Block What?

J.B. Ruhl

The Post-Normal Times is a column that follows trends in the legal industry, legal technologies, legal innovation, and access to legal services and offers insights into how new lawyers can turn them from agents of change into agents of opportunity. 

Chances are good you have heard someone mention blockchain technology. If you are like me, you nod approvingly, as if you understand, but inside are hoping the conversation quickly moves on to the weather. Yet, as I have stressed in previous columns, lawyers need to stay up with the tech times, and young lawyers in particular should keep their eyes out for opportunities to jump into promising new legal technology developments and stake a claim. Is blockchain one of those? I believe it is. Here’s why.

First of all, what the heck is blockchain? Although the technology has existed since the 1990s, it first hit the big scene with so-called “cryptocurrencies” such as Bitcoin and, more recently, Ethereum. These currencies exist in the form of digital transaction ledgers. From clay tablets to online banking systems, all transaction ledger systems build trust and security, and thus success, by providing accuracy, transparency to users, and resistance to fraud and theft. Blockchain creates those qualities through a distributed system of encrypted “blocks.” Every transaction, such as a payment for a good, is recorded in a block along with all the desired information about the seller, vendor, price, time, qualities of the item sold, and so on. Each block is attached to the one before and after it, creating the “chain.” Blocks of related transactions, such as the movement of a single diamond through its supply chain from mine to end customer, are grouped together and assigned a distinct “signature” in the chain. This just keeps going on and on as the chain of attached blocks grows and grows.

So far, that might not sound so revolutionary. The distinction of blockchain, however, is that all entities involved in the chain of related transactions are “permissioned” to follow and access every aspect of the chain, and all changes to the chain require the permission of all those users. There is no system administrator who can intervene and change the chain unilaterally. To put it more bluntly, there is no central banker or other intermediary running the show. This distributed system of permissioned peer-to-peer users makes fraud and theft more than very difficult—it’s essentially impossible. As one blockchain expert told me, if they can hack the blockchain, they’ve hacked everything else so we’d all be toast by then anyway. With no central banker and no real prospect of hacking, blockchain builds trust by not requiring trust—it is a “trust-less” system of ledgering. Needless to say, the financial industry is paying close attention to blockchain technology as one of the key players in the emerging FinTech phenomenon.

Now comes the good part—why should lawyers care? Go on, stare out the window and ask yourself, how could law use a technology that securely and transparently keeps track of events lawyers care about? If you can’t think of any, you’re not trying.

Regulated Supply Chains

Let’s go back to the diamond supply chain, which in recent years has become the subject of public and private regulation to weed out fraud and the tragedies of the blood diamond trade. Using blockchain to trace the flow of legitimate diamonds through a supply chain makes it virtually impossible to insert tainted diamonds into the system. One cannot just plop a new block into the chain without everyone else noticing. This kind of secured network could be extended to any publicly or privately regulated supply chain, such as the seafood industry to reduce seafood fraud and the clothing industry to enforce fair labor standards.

Land Transactions and Title Recordation

Anyone who has searched a title system can appreciate what we’re talking about here. Imagine if all transactions for a given parcel were recorded in blockchain! The blockchain will contain all relevant transactions and information, cannot be tampered with, and can be called up and reviewed instantly.

Long-Term Contracts

Many contracts govern ongoing relationships between the parties involving numerous delivery, payment, and other events. Recording the events in blockchain could reduce disputes and even help automate contract term satisfaction. These self-executing contracts, also known as smart contracts, are just now beginning to take hold in some industries.

Wills and Estates

A blockchain could keep track of all the assets involved in a will starting with execution and distribute them at probate according to the instructions associated with each asset. Indeed, why would probate be necessary?

These are just a few examples of how blockchain can apply in legal settings. Bear in mind, though, that just as with the financial industry, using blockchain in these and other legal applications speeds processes, lowers transaction costs, reduces disputes, and eliminates the need for the intermediary function, all of which will change the demand for and role of lawyers. I’d prefer to be one of the lawyers who learns about and uses blockchain than one who stays away and may wind up being replaced by it.

Perhaps it sounds too good to be real, or too far-fetched to think about today, but lawyers should take blockchain seriously. We’re doing so at Vanderbilt Law School, having sponsored a legal education program on blockchain for lawyers in April 2017. We plan to keep paying attention!


J.B. Ruhl

J.B. Ruhl is the David Daniels Allen Distinguished Chair of Law and Director of the Program on Law & Innovation at Vanderbilt University.