Lawyers who dismiss cryptocurrencies as a mere fad do so at considerable risk. Like it or not, these currencies, and even more importantly their underlying blockchain technology, have already embedded themselves in commerce and daily life.While major changes in the legal landscape brought on by these new technologies may not arrive overnight, lawyers nevertheless have a responsibility to acquire at least a basic understanding of them and how they're likely to affect legal practice in the near-to-medium term. In this article, we give a brief overview of the blockchain and cryptocurrency, and discuss several ways in which they are likely to challenge the status quo for law firms sooner rather than later.
What is the Blockchain?
The blockchain is a notoriously difficult concept to explain. Of all the descriptions out there (and there are lots), we find this one from the website BlockGeeks particularly helpful:
"Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain."
Or, to put it another way, BlockGeeks invites us to think of blockchain as analogous to a shared document on Google Docs, but instead of being stored only on Google's servers, the document lives on every computer in the world that chooses to host it. New pages ("blocks") can be added to the document only after a host computer goes through an elaborate process to prove that the page is authorized and authentic. Also, only a user with an ultra-secure password that verifies their identity and authority can make edits to the information on any given page. And, finally, every edit ever made is publicly visible and irreversible.
What is a Cryptocurrency?
A cryptocurrency is a form of currency made possible by the blockchain. Units of the original cryptocurrency, Bitcoin, are "issued" to the owner of the computer that solves a complex equation authorising the addition of a new "block" to the blockchain. Solving that equation verifies the newly-issued currency's authenticity. Once the block (or ledger) corresponding to the newly-issued currency is added to the chain, the owner of corresponding currency can transfer that currency to any other user on the network. That transfer and all subsequent transfers of those same units of currency are recorded as permanent, publicly viewable entries in the blockchain ledger.
Newer cryptocurrencies – as of this writing, there are nearly 1600 of them – have introduced different ways of verifying the initial issuance of a cryptocurrency. But, the blockchain remains the foundation of all of them.
What Does This Have to Do With Law Practice?
Not to sound like the technologists we mentioned at the beginning of this article, but blockchain and cryptocurrencies have a lot to do with law practice. For example:As a Form of Payment: Law practices across the world, including in Australia, are beginning to accept payment for legal services in cryptocurrencies.
As a Subject Matter of Legal Representation: Clients are increasingly approaching law practices with cryptocurrency and blockchain-related matters, and firms are responding by developing and advertising special expertise to meet those client needs. Matters can span the range of legal practice areas, from financial transactions like Initial Coin Offerings and the formation of cryptocurrency investment funds, to trusts and estates involving bequests of cryptocurrency, to all manner of litigation.
As a Foundation of Legal Rights and Legal Practice: Extending the Google Docs analogy above, legal commentators also predict that blockchain will eventually enable "smart" contracting, in which an agreement is shared, edited, executed, and recorded via a blockchain network. Simple forms of self-executing "smart" agreements are already possible on the Ethereum cryptocurrency network, for instance. Blockchain may also bring about new standards for recording title to tangible and intangible property and tracking custody of evidence. Indeed, there is potential for blockchain to impact virtually any area of the law in which there is a need for preserving, authenticating, and updating transactional or quasi-transactional records.
At LawMaster, we, too, are keeping abreast of developments in blockchain technology with an eye towards how this technology may someday affect how law firms are managed. To learn more about our thoughts on emerging technologies and how they might affect your legal practice, contact us today.