop.
I have an undergrad in economics and sociology, so I hope I understand the business world, but also believe I have some thoughts on how humans think, how we work as groups. The grad school education formalized and enhanced some of my thoughts with an MBA, and a Masters of Science in e-commerce.
I tried to spend my time on what people are doing in other businesses, in the financial world, in the medical world, and then pull that into what is happening in the legal industry.
Sometimes the legal profession might be a tad further behind the curve with what we see in other industries, so what I can do is peer into how others are working and parlay that into what may happen for legal.
As a practical example, I was mining Bitcoin in 2011 trying to understand how it works. Most of my friends and colleagues asked ‘what is this, what are you doing?’ They thought it was pointless, and the jury was out in my head about it, but I found it very intriguing, so I continued to explore it.
If you play around with these technologies before most know about them, at very early stages, you can get a better picture of what is going to happen in the future with different industries, the legal industry being one of them.
The next thing to take a gander at is memory on organic materials – imagine saving all of your firm information to a tree? Seems bizarre, but at some point these things will happen.
You don’t have a background as a lawyer, but in business and social science. How did you become interested in the legal industry?
I see the legal industry as one of the spaces with the greatest opportunities. You know this is growing because of all of the startups that have infiltrated the industry. There are so many startups that are looking at the legal space right now, because there are two parts to it – the business of law and the practice of law. Both of these are ripe for great efficiency across the board.
These startups are looking at different aspects of these two facets, thinking of how to make it more efficient, to make it a bit easier for the clients to better serve themselves, or to work with law firms and have law firms better service their clients.
I see AI and blockchain leading the way – the AI algorithms making things faster and more efficient and blockchain saving this information and hopefully making it so that the trusted third party is now a computer network.
The perfect example of this is what you guys are doing with Kleros. I honestly think this is one of the best examples out there in terms of how we can create better efficiency in a “trustless” environment, working with blockchain to be able to save information, secure it, but also have people leveraging this tech to create a better environment for all parties involved in a dispute.
Since you mention Kleros, what caught your attention about our project?
What I find the most fascinating about Kleros is the idea that you are going to leverage blockchain as a space in the ether that allows people to file a complaint, process that complaint, and eventually resolve it, using a system based on blockchain, and wisdom of the crowds.
Crowdsourcing enables the expansion of the pool of people making the decision. This makes a lot of sense, as it can greatly enable efficiency and reduce costs in a large number of dispute resolution processes.
The economic model that aligns individual incentives with honest decision making is a great innovation within the legal industry.
How do you see a new technology like blockchain interacting with traditional government courts and regulation? Are legacy legal systems going to adapt to blockchain or are they going to be disrupted?
That is a great question and I think the answer depends on where you are in the world.
In time, I think blockchain will absolutely disrupt the way the government interacts with information and the way they verify it. I was in Dubai some weeks ago and met with government officials working on a full-on blockchain enabled verification system that, when decisions are made, puts everything on the blockchain.
Anyone will be able to look up that decision with ease and they want to have this up and running within the next 18 months without having to go through a proprietary company. In Dubai, it is the government who is pushing law firms in this direction. The government is leading there.
In the United States, on the contrary, you find that traditionally it is the corporations that lead change. Law firms tend to follow, then eventually, a little bit further down the road, you may see the government starting to get involved in the space.
Depends on where you are and how this works, but clearly some changes are afoot in the next five years.
What about AI? How is it likely to impact the legal industry?
It’s a funny one. All we see in the news is the AI and how it’s going to disrupt law firms or the legal industry in general. There is so much talk about this every single day, how the robot attorney is coming…
I had the good fortune to meet the pre-eminent legal technologist, Richard Susskind last year in London. One thing he says is that, in the short term, we are probably overestimating the power of AI, but in the long run we are probably underestimating it. We’re at a stage that AI is in the news and most of the attorneys, partners, and managing partners of law firms that I meet ask – is this really happening?
It’s clearly cresting atop Gartner Hype Cycle, similar to what is happening with blockchain, there is a lot that may happen with both of them. On the AI front, you are seeing companies that come along and have very smart ideas about how they can change a section of how the practice or business of law works.
