What about the Blockchain and its potential use and implications in the legal sector?

  • August 01, 2015
  • David J. Bilinski

Here's a taste of what could be in store.

What is the Blockchain?

According to Wikipedia:

“A Blockchain is a distributed data store that maintains a continuously growing list of data records that are hardened against tampering and revision, even by operators of the data store’s nodes. The most widely known application of a Blockchain is the public ledger of transactions for cryptocurrencies, such as Bitcoin. This record is enforced cryptographically and hosted on machines running the software.”

Smart Contracts: One of the potential uses of Blockchain technology is to create Smart Contracts. What are Smart Contracts? According to Jay Cassano writing for Fastcolabs.com: “Smart Contracts are computer programs that can automatically execute the terms of a contract. Someday, these programs may replace lawyers and banks for handling certain common financial transactions.”

No wonder that Smart Contracts have been described as “Cryptocurrency’s Killer App.” How do they work? A Smart Contract is a computer program. Unlike most computer programs, they can interact with real-world assets. But it is the link with cryptocurrencies such as Bitcoin that give Smart Contracts their legs. The Smart Contract can trigger payments when a pre-programmed condition is triggered.

One example discussed combines the Smart Contract with Bitcoin and the “Internet of Things” where physical objects are connected to and interact with the Internet.

Let us assume that the physical object is a car, purchased on credit from the auto dealership. The client and the dealership enter a “Smart Contract.” So long as the finance payment (in Bitcoin) are paid on time, everything is great. If the Bitcoin payment is not paid on time, the Smart Contract triggers the digital car keys to stop working through the Internet. The car transmits its location
to the towing company who can come and get it. No collection proceeding, no lawyers and no court.

The argument for Smart Contracts reaches into providing financing to those who could not otherwise qualify, given the risk. The theory runs that if the cost of collection falls to near zero, then banks and other lenders might make loans to otherwise disadvantaged people to purchase “smart property.”

None of this has been tested into court and will most probably require some legislative changes. But that hasn’t stopped people from working on this: “There are currently two major open source projects working on Smart Contracts, both of which have taken big leaps forward this year. One is called Codius and the other is Ethereum. Codius was developed by Ripple Labs, which also created its own digital currency called Ripple. Codius aims to be interoperable between a variety of cryptocurrency, such as Ripple and Bitcoin, although it is managed by the private company.”

Lawyers may have to morph into the creators of Smart Contracts.

© 2015 David J. Bilinsky