When we first open-sourced ContraxSuite, we emphasized the role contract analytics will play in migrating legacy contracts to new smart contracts that are blockchain-enabled. The distributed ledger technology of blockchain has the potential to mitigate risk, streamline processes, and lower the barrier to entry for all market actors. It has the potential to enhance important services to individuals, organizations, and society as a whole.
One problem in the current landscape is that most discussions of blockchain center around cryptocurrency, particularly Bitcoin. What sometimes gets lost in excited discussions of how blockchain can change the world, is how it can change the world, and exactly why this technology is so important. Cryptocurrency use cases only scratch the surface of what blockchain can do. And legal professionals should have at least a basic understanding, not necessarily of the cryptocurrencies blockchain makes possible, but of the other ways blockchain will impact the future of legal.
Bitcoin may never be critical for legal professionals to understand, but blockchain will be required reading.
What is Blockchain?
Blockchain is a distributed ledger system. Blocks of information are stored on a chain of prior transactions. Each block on the chain is secured by a cryptographic hash containing the unique ledger of all previous transactions on the chain. These unique cryptographic sequences are nearly impossible to forge or duplicate. This essentially creates an immutable, secure signature for each and every unique object on a blockchain network. In the case of a unit of Bitcoin, for example, the distributed ledger contains the hashes of all previous transactions, which makes the currency several orders of magnitude more difficult to counterfeit than either paper money or normal wire transactions.
Blockchain is a Means, Not an End
Blockchain is the engine of cryptocurrencies like Bitcoin because of how difficult it is to falsify a blockchain distributed ledger. Because every other node in a blockchain network has to verify a transaction on the chain, it’s virtually impossible for anyone to create counterfeit Bitcoin.
But the potential of this unbreachable ledger system stretches far beyond the currency applications the media touts. This robust, immutable ledger is a particular boon for the legal space. Blockchain can be used for things like legal record keeping for courts or other agencies. Another area of great potential for blockchain is that it can be used to create and execute what are commonly called “smart contracts”.
Smart contracts are stored on a blockchain network, which makes them more secure and well-defined. Since smart contracts exist in code form, and since this code cannot be tampered with once committed to the blockchain, smart contracts provide a level of security heretofore unknown. Additionally, code can be written that allows smart contracts to self-execute their terms when appropriate conditions are met.
Smart contracts are already changing the way companies do business, creating a neutral third-party system that verifies contract stipulations and mitigates the need for costly litigation. That still leaves a lingering question, though. If smart contracts are destined to be the contract form of the future, what happens to all those contracts written on plain old white paper?
Companies are already adapting to this growing need. Monax is building a platform that will allow users to create smart contracts. The Agreements Network is a contract management platform designed to handle electronic documents built as smart contracts. There are also companies like Sagewise that can resolve any potential disputes that might arise from smart contracts. LexPredict’s own ContraxSuite platform has a role to play as well, assisting companies in cleaning up legacy contract data, analyzing that data, and migrating their legacy contracts to machine-readable documents that can be converted into smart contracts.
The law is central to the facilitation and regulation of the modern information economy. With this in mind, it becomes clear that law has to evolve to the point where tools like blockchain and smart contracts are the norm. The process necessarily begins with structuring existing legacy contracts. Every day, organizations are working to improve their legacy contract management systems by cleaning, analyzing, and digitizing their data. The next evolutionary step for legal organizations is to make their contracts and other documents fully digitized and machine-readable. This will make smart contracts much easier to create and maintain.
Right now, organizations use ContraxSuite and LexNLP to help augment the performance and accuracy of their own contract management systems. In the near future, organizations like Monax and the Ageement Network will be able to take contracts filtered through platforms like ContraxSuite and build smart contracts. Take the first step and see what ContraxSuite can offer you today.