For example, let’s say there is a merger between two massive organizations, both have 50,000 employees. One of the core things they want to look at are the employees they have for both organizations to see if they mesh well. In order to do this, they need to review all 100,000 employment contracts identifying golden parachute language… For example, if anyone got a $50 million bonus if the merger took place.
Currently, many global law firms do this due diligence. They put 100-200 attorneys on it by having them read every single contract and making sure that those documents are standardized – not containing that golden parachute.
Increasingly there are algorithms and associated programs on the market that go through all the contracts, looking for all the standard language, kicking out those contracts that don’t have the common phrases or terminology. Those kick-outs are then reviewed by a human, resulting in a massive increase in efficiency and less people hours.
These startups who are creating these applications, are pushing the bar in legal. They are devising better ways to get the job done using AI – in an incremental way. Will we see a robot attorney in the next few years? No. But these types of tools leveraging some AI will ramp up quite considerably across the board.
What is the result of all this? In the world of AI and blockchain, in fifteen years, say, what’s the place of lawyers in all this? What does the legal system look like?
Ten years out, and these are just guess, all of the lower tier work that we traditionally see law firms doing, be it the e-discovery, some of the contract work, all of that will probably go away.
E-discovery now still has a lot of human eyes looking at a lot of these documents, after a first pass that maybe a computer completes. In time, that will probably be all computer. The documents that are out there right now, the normal contracts, that will all go away.
It’s that very top level where you need human imagination, human thought, collaboration that will be the furthest out to be disrupted. But there are a lot of attorneys that are doing just day-to-day work, canned phrases that you use to build up that document, a lot of that stuff will be impacted in the next, say, five years. In ten ten years, I’d say it’ll definitely be impacted. That’s the direction that I personally see it going in.
Law firms that don’t change the way in which they work will probably go away.
Lastly, what we are starting to see in Europe, as well as Australia and New Zealand, is that the Big Four of auditing and accounting are starting to take away some of the business from law firms.
Not only can they now handle law firm work, they can handle everything else – they have full-on accounting, the business processes, all of that is going to be fulfilled by these massive organizations. That will absolutely impact law firms. This will come to the US soon, it is inevitable.
What advice would you give to a law student preparing for this new world?
Don’t practice law. (Laughs) I’m kidding.
I think it’s still a fantastic profession which requires a great deal of talent and unique thought processes. The advice that I actually gave to a few people who were interning here this summer, who were looking at law school: spend as much time on understanding the basics around law.
If your passion is around helping people and the love of law, go to law school. In preparation for your studies look at some of the startups like Kleros and try to work there to see what a lawyer will be doing in the future. Understand the growing relationship between technology and the law.
Clearly law rules the roost, but technology will continue to play a role in how it is practiced, and frankly what will be done by the future attorney.
I think companies should bring in a few aspiring attorneys to help them understand where we are going as a society, as a business. The future student should work with startups, work with bigger companies that are involved with e-discovery or anything in the legal technology world to help them get an understanding of how the technology works, how the vendors work and how this stuff may impact the way they practice law. Getting a full-rounded perspective of where the world is heading is essential – especially if you are dropping 300K USD on education.
One last thing I’ll mention about this is – I don’t know who originally thought of this concept, but there is a phrase called a T-shaped attorney. It’s literally like the letter T. Across the top of the letter T, those aspiring attorneys are learning everything they can about the business and the practice of law. They are learning a bit about project management, maybe they’re learning a bit about how to code or how vendors work.
More and more we are hearing about attorneys learning to code in different languages, so they have a better understanding of how that works. Understanding how vendors work, how startups work in the legal tech space. That’s the top of the letter, and the deep part, the extension of the letter T is the practice area they’re in, litigation, automotive practice or any else which they know almost as an expert. We are really talking about a well rounded attorney.
What books or other resources can you recommend to people to read and start learning about the future of law?
Some of the best books out there about legal technology and what impact its’ going to have are by Richard Susskind, most are aware of him, but if you haven’t seen or heard this gentleman from Scotland, he is on tour frequently, he talks about amazing things which should be happening in the legal industry.
He has a plethora of works out there. I spend a lot of time on YouTube in my off hours, looking at what people are thinking, what they’re talking about in many different industries, clearly within the legal tech industry as well, so that’s a great resource. Twitter has a plethora of great discussions that are happening as well.
