One of the most promising applications for blockchain in the legal services industry is smart contracts. The technology is already making waves – are you ready for the impending smart contract tsunami?
The basics of blockchain
By now, you’ve likely heard of blockchain – one of the three new technologies that legal services providers can no longer ignore.
But if you haven’t taken steps to learn about this technology – and the impact it will have on your industry – here are the basics to get you up to speed.
Offering the legal services industry greater security around contractual agreements than ever thought possible, blockchain:
- Is a real-time ledger of anything that can be recorded
- Is stored in a distributed, peer-to-peer fashion
- Allows multiple users to access it with their own unique access key
- Immutably encrypts and time-stamps each entry to the user who made the entry
- Ensures users can only edit and modify their own entries
Enter, smart contracts
Also known as self-executing contracts, blockchain contracts or digital contracts, is a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions.
These contracts are stored on blockchain technology, a decentralised ledger that also underpins bitcoin and other cryptocurrencies
For example, you could have a contract agreement with a programmable code that says, ‘when the foreign exchange rate hits $0.71 transfer $1 million immediately to this bank account’. The action is triggered without any human involvement.
Michelle Mahoney, Executive Director of Innovation at King & Wood Mallesons, said, ‘It’s a fully-automated system. So naturally, where you have multi-million-dollar contracts happening without a human judgement call, you have to be very cautious.’
‘At the moment, there’s a lot of discussion about smart contracts but we are still working towards the point where people feel completely comfortable to use them.’
‘So, the idea of using smart contracts in the legal industry is very strong… but in terms of execution, the industry is still trying to find the type of contracts where this functionality is most meaningful.’
Future potential of smart contracts
One of the promising applications for smart contracts is within the energy sector.
Michelle explains, ‘Say you belong to a distributed energy group where you all have your own solar panels. We know that tonight you will need 100 megawatts to do everything you need to do. But today is a really sunny day, so you’re getting around 300 megawatts.’
‘You could have a smart contract with the wholesaler that says “any time I get more than 100 watts of power, you can automatically buy that and pay me 20c per watt”.’
‘And they would automatically take your power off you, sell it to the grid – and put 20c per watt into your bank account. That’s the kind of thing smart contracts will be well suited for.’
Need to get up to speed on blockchain and smart contracts?
A six-week course from The College of Law, Fundamental technologies shaping legal services: understand the technologies driving the business of law will help you make sense of today's legal technology landscape. It will equip you with knowledge on the major technologies disrupting the way lawyers work, and the skills legal teams need to survive our digital future.
The subject is part of the College’s newly formed Master of Legal Business, and is led by Teaching Fellow, Michelle Mahoney. If you want to learn how you could be the next change-maker in your organisation, get in touch today.