Attorneys are notorious for being risk averse, late adopters of technology, and fearsome of the unknown. Like those attorneys who refused to use email for fear of disclosing confidential client information, there are attorneys who think blockchain is a dubious technology to be avoided. For the early adopters who love technology, blockchain is ingenious and a possible disruptor in the legal profession (like what email did to the fax machine).
Under the ABA’s Model Rules of Professional Conduct, lawyers have a duty to keep abreast of the benefits and risks associated with relevant technology. To comply with that duty, here is a simple and relevant explanation of blockchain.
What is Blockchain?
Blockchain is a distributed database that maintains a continuously growing list of records, called blocks, secured from tampering. There is a timestamp associated with each record and a link to a previous block (the chain). Once recorded, the data in a block cannot be altered retroactively. In other words, it is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
If you are scratching your head in befuddlement, just think of a spreadsheet (the database) that is shared and duplicated across millions of computers (the network). The network regularly and automatically updates the spreadsheet every 10 minutes (or thereabout). Because the spreadsheet is not stored in any single location, it is truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, the database is accessible to anyone on the internet.
We can discuss privacy issues in another article, but it is worth noting here that it is possible for blockchain users to remain anonymous.
Who Invented Blockchain?
The technology traces back to 1962, but blockchain originated in 2008. It was created by Satoshi Nakamoto. Like a plot out of a Shyamalan film, nobody knows the identity of Satoshi. For all we know, Satoshi could be a group of people.
The mystery surrounding the creator(s) of blockchain leads some to believe that the technology was originally created to facilitate nefarious activity. The reputation of the technology is marred because blockchain crypto-currencies have become the preferred method of payment on the dark web. Of course, both criminals and law-abiding citizens use cash. The point is that despite blockchain being the technology of choice for some criminal transactions, it has many useful applications for law-abiding citizens.
Some may have heard that blockchain crypto-currencies, like Bitcoin, have been stolen or hacked, which places the security behind blockchain into question. Have no fear! The problems associated with crypto-currencies had nothing to do with blockchain concepts but instead resulted from associated technology like crypto-wallets (the technology that stores crypto-currency).
Blockchain technology is immutable through cryptography and two popular algorithmic methods used to gain consensus on a network (Proof of Work and Proof of Stake) as well as the use of public and private keys. A “public key” (a long, randomly-generated string of numbers) is a user’s address on the blockchain. For example, Bitcoin sent across the network is recorded as belonging to a public key. The “private key” is like a password that gives the owner access to their Bitcoin or other digital assets.
Application of Blockchain
The most popular application of blockchain technology is digital or crypto-currencies such as Bitcoin or Ethereum. There are many other applications for blockchain such as election voting, authentication and authorization, digital content storage and delivery, patient records management, network infrastructure, and app development.
We may eventually see widespread adoption of smart contracts, which are distributed ledgers that enable the coding of simple contracts to automatically execute certain actions when specified conditions are met. For example, a smart contract using blockchain could automatically release funds for payment upon the documented receipt of goods.
Smart contracts can be used to protect copyright and automate the sale of creative works online, eliminating the risk of file copying and redistribution. Smart contracts also are useful in real estate transactions and land registration. For public records, blockchain can make record-keeping more efficient because it is an automatically verified, publicly-accessible ledger.
Now You Know
Lawyers may not see any immediate value in blockchain, but as the future arrives with breakneck speed, we should keep the technology on our competency radar.