Shameless plug, you can always check out my blog at https://JoeTechnologist.com, there’s always one or two hopefully decent ideas there that could be something worthwhile.
A presentation of Kleros with some extra flavor given by Joe Raczynski
Over the last eight weeks I have traveled around the world to meet our customers, with enough miles technically to have traversed the earth one and a half times or over 37,000 miles.
I had the good fortune to visit customers and present in London, Grand Cayman, New York, Dubai, Washington DC, Auckland, and Sydney. The discussions have been intimate gatherings of global law firm leaders, head’s of startups, medium sized regional firms, and leaders in the US and UAE government sector. I had the opportunity to present to the local offices of Thomson Reuters in Dubai and take the “Orange Chair” Q&A for the Sydney office (video coming soon). I completed a Thomson Reuters ‘Corporates’ session for the Insurance and Financial Industry webinar on Cybersecurity, and performed several live talks demoing to several hundreds the legal implications of the Dark Web. In London the wildly successful and innovative Generate Conference were presentations on the future of blockchain with TR Incubator Kleros, and another talk on cybersecurity to hundreds. Over the last week, I spoke and moderated panels at both a large law and another medium law firm leader dinners, and at forums in Dubai, Auckland, and Sydney. This experience has been amazing! Having that as some background here are some thoughts on legal technology today across the globe.
Brief Customer Observances:
First, I am incredibly impressed with how quickly the legal industry is pivoting and how many now care about legal technology. For the last decade I have traditionally met with law firm and some corporate CIOs, CTOs, Technology Directors and Librarians of all sizes. Now the door has blown open to everyone else. Various practice areas, partners, associates, internal support group, and the executive committees are asking for these meetings and leaning into the conversation around how technology is impacting the legal industry for both the practice and business of law. Reasons are several fold; their clients are asking them, and quite frankly, people are worried about their own jobs.
UK: My experiences have led me to believe that the UK legal market is on average ahead of the curve when it comes to the use and implementation of legal technology. Medium sized firms are rapidly testing and using many of the latest AI infused application to seek efficiency. Partnerships with universities and joining consortia is an increasingly popular option. Having met with the University College London recently, they echoed these same sentiments of active participation from law firms and corporations.
US: The US market is rather bifurcated. There are firms pushing the envelope along the same lines as what the progressives are doing in the UK, but still many law firms seem to keep to the plan that they have had for the last few decades with incremental change.
UAE: The firms are also pushing what they can do with all currently available technology tools in the market. Their courts, especially the International courts might be leading the world. In fact, in the UAE, it is the government which seems to be pushing the private sector. Along with the use of digitalization of workflow and automation of the courts, they are also implementing solutions around blockchain and AI which are bleeding edge.
New Zealand: Besides the top eight firms, many are working on building out their portfolio of technology tools to assist their practitioners in order to be more efficient. There is slow acceptance of AFAs by firms as they await the results of early adopters. There are also several firms going it alone in building workflows and homemade solutions for documentation automation which require multiple developers both onsite and in India.
Australia: After spending time with numerous managing partners and innovation officers, it seems that Australian firms have the potential to lead the way into newer technologies. That said they seem to be on the same page as what we see in New Zealand. Fixed fee arrangements have been around for years, but are not used frequently yet. Australian firms have leaders that can make bold decisions, but for now are testing the waters with newer forms of legal technology in their marketplace.
Appreciation: Internal Partners at Thomson Reuters:
I am extraordinarily fortunate to have made wonderful connections colleagues all over Thomson Reuters. To a one, these individuals clearly have our customers best interest in mind at all times. They epitomize the quality of being there for others as they diligently work through large and small issues in an effort to make our customers happy. There are far too many examples to highlight, but I would like to recognize the following people for their help as I traveled these last eight weeks.
UK: For the Generate Conference, customer meetings and internal strategy meetings, I wish to thank; Kaley Botting, Leila Lobo, Andy Wishart, Lucie Allen, Simon Smith, Ann Lundin, Joe Davis, Joel Black, Vassil Vassilev, Christopher Jeffery, Babar Hayat, Kathryn Davies, Rob Martin, Jennie Bygrave, Brian Carroll, Bruce Frampton, and the rest of the client management, technical, and marketing teams in the UK.
