Motive: How the blockchain could revolutionise your next contract
by Paul Jacobson (@pauljacobson) Contracts are necessary in our commercial world. Imagine a future where you could execute complex contracts that execute themselves and remove the need for expensive lawyers and thick piles of paper that no-one really understands? This future could be closer than you think and it could all be thanks to a fascinating technology in growing use today to power digital currencies such as Bitcoin.
Contracts establish the legal framework for pretty much everything we do, even when you don’t think you are using one. The biggest challenge is that contracts are often unintelligible to anyone who hasn’t spent years in law school; sometimes, not even then. The trend is towards more complex legal frameworks, largely because regulation in many areas is becoming more complex and contracts increasingly have to balance competing regulatory requirements with commercial considerations to create documents that are both effective and still vaguely accessible.
Well, that is if the parties to the contracts haven’t given up trying to understand all that jargon and abdicated control over the process to their highly paid lawyers.
Law is code
I have been saying that “law is code” for years. This idea is derived from Larry Lessig’s idea that “code is law” which he explained in his book “Code”. When you dissect a contract, you’ll noticed that its parts have a form of functionality. Each part of a decently written contract is designed to shape an aspect of the arrangement between the parties, whether it is what certain terms mean in the context of the deal or who must be paid for what and when.
Most contracts dealing with similar types of agreements are pretty similar. They tackle similar themes and it’s not difficult to see how many contracts may be standardised to a large degree.
On the one hand, slavish use of a “standard contract” is about as helpful as taking paracetamol for every physical ailment: sometimes it will be just what you need; other times it won’t even begin to address the complaint. On the other hand, if you could standardise components of a contract and make them easier to reuse (say, a glossary clause or perhaps a breach clause), then you could simplify the process of creating effective contracts. This is what many legal “on-demand” services seek to accomplish.
What if law really did become code and you could create much simpler contracts that are more effective than the paper documents we have grown to dislike, using a few lines of code?
Blockchains and crypto-currencies
I wrote an article describing what something like this could look like sometime last year in a post titled “How I sold my car in 2034”. At the time, it wasn’t clear to me how this sort of background transactional framework could be made a reality. It turns out smarter people than me have been thinking about this for a couple decades and there is a strong candidate for a solution: blockchains.
This may be familiar to you if you have heard of crypto-currencies such as Bitcoin. Writing in their article titled “Blockchain Technology Will Transform the Practice of Law | Big Law Business“, attorneys Joe Dewey and Shawn Amuial explained the concept of a “blockchain” as follows:
The term “blockchain” refers to a decentralized digital ledger that combines powerful cryptography algorithms with a system of decentralized computing power that redundantly verifies transactions, which are ultimately recorded on a public digital ledger available to the world.
As they pointed out, much of the discussion about Bitcoin and blockchain technology in the context of the law has been more about the legal implications of these technologies in financial transactions, but what about legal practice?
A blockchain is a continuous record of a chain of transactions from beginning of the system. Each set of transactions links to the preceding and succeeding transactions, and with built-in safeguards to make fraud unlikely and very costly. This model is based on work done by computer scientist, Nick Szabo, who published his idea for “smart contracts” in the late 1990s in a short article titled “The Idea of Smart Contracts”.
Szabo suggested that contracts could be represented as code and, when you link the code to interconnected systems, you could create some pretty interesting scenarios such, as this one proposed by Dewey and Amuial:
In many ways, these platforms are self-executing (yes, think “Skynet”) and once released operate outside the coercive powers of the state. Take for example an estate contemplated by an elderly father. A future lawyer would code a trust in accordance with the father’s intent and upload it onto the blockchain.
Of course, the content of the estate would be encrypted and coded into an algorithmically encoded alphanumeric string whose sole purpose is to objectively identify the trust. If upon his death the father wishes that his home be devised to the first of his three children to get married, then a program coded onto the trust that scans an online death registry would, upon the father’s death, immediately trigger a search through a marriage registry for each of the three children, thereafter devising the home to the child who is alive and married first. The estate would be disbursed, almost immediately, in accordance with the father’s wishes with no need for the estate to be revisited by an attorney or pass through the auspices of a probate court.
Internet of Things and smart homes
The system’s success depends upon the extent to which the blockchain system can interrogate the databases it needs to check to activate the smart contracts it records but, with the growth of the Internet of Things and smart homes, you can begin to imagine the possibilities: leased apartments only unlocking themselves when tenants have paid their deposits and first rent instalments; and selling homes from your smartphone without the need for mounds of paper and complex legalese and more.
What would this mean for lawyers? In his article titled “What Are Smart Contracts? Cryptocurrency’s Killer App“, Jay Cassano suggested that future lawyers could start to resemble WordPress developers:
Nonetheless, the role of lawyers might look very different in the future. Rather than having lawyers adjudicate individual contracts, the role of lawyers might shift to producing smart contract templates on a competitive market. Contract selling points would be their quality, how customizable they are, and their ease of use. It sounds a bit like the marketplace for WordPress themes.
There are certainly challenges that need to be overcome before we will see this sort of ecosystem and this contract model start to become prevalent, but it is a very interesting alternative to the current model, which involves a lot of dead trees being perused by frustrated and confused clients.
South African-born Paul Jacobson (@pauljacobson) is a content marketing specialist and reformed internet lawyer, now based in Israel. He has a passion for the social web, internet trends, digital marketing and related themes such as online reputation management and privacy. CC BY-SA 2.5
“Motive” is a by-invitation-only column on MarkLives.com. Contributors are picked by the editors but generally don’t form part of our regular columnist lineup, unless the topic is off-column.
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