Welcome back to What’s Next, where we report on the intersection of law and technology. In today’s briefing, we’re diving into blockchain and why you need to be paying attention to it. Also, is more Twitter trouble ahead for Tesla’s Elon Musk? That and more, below.

   

Listen Up: It’s Time to Pay Attention to Blockchain

JP Morgan’s unveiling last week of its new JPM Coin sent an unmistakable signal that blockchain technology is no blip or passing fad. Need another indicator? A blockchain trade group, including several law firms, has a proposal to help the federal government nurture the maturing technology. (Read on for the details.)

We reached out to law professor Aaron Wright, who leads the Blockchain Project at Benjamin N. Cardozo School of Law, to ask if it’s time for average lawyers to start paying attention. Wright’s take? Only if you care about “the fundamental business models of the financial and commercial world” changing overnight. Here’s the full exchange.

Blockchain is a technology that often seems less complicated than it is hard to explain. How do you explain it? 

Blockchains are a new data structure that enable people to store records in a tamper-resistant way and create scarcity in a digital environment. Before the advent of blockchain technology, the digital realm suffered from a profound commons problem—digital files could be endlessly copied and replicated and thus it was difficult to model out property rights in the digital realm that mirrored property rights in the pre-digital era.

At their core, blockchains solve this commons problem. Blockchains excel at keeping track of who owns what at what point in time and creates auditable paper trails that enable people to prove ownership and imbue the digital world with property rights. The end result is likely to be profound—valuable assets become programmable and easily manipulatable—likely powering new business models as the fundamental substrate of the financial and commercial world transforms.

One way to think about blockchains is that they turn assets into email. Before the internet, sending communications was difficult. They were often in the form of letters, or other mailings, and needed to be routed through central postal offices. Sending mail required tremendous amounts of human labor to sort, route, and deliver these handwritten or typed communications. Sending a message took days, if not weeks, for international correspondence.

The internet changed that, seemingly overnight. With the internet is was possible to zip a communication (an email first and then sound and video next) across the globe in seconds. A simple shift in how people communicated transformed the world in a matter of decades. …

Blockchains hold out the hope of doing the same thing for assets. A blockchain can be used to represent title to any asset, and any asset represented on a blockchain can be fully accounted for and transferred from one party to another in a matter of seconds anywhere around the globe. Right now most blockchains manage a limited range of assets: virtual currencies (like bitcoin and ether) and a variety of “tokens” that often represent licenses to use an online service.

But, there is a growing movement to represent an increasing range of assets—from uncertificated stock and title real property to intellectual property and licenses—on a blockchain. If more and more assets are represented on a blockchain, the world will once again transform. People will be able to freely trade those assets and settle and clear transactions in a matter of seconds, and like the internet new business models may emerge.

Say I’m a lawyer with an established litigation or corporate practice who’s been practicing for a decade or more, do I need to care about blockchain technology?

If the history of the internet is of any guide, the fundamental business models of the financial and commercial world could change overnight. Assets could be fractionalized, transferred quickly, and new financial products untethered from geographical boundaries are emerging. People now can be paid in real time. Laws are even being programmed into these assets, so that taxes and other forms of compliance occur automatically.

Lawyers will serve as the catalyst for this change and in the process be forced to adopt new ways to account for and manage these new digital risks. Contracts that transfer assets may no longer be solely written in a natural language, like English or French, but certain provisions of agreements may be increasingly represented as computer code.

Those at the tail end of their legal careers may be able to sit back and remain unaffected. Those in the middle to the beginning of their careers could see some of their work fundamentally change in a matter of years.

 Can you give any other examples of how laws are being programmed into the assets? Also, if these financial products are not tied to any geography, what laws apply? 

Real time tax collection, accredited investor checks, whitelists / blacklist related to KYC [Know Your Customer] compliance.Each jurisdiction’s laws would apply or it could be defined contractually.

 One of the intriguing ideas I’ve heard is that all our personal data could one day be stored on blockchains. Does that hold water?

Personal data could be stored on chain, but there is an issue of whether existing companies would have the ability to retain that data in some central repository. Until that last mile problem is solved (legislatively or technically), blockchains as privacy enhancing technology may run into issues.

 You describe how blockchains solve the commons problem. Do they create any new problems for asset transfer? What about the case of QuadrigaCXwhere $200 million in cryptocurrency may be lost because the exchange owner died and no one else can access the secure wallets?

Yes, custody is one of the most challenging issues in blockchain. Today, we know how to safely secure assets, in bank vaults or through property controls. We don’t yet know how to build appropriate custody solutions for blockchain. There are many folks working on this problem, and there have been great strides in this arena, but there is a long way still to go.


 

Is a National Strategy on Blockchain Technology Needed?

