The blockchain concept has been around for some time now, but recently has begun to creep into the popular dialogue. If you are an attorney working outside the technology area, whether in-house or in a law firm, and even if you do work in the technology field, the term may still be foreign to you. Or, it may be synonymous in your mind with Bitcoin, the “cryptocurrency” that periodically dominates financial headlines.
It may sound like the height of geekdom or the realm of financial speculators. But blockchain goes far beyond these areas. The single most important takeaway is that the words “blockchain” and Bitcoin don’t mean the same thing. Blockchain refers to an overall system of digital building blocks, a platform on which Bitcoin and other so-called cryptocurrencies are built. Many other applications can be built on this platform, as well, and many companies are already in existence, racing to do just that.
If your company creates its own software, whether for internal use or as a customer offering, your developers may well be using or evaluating blockchain concepts in planning their next version of the software. Or your company’s vendors (including vendors of legal technology) may offer their next product in this format. Think of it like the internet. In the early days the internet was the language of geeks and nerds. But we have all come to take the internet for granted by now; it is the backbone of much of our daily lives. Blockchain has the potential to become this kind of fundamental, transformational technology although it likely will be some time before it becomes as ingrained as the internet.
Blockchain is fundamentally nothing more than a sophisticated digital ledger system, that is for practical purposes highly resistant to hacking. It consists of a series of digital “blocks” of information, with each new block digitally linked to the immediately preceding block and then successively back to every single prior digital block all the way back to the very first piece of digital information in the chain. As series of blocks are added on to the system, each proposed addition to the chain goes through a process of being authenticated before it is verified as being part of the chain, requiring intensive computing power to do so. This characteristic makes it appealing as a way to create a trackable, auditable trail of data; it also results in a blockchain that is highly resistant to being hacked, since any change to a block would have to be digitally re-verified all the way back to that first block in the chain, as well. Imagine the massive computing power that would be required to chew through billions of tiny “blocks” of data every single time an alteration were attempted.
These characteristics illustrate why blockchain is well-suited for creating artificial currencies such as Bitcoin, that can be tracked and audited without involvement of banks or other financial intermediaries. In coming months, you may also encounter blockchain technology in connection with your company’s or clients’ privacy policies, healthcare records, financial transactions and in many other areas. Regulators in the United States and throughout the world are looking at many aspects of this disruptive technology, trying to figure out what it is and struggling to keep up with rapid developments in the field as well.
If you encounter a transaction based on blockchain, or if you are asked to review a “smart contract” based on blockchain, don’t be thrown by the unfamiliar terms. If a commercial relationship is documented based on blockchain technology, then as various contractual conditions are met or procedural steps completed, the conditions could be instantly and inalterably verified. But the basic concept of contract review would not be fundamentally different.
Blockchain is evolving rapidly, and the field is ripe for innovation. A stream of new applications is on the near horizon, and some may appear on your desktop this year. If you are interested in learning more about this topic, or if you suddenly find yourself being asked to handle a project involving blockchain technology, have no fear. A quick search on the web will show many popular articles available on the topic (although you do have to weed out the Bitcoin-focused materials). Westlaw, ALI CLE, and even local bar associations and many other CLE sources, provide excellent introductory and more in-depth discussions both on the topic as a whole as well as specific details and definitions, and even those without technical backgrounds will be able to quickly gain a working understanding sufficient to dive in and manage many situations that may arise based on this rapidly evolving technology.
Gail Papermaster is a corporate and transactions attorney based in Austin. She works with many technology companies and several of her clients are involved in cutting edge projects in the blockchain area. Papermaster is actively involved in the Austin technology, arts and music communities, and has been dubbed an honorary geek by her engineer friends.