Blockchain and Law
For my professional accreditation every year I must complete 10 hours of professional development. But I also like to take online courses in areas that may be useful to my clients. Recently, I completed an online course with the Blockchain Council in Blockchain and Law.
If you haven’t heard of blockchain, or you have heard of it but don’t understand what it is, then let me tell you that it is a very exciting new technology that is already being applied in many industries, such as supply chain monitoring and sea transportation, and also to improve government and legal processes, such as land registration. It is the technology that makes cryptocurrencies like Bitcoin possible. It allows millions of digital currency transactions to be managed precisely while creating a permanent record of those transactions that cannot be changed. Those are features that make it suited to many other uses.
An important application of blockchain is to create a platform for smart contracts to run on. A smart contract is a legal contract that has a software code component, which automates certain aspects of the legal contract. So, if you have a sale transaction, for example, by using a smart contract you can connect the legal document to the “real world” by automating certain actions.
Let’s take an example. Let’s say I am selling you a car, and the precondition to the sale going ahead is that your mechanic certifies that the car is in sound condition. Normally, I would show you my registration paper for the car (to prove I own it), then you would take your car to the mechanic, the mechanic would inspect it, then send you a report, probably via email. Then you would tell me the inspection was fine, and then you would pay me and lastly I would sign and give you the paper asking the government to transfer the car’s registration to you. How could these steps be automated?
By using blockchain, we could create a smart contract that says that: (1) if I am the verified owner of the car, and (2) your selected mechanic certifies that the car is OK, then (3) your payment will automatically transfer from your bank account to mine, and (4) the signed registration transfer request will simultaneously be provided to you. Each of these steps has to be satisfied for the transaction to complete. To facilitate this, we can create a platform that allows me to upload my registration papers, and the mechanic to say the car has passed inspection, which will then trigger the release of the money and the transfer paper.
Automation is already taking place in the legal world. You may have signed papers online using some kind of software, like DocuSign. A smart contract is a progression from these kinds of single actions. Most smart contracts involve multiple actions, which are linked together.
The technology needed behind the scenes to facilitate smart contracts which are usable by everybody is developing. I am currently working with some colleagues on a new blockchain project. It is definitely an area that will become more important as we move forward.
The author of this blog post, James Irving, is a commercial lawyer in Western Australia and a Certified Blockchain & Law Professional. This post is not legal advice and does not create a lawyer/client relationship with any reader.