Updated: Feb 14
Blockchain is a type of distributed ledger technology (“DLT”) that can occur on both public and private networks. Blockchain is revolutionary technology because it can securely and permanently record transactions without the presence of a centralized authority such as a bank or government.
While this technology is complex and can be confusing, a simple way to characterize distributed ledger technology is as a database that records ownership of assets over a distributed network of computers. The most well known blockchain is Bitcoin, which is a popular cryptocurrency (also referred to as digital money). Below are key features of blockchain that make it appealing:
Permanency: Transactions can be easily found because they are never deleted or misplaced. This provides an easy method to verify records with virtually no basis for challenges.
Irreversibility: Records cannot be altered once transactions are entered and the ledger is updated. Each record has a time stamp and a link to the previous record.
Security: Pseudonyms are used so a person’s identity is not disclosed. Users have unique network-generated addresses and can send additional identifying information if desired. Transactions occur between addresses.
Peer-to-peer transmission: Communication is directly between participants with no need for a third party.
Trustworthy verification process: Transactions are not set in stone until they are confirmed. Verification is accomplished through a process called “mining,” where a series of algorithms reaches a consensus about the veracity of the underlying data and the decision to add a transaction to the ledger. Every blockchain participant on the distributed network will have the ability to access the database to verify transaction history.
Blockchain and eDiscovery
Blockchain technology has even entered the realm of eDiscovery. Attorneys now need to recognize blockchain transactions as a source of ESI that needs to be considered in preparing and responding to discovery requests, in the same manner as text, social media, and other electronic data sources. Distributed ledger technology can both provide benefits and present obstacles for legal practitioners.
Document Review and Distributed Ledger Technology
On the positive side of things, during discovery review blockchain records may be more verifiable, easier to authenticate, and more reliable because of the ledger’s immutable characteristics. The permanency feature of blockchain is also very appealing in litigation because potentially relevant information cannot be erased. When responding to discovery requests law firms could also start using blockchain instead of the typical Bates numbering system. Doing so would arguably make discovery production more certain and secure than before.
Blockchain technology could also be used to verify the process that an expert uses to reach their opinions. Many times, experts will rely on certain records contained in discovery production as the basis for their conclusions. Rather than accepting on faith that the expert used certain data to reach a conclusion, it would be possible for blockchain technology to document each step of the process, showing not only how an analysis was performed, but also proving that the analysis and outcome were directly related to the original document produced by a party.
Distributed ledger technology: What lawyers need to know
On the flip side, attorneys should be mindful of the potential hurdles that distributed ledger technology introduces. Probably the most obvious is the fact that transactions are generally performed pseudonymously. Because of this, identities related to blockchain can be hard to establish and tracking down a money trail becomes a difficult task. Although eDiscovery may be facilitated by the fact that past transactions are all preserved, the difficulty of relating those transactions to relevant parties may engulf this positive feature. Additionally, if an attorney encounters smart contracts stored on a blockchain network during discovery they will likely need to retain a tech expert to decode the contracts. This could significantly increase discovery costs.
Regardless of the limitations distributed ledger technology may impose, the legal world needs to be prepared to embrace this technology. Besides discovery, practitioners may already see blockchain being used in tele-attorney services, medical records and health databases, smart contracts, payment for services, and other client relation matters. Because blockchain applications are evolving rapidly, attorneys should stay tuned for applications in the legal industry.