☀️🏖️ Better weather is ahead, join us for Legal Summit in Ocean City this summer! Early Bird registration ends March 31, 2024, so lock in your registration today.

The emergence of blockchain technology, a form of distributed ledger system, has given rise to new types of digital assets and organizational structures. Legal issues developing around this technology include smart contracts, compliance, decentralized autonomous organizations (DAOs), non-fungible tokens (NFTs), and the regulation of cryptocurrency. Blockchain technology currently impacts many areas in the economy including real estate, supply chain management, healthcare, gaming, voting, protection of copyright, the internet of things, and finance – the most popular application. As blockchain technology advances and becomes more popular with corporations and consumers, legal professionals will be asked to assist in the application and implementation of this new technology. This article will address the basics of blockchain technology, what it is and how it has already engaged and changed the legal landscape.

A new research study by MarketsandMarkets, demonstrated that the blockchain market in 2022 was approximately $7.4 billion and by the end of 2027 will generate revenue over $94 billion. That is a compound annual growth rate of 66.2%. According to Statista, corporate spending on blockchain in 2024 will be about $19 billion. Needless to say, blockchain technology and investment in the technology are increasing.

What are blockchains?

A blockchain is a decentralized collection of data, information, evidence and/or transactions, otherwise known as decentralized ledgers. The unit that holds the information is the block. The information in the block is authenticated by multiple computers in a network (as opposed to one server or database) and then connected (chained) to the other blocks forming a blockchain. It is controlled by multiple parties. The information in each block is stored using cryptographic algorithms and a timestamp. Because the transactions, evidence, or data are decentralized in multiple blocks as opposed to one central location, the information is more secure. If a hacker is able to trespass into one block the other blocks are still safe and secure. In addition, because the information in the block is authenticated then, it can be “trusted” or relied upon by parties to expedite financial and other legal transactions. 

What legal areas are currently using blockchain technology?

Blockchain technology is being applied in various legal areas. Some examples of these applications are:

  • Smart contracts.  Smart contracts are self-executing agreements with the terms of the agreement between the parties written into computer code. The code and the terms of the agreement are spread across the decentralized blockchain (many blocks connected together) and fully transparent to the parties. Because they are executed automatically when predetermined conditions are met, there is no need for manual oversight. This increases the speed, efficiency and accuracy of the execution of the contract. In addition, the agreement terms in the computer code cannot be changed which enhances trust between the parties. 
  • Compliance. Integration of regulatory requirements into smart contracts are being used to automate legal, regulatory, and internal compliance. 
  • Digital identity and security. Blockchain technology allows for decentralized digital identities that are not owned by a single entity, like Google or Facebook. Users have more control over their personal data enhancing privacy and security. Likewise, the distributed nature of the digital identity makes it very difficult to steal, increasing security and decreasing the chances of fraud.
  • Intellectual property. Because blockchain’s transactions are immutable and create a timestamp of when the intellectual property was created, it can help prove ownership and registration. Blockchain can also imprint metadata tags on digital content to fight piracy. Automation of IP licenses is also made possible through smart contracts.  
  • Evidence and record keeping. Blockchain technology can improve the collection, storage and authentication of digital evidence for legal purposes. Chain of custody is a common issue with evidence. Blockchain’s ability to create a chain of custody that cannot be altered along with timestamps makes this technology invaluable for authentication purposes. Because of the enhanced security on blockchain, altering records and/or photos, videos is minimized,

The emergence of blockchain technology has the ability to enhance the practice of law. Blockchain can be used for smart contracts, compliance, digital security, evidence management, and record keeping. Self-executing smart contracts written in computer code can be used for various purposes. They are faster, immutable, eliminate human errors, and streamline the contract process. Timestamping documents and proving chain of custody with enhanced security through the blockchain can help protect intellectual property, provide more data security and manage evidence. As blockchain technology spreads, it is essential that lawyers learn its applications relevant to the practice of law.