A blockchain trade group is concerned that a patchwork of regulations in the United States will deter progress in the technology, and is asking policymakers to take action to “recognize and incentivize the development of blockchain solutions for government and industry,” according to a statement from the Chamber of Digital Commerce.

The chamber, headquartered in Washington, D.C., released its proposals last week “calling on the highest levels of the U.S. government to embrace a comprehensive, national strategy for blockchain technology,” including a set of “guiding principles.” The group represents more than 200 companies including Cisco, block.one, BNY Mellon, KPMG, Microsoft and Ripple. Its lawyers committee members include firms like BuckleySandler, Cooley, Dentons, Debevoise and ReedSmith.

Amy Davine Kim, chief policy officer at the chamber, said in an interview Monday, “we are trying to make sure that blockchain is afforded the same weight and importance” as the development of the internet for commercial purposes more than 20 years ago. The organization, founded in 2014, is concerned that without such direction, U.S. leadership in the technology will fall behind other countries such as the United Kingdom, Switzerland, Singapore, the United Arab Emirates and Japan.

“We just want to ensure that the U.S. government at the highest levels promotes and supports this technology and to shine a light on all it can do for government, for business and for consumers,” said Kim, who formerly was an attorney at BuckleySandler and Patton Boggs [now Squire Patton Boggs] where she advised on cross-border transactions and U.S. regulation.

The report said that “most public statements regarding virtual currencies in particular have been in the form of advisories, warnings and enforcement actions.” The group wants the government to make a “clearly articulated statement” of support for development of blockchain technology and its positive applications.

Kim said the plan has received positive feedback from agency officials in the federal government and others since its release. The plan was presented to the Commodity Futures Trading Commission and the Consumer Financial Protection Bureau earlier in the week.

Some of the other applications of distributed ledger technology, which includes blockchain, are payment systems, medical data transfer, health care benefits administration and supply chain management. For instance, blockchain could have helped authorities quickly identify the source of tainted lettuce in the recent recall, eliminating the need to discard tons of produce because of an inability to determine the origin of a shipment with precision, Kim said. Walmart recently has started using blockchain for that purpose.  

 

Taking In a New Intake

We have a few friends that have worked at law firms, and no single activity has elicited more groans than “client intake.” It’s a necessary evil, and one that seems ripe for innovation given the laborious process of client outreach, data entry, matching with attorneys, coordinating schedules, etc. But one start-up is hoping to flip the paradigm on its head.

Legaltech News’ Victoria Hudgins reported on Intaker, an artificial intelligence-powered program that uses chatbots rather than a person as the first line of communication between a client and law firm. From the firm angle, co-founder Pooya Abka said attorneys “can train the AI and let the AI know their practice preferences. [Then] the AI analyzes all of that and will set up a [chatbot] for that specific attorney.” From the client end, meanwhile, it’s a simple matter of answering questions to be automatically matched with an attorney and have an appointment scheduled.

These automated matching systems are nothing new—Abka himself previously founded Idemandu, a free virtual assistant through text messages that connects local service providers like fitness trainers and nutritionists to consumers. In the legal industry, though, utilizing chatbots like these to cut down on non-value added time could be revolutionary. We’ve already seen LexisNexis use chatbots to more easily access data, while start-ups like DoNotPay have used them to appeal parking tickets and other civil court matters.

It all adds up to time being better spent actually helping people. “I know for a fact that a lot of law firms are spending a lot of time on things that aren’t their core practices,” Abka said. “If you think about it, it takes away justice from their clients.”  

 

On the Radar:

Twitter Trouble: Tesla’s Elon Musk is back in the hot seat over his use of Twitter. The Securities and Exchange Commission has asked a federal judge to find Musk violated a settlement agreement by posting a tweet claiming Tesla will make around 500,000 cars in 2019. Hours later, Musk tweeted the Palo Alto company will aim to produce 10,000 cars a week and make 400,000 deliveries. The company had agreed to pre-screen Musk’s tweets as a condition of an SEC settlement. The tweets came less than a week after Tesla’s GC left the job. Read more from Caroline Spiezio here.

Accounting AI: Another Big Four accounting firm is picking up legal AI, a move that signals law firms may have to move faster to distinguish the types of client services they provide. Ernst & Young is the third of the Big Four accounting firms to start using AI contract review platform Luminance. And earlier this month, an alliance between Deloitte and e-discovery software provider Relativity spawned a platform geared toward managing Freedom of Information Act requests. Read more from Frank Ready here.

Into the Breach: DLA Piper, itself the victim of a data breach in 2017, has picked up a former federal cybercrime prosecutor from Ballard Spahr. Edward McAndrew, a former Reed Smith partner, co-chaired Ballard Spahr’s privacy and data security group, and led its cyber incident response team. You can read more about the move, reported by Ryan Lovelace, here.