Supporters of blockchain technologies think that blockchain-empowered tools are going to improve the work of in-house counsels in many areas, e.g. faster business transactions by using smart contracts, the introduction of a more efficient KYC compliance system, the improvement of cybersecurity, and an easy way to prove that legal documents were served.
What is blockchain?
Blockchain is a public ledger of transactions. It is sometimes referred to as a distributed ledger, meaning that it exists on many computers, rather than being a single record of a transaction on the server of, say, a bank. This means, in the case of payments as an example, they can be made directly without the need for a third party such as a bank or PayPal. Blockchain can reduce the transaction time to nearly instantaneous and potentially cut out all intermediaries between the buyer and seller.
Blockchain’s design makes it almost impossible for anyone to change details of completed transactions, and the fact it is public provides transparency. The technology is most closely associated with cryptocurrencies, though technology giants and start-ups are exploring ways of using it in other areas – including solutions for in-house counsels. It provides an opportunity to build a more secure and stable organization and speed up the metabolism of a company. Commentators predict that blockchain-empowered tools will substantially affect how corporate counsel manage compliance and contract matters across industries.
How can blockchain-empowered tools help in-house counsels?
Smart contracts are computer protocols that allow contracts to be digitally verified, facilitated and enforced without the need for third parties. With blockchain technology, smart contracts automatically execute following a triggering event. The advantages of blockchain-based smart contracts include faster transactions and business processes, better accuracy, less risk of non performance or manipulation, less need for third-party intermediaries such as escrow services, and reduced costs.
Blockchain-empowered tools can help with the task of maintaining compliance. All transactions are immutably recorded on the ledger, providing a precise, secure and permanent audit trail. The presence of a single shared permanent record also eliminates the need for organizations and regulators to maintain private records. The speed and quality of the regulatory review process are also improved, as the need for reconciliation is eliminated.
Regarding Know Your Customer (KYC) rules, blockchain technology offers the ability to quickly and inexpensively verify customers—something that greatly improves the KYC process. The immutability and security of blockchain-empowered tools make it ideally suited for meeting new regulatory requirements and serving as a trusted identification repository.
Blockchain technology can alleviate many of the bottlenecks and challenges in-house counsels are confronting in their quest to improve cybersecurity. Because blockchains are supported by strong and complex cryptography, they are less vulnerable to the actions of hackers or other bad actors. The presence of powerful cryptography makes it very difficult for blockchain-empowered tools to be altered by an outside party with malicious motives.
Moreover, the blockchain technology can also improve the service of process by making it more transparent, easily verifiable and efficient. A blockchain-empowered tool allows for the posting of server data (such as GPS coordinates, timestamps, and device data) to the blockchain. This, in turn, generates a unique blockchain ID. This blockchain ID—which cannot be tampered with—then serves as verification that certain service of process data has remained unaltered since entry.
Which blockchain technologies are out there?
Ethereum is a blockchain platform built specifically for creating and executing smart contracts. The Counterparty platform can be coded using the same language as smart contracts on the Ethereum network. Steller has no specific language for scripting smart contracts, but some basic forms of smart contracts can be deployed on the platform. With Lisk, programmers handle contract execution, not the programming language. Monax supports Ethereum’s smart contracts.
The know-your-customer (KYC) compliance application from Synechron built upon R3’s Corda blockchain platform conducted a first trial with 39 participants including BNP Paribas, Deutsche Bank and Coindesk in December 2018. The app’s self-sovereign design is aimed to allow firms’ customers to build and maintain their own identities, as well as enable them to approve or reject access requests from banks. When customers updated their data in the test, this was automatically updated for any banks with access permission.
Innovators have begun applying the blockchain-empowered technology in different sectors to prevent fraud and increase data protection. Guardtime takes away the need to use keys for verification. Instead, they distribute every piece of data to nodes throughout the system. If someone tries to alter the data, the system analyses the whole mass of chains, compares them to the metadata packet and then excludes any that don’t match up. MaidSafe decentralizes the web and creates something like an alternative Internet where users are able to run apps, store data, and do everything else they normally do online, but in a more secure environment.
ServeManager has created a functional proof of concept for service of process on blockchain. Utilizing the technology from Integra Ledger, data related to service of process attempts are posted to blockchain.
How to implement blockchain-empowered tools in your company?
To derive maximum competitive advantages from this technological shift it is important that in-house counsel consult with various business units on how blockchain might impact the company, both internally and externally. Implementing blockchain-empowered tools requires close collaboration among business units. The IT department should provide input as to how technologies such as blockchain might impact the company from the technological, infrastructure, and legal standpoints. Business units and product teams should be consulted so that the inhouse legal department understands how blockchain technology is or will be used to implement the profound new efficiencies with the legal department.
Written by Verena Della Vedova
Verena is a Legal Consultant at KorumLegal. Profiled as "The Flexible Parent", Verena left big law to join the gig economy so she can achieve better work-life balance. The flexibility and variety of work that comes through the NewLaw model also allows her to be part of the emerging tech industry.