What is "Blockchain Technology" and what impact might it have on the legal industry?
One of the biggest IT changes on the horizon for us as professionals is the impact blockchain technology will have on the way we work. This note attempts to shed a little light on what it is and how it may be applied.
What is “blockchain technology”?
If you’ve heard of blockchain it’ll most likely have been in the context of the digital currency, Bitcoins. Blockchain is essentially the IT technology behind the virtual Bitcoin currency.
Broadly defined, blockchains are an open digital ledger of information which is distributed and verified across a network of computers (i.e. decentralised). This is in contrast with the current setup where information is stored centrally, i.e. on a central server either on site or in the cloud. For example Twitter is a centralised application. They have the power to delete or censor messages. If they were decentralised, Twitter would not be able to delete or censor any messages.
So blockchains provide transaction transparency and an irreversible, secure and time-stamped ledger of those transactions.
Put another way it is a comprehensive, always up-to-date and 100% correct record of who holds what or who transferred what to whom. The “what” being pretty much anything which can be recorded, for example details of physical assets, intangibles such as electronic cash, securities transactions, government records, etc.
So how does it work?
There are two key features of the blockchain:
1. It works through something called “cryptography”, which authenticates users’ identities and creates fixed ledgers of activity on the asset, document, records etc. These ledgers can’t be changed and therefore there is a complete fixed ledger of what has happened to the asset etc since its creation.
2. Instead of one person keeping a ledger of that asset etc, the blockchain ledger is “distributed”. A complete, current copy is held on all of the computers of each of the network participants (called “miners”) who help keep it up to date. That way if the ledger becomes corrupted or tampered with by one party, the mirror copies held throughout the rest of the network automatically recognise this corruption or tampering and remove it from the network. Hence ledgers remain 100% secure and free from fraud.
How secure is it?
Very. Whilst the ledger is stored on multiple computers throughout the network, it remains completely unreadable. It remains an undecipherable jumble of letters and numbers which can only be decoded if you hold both the Public Key and the Private Key. That way the owner/originator of the asset or document can retain complete control over who sees it.
How could blockchain impact the legal industry?
Smart Contracts: Not only does blockchain keep records which can’t be amended, it also allows for a process to be created around this. For example I draft a development agreement which contains the condition that the developer will receive 10% of their fees on securing planning permission (the process for which would also be in the blockchain). Since the contract would be in the blockchain, the 10% payment would be triggered and paid to the developer immediately once planning permission was secured. You could build in as many trigger events as you wish, all of which would only be triggered once the specified event has genuinely happened. The whole process would be automated.
Banking: Transfer of bank details securely, which can be linked to a particular piece of work, together with automatic payments being triggered on the occurrence of a certain event.
Registries: Blockchain can be used to create a 100% accurate register or database of information, which would include a ledger of historic changes, such as past owners of assets. For example HM Land Registry, Companies House, Probate Registry etc.
Land Registry: HM Land Registry are looking into fully automating the conveyancing process and in October 2018 announced that they have teamed-up with a software company to explore the use of blockchain technology to achieve this. They have already created a blockchain digital register of a small number of properties and are looking to expand this to all properties. They aim to use blockchain to “revolutionise the land registration and property buy-sell process”. e.g. completion of property sale would trigger an automatic chain of events: mortgage funds to Buyer’s solicitor, payment of balance to Seller’s solicitor, redemption of mortgage and removal of charge, registration of new owner HM Land Registry register, payment of funds to solicitors for fees with sale balance going to Seller. All of this would happen in automatic simultaneous sequence without the need for human input. This could of course be broadened to include a full transaction chain of multiple sellers and buyers. HM Land Registry’s project is called the Digital Research Project and is included in their business strategy from 2017 to 2022. This project is currently being pursued and they are hoping to implement this in the near future.
Estate planning and personal finance: Stock exchanges could become blockchain enabled with all stock sales and purchases being on the blockchain ledger. That way ownership couldn’t be disputed and could be traced back. It could also make locating stock on death easier with your death automatically triggering the release of stock and other financial information to your executors. And thereafter Grant of Probate could trigger automatic release of the assets to the beneficiaries.
IP: Record keeping of IP ownership, with irreversible, secure, time-stamped ledgers of IP creation. Also helps control and track distribution of registered and unregistered IPRs.
Company details: Automated and 100% correct ledgers of company history, finances etc, useful for Company House searches, M&A transactions, etc.
For further information on how we can help you with Blockchain technology and your business please contact the Downs Corporate team.