by: Debbie Hoffman
Using Blockchain technology to enhance efficiencies in the legal process can add significant business advantages. Like all new technologies, it can also result in new legal benefits and challenges. Using Blockchain technology can drastically enhance the current processes in routine legal work – from being able to add transparency into the litigation and discovery processes as well as have more efficient methods for regulatory compliance. Therefore it is critical for business leaders and legal professionals to understand how Blockchain works and how they can incorporate it into some of their processes.
What Laws Apply to Blockchain?
While there are no specific laws related to blockchain, the law that relates is specific to the industry in which the technology is being implemented. Understanding what laws apply to specific industries and how they will be impacted as the technology develops is the only way the law will evolve to address new developments. As an example, when you work with crypto currency exchanges, it is critical to have a depth of understanding of what licenses are needed. When you have a client investing in a company that integrates Blockchain in its processes, you want to make sure that you are addressing the traditional law related to fund formation and private placements. If you are working with a client building a new Blockchain platform, you need to have proper intellectual property rights protections. Of course, in all areas related to blockchain endeavors, you have an overarching need to make sure you cover privacy laws as well as have an understanding around cyber breach protections. Other laws that apply include taxes, securities, corporate, M&A
Who Needs to Know About Laws Related to Blockchain?
Laws and regulations that apply to blockchain encompasses a variety of forms – from historical law that is molded to fit a new technology, to emerging guidance from the regulatory agencies and ultimately to case law or common law. It is also critical to understand the laws pertaining to the industry to the action that is being taken. For example, if someone is in a business using cryptocurrency, money transmitter laws are important. If a venture fund is looking to invest in a company that is utilizing blockchain, laws related to funds are important.
How will Blockchain Impact Litigation?
There will be a significant reduction in traditional litigation involving disputes and a plethora of new conflicts. Some of these may include the following:
- Intellectual property rights and royalties regarding who has fully paid up licenses and to the extent of such ownership.
- Real estate and property records ownership and history, as well as the title insurance related to such ownership.
- Product provenance and supply chain ultimately authenticating the source of the products including food and pharmaceuticals.
- Chain of custody authenticating ownership and helping to eliminate counterfeit products being surreptitiously entered into the supply chain such as in artwork and diamonds.
- Fraud related to records such as payment and clearance for settlement purposes.
- Identity and authenticity of signatures by use of multi-factor authentication verifying identity, and stored on a blockchain, there result will be substantially fewer challenges about fraud, misrepresentation, latest versions, etc. This can trickle down to many areas, but once, for instance, is in estate related litigation related to wills and trusts.
- Legal filing related to data entry and ledger-like such as filings associated with the Uniform Commercial Code.
How does Blockchain Relate to Evidence and Discovery?
Data stored on a blockchain is there in perpetuity, with a perfect, time-stamped audit trail of information related to and the history of transactions at issue. While it resolves many issues pertaining to the requirements to preserve evidence, it does present some other challenges, which will require further review and rulemaking.
- Depending on what kind of data is stored on the chain, releasing access to data stored on the chain might also expose protected information, private data, and could expose a party to liability. Businesses will need to consider their on-chain vs. off-chain storage options and really evaluate the need for permanence and immutability.
- With data on the blockchain in an encrypted format, it can result in more challenges in searching the data for responsive materials related to subpoenas.
- Storing data beyond a records retention policy can create an abundance of data, resulting in additional costs related to the increased storage.
- Smart contracts are written in programming code and therefore may creates a challenge in discovery where it is critical that the contract language is carefully analyzed in its entirety. Such analyzation would require independent experts hired to evaluate the source code and transfer it into plain language.
On a positive side, if litigating parties were required to provide discovery on a blockchain, then it would be difficult to withhold evidence or bury critical evidence in a myriad of distracting papers. However, the question is the value-add. Many of these functions can already be securely supplied in a secure data room, providing read and write access, as required, to each party, while not permitting the ability to erase.
Will Blockchain Result in New Things to Litigate?
You can expect there will be new things to litigate including:
- Errors in entering of data;
- Recover of assets stolen from exchanges and/or wallets;
- Accuracy and quality of programming code;
- Complete failure of blockchain due to cyber controls/security;
- Injunctions to stop, for instance, the execution of smart contracts or perhaps to ensure the privacy of data stored;
- Storage issues related to items off-chain; and
- Jurisdictional questions – particularly related to blockchain-stored or shared data.
Ways that Blockchain Can Reduce Litigation Costs
There are several ways Blockchain can reduce litigation costs including reduced discovery time and quick verification of documents and chain of custody.
Cost savings starts with the ability to discovery, identify, and obtain documents which are part of a Blockchain. Right now we spend a tremendous amount of time in discovery and not only with authentication of documents, but also chain of custody. And it’s much easier to find discoverable documents and information should they be stored on the Blockchain. So ideally it’s used as a storage and transfer system in place of what we use today. If we don’t have word and excel and all these different platforms – if instead of the old the underlying technology it is a Blockchain based technology – that could create tremendous efficiencies. You won’t have copies of documents; you’ll have originals. You’ll know who touched those. You’ll know the time and date stamp; it will all be there. It could really transform the discovery process as we know it today.
What are Some Ways Costs May Go Up For Blockchain Litigation?
There may be more lawsuits related to the ambiguity of developed law as the new technology is utilized. There will be many ventures pushing the line – and we’ve already seen this in the emergence of ICOs. A whole host of the shady ICOs have been subject to litigation This includes class action suits.
The other cost is simply the education and training of legal professionals so that they are familiar enough with the legal challenges posed by business who have implemented and are using the new technology. Sadly, many litigators do not yet seem to understand that blockchain technology is separate and distinct from bitcoin and cryptocurrency. They may be in for a surprise when their opposing counsel and client is using blockchain in a way which makes their process efficient and transparent to the point where they just can’t keep up because they haven’t made the investment.
Debbie Hoffman is the Founder and CEO of Symmetry Blockchain Advisors, working with clients in their endeavors related to education, strategy, compliance and implementation of Blockchain solutions. As a attorney with experience in financial services, law and technology innovation, Debbie brings a unique perspective to blockchain innovation. Debbie is an expert editor for Blockchain Dictionary (blockchaindefinitions.com) and co-author of “Blockchain Technology and Business Implementation” Book. She is the founder of Blockchain Technology and Business Orlando Meetup Group and a sought after speaker at conferences and events. Debbie has won numerous awards in her fields of expertise.