US: For the panel on cryptocurrencies and blockchain for the Federal Government team; Gina Scialabba, Kate Friedrich, Robert Buergenthal, David Wilkins For the Corporates partnership with the Association of Insurance Compliance Professionals and Financial Industry on Cybersecurity: Melissa Berry, Matthew Ashley, J., Lauren Wilkins, Daisy Rowan, Dorian Buckethal and the rest of the marketing teams on the Federal Government, Corporates, and Refinitiv. The Demoing the Dark Web talks with Wendy Maines and Blythe McCoy
UAE: For the Managing Partner Dinner, customer meetings, and internal presentations and meetings, I wish to thank; Haley O’Brien, Danny Crouch, Ibrahim Abdel Rehim, Suhayl Hendricks, Nicholas Cronjager, Eslam Mahmoud, Mark Freeman, M., Yasincan Gabriel Altiparmak, and the rest of the client management team in Dubai.
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.
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.
Originally published in the Legal Executive Institute
By Joseph Raczynski
Cryptocurrencies and its underlying blockchain technology is upending the traditional paradigm for financial institutions and regulators around risk management. This disruption includes unique challenges around identity association and verification in the cryptosphere, specifically around decentralized exchanges, applications (DApps), and identities. We discussed these topics with Judith Alison Lee, a partner at Gibson Dunn & Crutcher, who advises on issues relating to virtual and digital currencies, blockchain technologies, and distributed cryptoledgers.
Judith, what are the legal challenges in identity-linking and verification in the cryptosphere?
Judith Alison Lee: Given the pseudonymous nature of cryptocurrencies, there needs to be a framework — most likely at the exchange level — to identify the individuals that transact in cryptocurrencies. Most exchanges do collect and attempt to verify customer identifying information; however, depending on the exchange, the information collection and verification may not be robust, and customers may engage in various location- or identity-masking services that pose challenges.
Additionally, there may be jurisdictional challenges regarding privacy laws and the transfer of identifying information. Finally, as we are seeing more and more decentralized platforms supporting peer-to-peer transactions, linking customer identity to particular transactions will likely become more difficult.
How are regulators starting to deal with identity and blockchain?
Regulators are requiring licensing or registration for money transmitter licenses at both the federal and state levels, which requires such entities to comply with Know your Customer and anti-money laundering (KYC/AML) requirements and is one way regulators are addressing identity.
Judith Alison Lee of Gibson Dunn & Crutcher
Given the pseudonymous nature of cryptocurrencies, there needs to be a framework — most likely at the exchange level — to identify the individuals that transact in cryptocurrencies.
It gets a bit more complicated when we start to talk about linking participants to particular transactions, particularly since the transactions in spot-market cryptocurrencies are not regulated in the same way as transactions in securities or derivatives. As a result, regulators have focused on fraud and manipulation in those markets and have relied on asking the exchanges for transaction-level information, including any identifying information they have collected.
With regard to KYC/AML, terrorist financing, and anonymous transactions, what does the legal landscape look like and how are states or the federal government handling this currently or planning to in the future?
At the federal level in the US, entities that exchange cryptocurrency may be required to register as money services businesses, while at the state level, many (but not all) states require them to obtain a money transmitter or equivalent license. Both the states and federal government have been involved in enforcement actions to protect against fraudsters in the cryptocurrency space.
In the future, we will have to wait and see if the next Congress will issue legislation on cryptocurrencies.
Is there a way to utilize blockchain for customer due diligence?
It certainly seems that there is a role for blockchain in customer due diligence. The permanent and transparent nature of the blockchain makes it a logical tool to streamline the KYC process. The blockchain would likely be a good way for regulators to have a single source of data and access to the latest information. However, it seems unlikely that a blockchain solution could be utilized for all customer due diligence — though it could certain help to simplify it, particularly for financial institutions.
Clearly, these are the embryonic stages of regulation and oversight for identity management and verification in the crypto space. As adoption of these token rise, global banks and government agencies will further adapt under this decentralized technology-driven revolution.