Blockchain technology and its impact on the legal profession
Wednesday 13 July 2022 12:04
The introduction and use of any technology in the legal sector risks being a slow process since lawyers are inherently cautious and reluctant to change – they know only too well the potential legal and financial implications involved.
Blockchain technology creates significant legal work for lawyers from the organizations involved in NFT, metaverse, digitization of stocks, debt instruments, mutual funds, real estate, etc. Furthermore, the technology is used in the form of holding, sharing and storing data as well as smart contracts, which all offers the proposal to automate, but certainly not replace lawyers.
According to PwC, 60% of the 100 largest law firms in the UK have increased the amount of money they spend on technology, with e-signature, document storage and virtual data rooms as the three largest areas of development.
Technology that law firms invest in
Source: PwC
As PwC has reported: “Technical needs now cost partners almost as much as half of what a company’s premises cost. This just shows how central technology is now to how law firms work. ” As law firms, “Improving the use of technology is a top priority for business support. Furthermore, the blockchain software technology company ConsenSys believes that “Lawyers can utilize blockchain technology to streamline and simplify their transaction work, digitally sign and immutably store legal agreements.
Back in 2017, the 26th PwC Annual Law Firm Survey revealed that 70% of law firms surveyed would use smart contracts for transactional legal services, 41% would use blockchain for transactional legal services, 21% for legal aid and 31% for high-value legal services. .
Benefits of blockchain technology in the legal sector
- availability – by utilizing blockchain technology, lawyers can streamline and simplify transaction work, and digitally sign and permanently store legal agreements. With the use of smart contracts, scripted texts and automated contract management, the time spent on preparing, adapting and maintaining standard legal documents is reduced. This is cost-saving for both the legal profession and the clients.
- transparency – Blockchain-based contracts have built-in compliance and thus do not allow for ambiguity. As a distributed ledger technology, blockchains create a shared ledger that is accessible to all relevant parties.
- automation – according to CLIO’s Legal Tends Report 2018, lawyers spend approximately 48% of their time on administrative work. The use of pre-designed smart contracts will automate non-billable administrative tasks and transaction work, providing greater efficiency in legal proceedings.
- cost reduction – automation of manual tasks significantly reduces the time spent preparing and modifying legal documents. Since customers pay the documentation cost, the introduction of smart contracts will lead to a reduction in transaction costs for both parties.
- efficiency -blockchain can streamline and automate many processes in the legal industry without losing any of the legal authority. Costs and friction can also be reduced by optimizing administrative and critical tasks.
- data integrity – Legal documents are vulnerable to hackers with bad intentions who try to steal, destroy or manipulate critical information. However, to preserve data integrity, data can be stored in decentralized locations. If there is a change of evidence, the associated hash value will not match, making it obvious that a change has taken place. Given that data is held on a blockchain in a cryptographic manner and on multiple servers, the use of blockchain-driven platforms offers improved cyber security and potentially better disaster recovery capabilities.
Different uses for blockchain technology in the legal sector
- Document Management System (DMS) – DMS is specialized software for storing, accessing and managing files. This first step towards digitized documentation was made to simplify and accelerate office processes. It has high security with customizable access rights, data backup and maintains regulatory compliance by simplifying data classification. DocFlow is just one example of a blockchain-driven DMS platform available to attorneys to improve the ability to track documentation, be more reliable, and accelerate the entire document processing process. Although DMS has several advantages in the legal industry, some disadvantages have necessitated the need for a more efficient technology – ie blockchain. DMS is a methodology that has proven inadequate to handle legal documentation due to its inability to track changes and vulnerability to document duplication. The legal industry operates on the principle of integrity, security and confidentiality, and so blockchain, which is a distributed ledger with attributes such as immutability, precision, transparency and security, can maintain the values of the legal industry.
- smart contracts – current legal contracts are written with physical signatures. This manual treatment is both time consuming and vulnerable to human error. Blockchain technology can solve this by making legal documentation accessible and transparent. The cost and friction of generating and securing legal agreements is reduced by creating a contract that can be automatically executed based on pre-specified criteria.
- intellectual property (IP) – in 2017, the US Patent and Trademark Office (USPTO) filed 440,000 new applications. As revealed by the annual report for that year, it took the USPTO approximately 16.3 months to complete a patent registration procedure. The approval process is long, which makes it challenging to investigate who created an intellectual work first. Blockchain brings solutions to this by creating general ledgers for IP owners; These general ledgers can be smart contracts, which set up terms and conditions and types of compensation. Through this, copyright cases should be able to be processed faster as data can be made available in almost real time so that disputes can in theory be resolved more quickly.
- document notarization – companies such as Stampd, Blocksign and Stampery have developed blockchain technology to provide notary services to prove the existence of a document at a specific time that can be verified independently. Blockchain technology can facilitate proof of existence through the hash of the document and store the value in the blockchain. It also enables proof of ownership by hashing the record retrieved by transaction ID and this enables seamless transfer of document ownership, security to stored documents and deeds, and creates open transactions for the data network.
- Property rights – Blockchain technology makes it possible for real estate transactions to use fewer intermediaries, and thus the sale and purchase of real estate in a transparent and unchanging way can become more efficient. Blockchain-based general ledgers offer a new form of property rights management by being able to stamp both time and date and register when the intangible property (IP) has been handed in / sent to a third party. Fileprotected, based in California, is a great example of a blockchain platform where IP owners can register their IP and a history of how, when and with whom it was shared.
- custody chain – gathering evidence is the core of any investigation; Validation of the findings and proper documentation are crucial, especially when a case lasts for many years, and in line with a case evidence gathered at the beginning may become critical in the later stages. Proper and regular documentation (paper-based or electronic) of the custody chain will make it easier for legal authorities to identify the vital information when necessary. Paper-based documentation is cumbersome, but security concerns about electronic evidence have also been raised because it is stored in a centralized database. Blockchain brings audibility and traceability to the system by allowing timestamped cryptographic records.
Cchallenges with blockchain technology in the legal sector
- The legal industry is complex – Due to the importance of evidence and documentation, hard copies may take precedence over digital copies, and this can create a barrier to greater use of blockchain.
- technological indifference – Historically, there has been a lack of investment in technology in the legal industry. In 2019, the Bar Association’s LawTech report showed that interest remained low even with increased use of technology in many sectors. In addition, legal stakeholders are in no hurry to adopt any change, as their concerns appear to stem from the lengthy trial. Although they do not seem willing to let this pass, it seems that these attitudes are changing (as highlighted by the PwC 2021 survey mentioned above).
- legal issues -Blockchain is a widely accepted technology in many countries, but some still find it difficult to trust it. The lack of central control and the fact that the legal aspect of the decentralized approach both pose a challenge in some jurisdictions.
- scalability – This has been cited as a reason why blockchains can not be used in the legal industry, although this becomes less of a problem as blockchain technology develops.
So blockchain technology offers the legal industry both opportunities and threats. There is certainly considerable work for lawyers involved in advising the firms that now use blockchain technology, and in order to do so, lawyers often need to have a good understanding of not only the legal issues but the technology itself.
Furthermore, with their ability to automate processes, the emergence of smart contracts is likely to mean that many industries will use these contracts, and as Forbes has reported: “In general, smart contracts are enforceable as long as they follow the basic rules of contract agreements.”
Consequently, it is important to understand how the blockchain works and the risks and challenges associated with incorporation. However, further advances in blockchain-driven platforms potentially provide the legal industry with even greater benefits by improving both capabilities and workflows, and the potential litigation of organizations missing the use of blockchains or the digital assets this technology can create has not even been mentioned here …
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