The dawn of the digital age has undoubtedly solved many problems. But some would argue that the digital transformation has caused a range of new problems, especially in areas that depend on users to reconcile the digital with the physical. For all the capabilities of emerging technologies, users regularly lose their passwords, fall victim to phishing scams, misplace important documents, and generally lack the kind of specialized knowledge required to responsibly navigate the constantly evolving landscape.
The public has a similar relationship with the law. By no means are consumers specialists in legal matters, and our inability to fully understand our legal protections often leaves us at a severe disadvantage. But lawyers are now turning to blockchain with the hope of eradicating some of the practical limitations that have arisen alongside digitalization—especially when it comes to contract law and intellectual property. The ways in which blockchain can transform the legal system can also benefit other industries, like e-commerce and music distribution. By embracing blockchain at the legal and commercial level, companies and consumers can share a more equitable balance of power, and do so faster and cheaper than ever before.
Out with the old
One of the greatest hindrances to modern legal operations is that much of its parlance is stuck in the last century. As a result, legal processes sometimes struggle to meet the needs of our modern digital reality. Blockchain technology offers a number of features that can improve legal operations in the digital sphere—perhaps none more important than machine-readability. Blockchains can be scripted to perform operations every bit as complicated as anything stored in a filing cabinet, in language that is far more transparent. And because they are cryptographically secured and completely decentralized, the rules that govern blockchains create self-contained enforcement networks that may ease the friction of a traditional legal apparatus. In other words, legal work that presently requires lots of time, money, and a bevy of attorneys could be partially handled by blockchain technologies in the future.
One application of blockchain to the legal profession comes in the form of digital protocols called “smart contracts”. Initially conceived of by legal scholar and computer scientist Nick Szabo in his 1997 essay “Formalizing and Securing Relationships on Public Networks,” a smart contract is “a computerized transaction protocol that executes the terms of a contract… [giving] us new ways to formalize digital relationships which are more functional than their inanimate paper-based ancestors.” The idea is that complex legal terms can be translated for execution by computers. In theory, this improves transparency between parties, automates the execution of terms, and reduces the cost of everyday legal operations.
One of the biggest problems facing contract law is demonstrated by “click-wrap agreements”. Every time users sign up for a new online service, they have to scroll through miles of legalese and check the box to accept the Terms and Conditions. But studies have shown that users don’t actually read these contracts, and even if we did, most of us would be incapable of fully understanding the nature of our compromise. “We continue to place unreasonable obligations on the end user, ignoring the fact that all research and common sense indicates that the current practice of wrap contracts is deteriorating the institution of contract law,” says Emory Roane, a San Diego-based attorney specializing in privacy, intellectual property, and tech law. “At the crux of this issue is a technical problem begging for a technical solution. A number of services offering software-assisted legal aid have risen to the challenge. But generally speaking, wrap agreements produce a commercial environment in which the authors of one-sided contracts have far more power than the people who are all but forced to sign them.”
While Roane recognizes that smart contracts have the potential to become a modern version of the same problem, he also believes that machine-readable smart contracts are the best tools available for mitigating the issue. “Where today, we know that users simply don’t read the contracts they are presented with,” Roane says, “with smart contracts we can acknowledge this issue, and delegate the duty to read and comprehend the contract to a digital intermediary.” By trusting in the blockchain-based process itself rather than the people or institutions involved, parties to a smart contract are all but guaranteed that their terms will be fulfilled as intended.
While Intellectual Property (IP) law shares many of the same problems as contract law, it also has a few of its own that the blockchain could help to ameliorate. Take edge-provider centralization, for example, by which enormous companies like YouTube and PayPal can easily overpower individuals seeking arbitration. There is also the problem of data portability: users have to set up new accounts every time they register a profile and owning and transferring data between them can be a significant challenge. Finally, it is notoriously difficult to detect infringement of the law and prove ownership of digital properties. Blockchain-based smart contracts can make patents, copyrights, trademarks, and licensing simpler and fairer for owners of intellectual property online.
Through decentralization, blockchain paves the way for peer-to-peer economies that can be managed by smart contracts. Projects like OpenBazaar, which requires transactions via Bitcoin and user-hosted storefronts, hope to shake up the powerhouse paradigm by replacing third-party retailers like Amazon and eBay. This could lead to a new dynamic that could, according to Roane, “increase market efficiencies and help balance the scales of negotiating power on the Internet.” Furthermore, blockchain allows for more comprehensive digital identities, allowing content creators to tag their intellectual properties, effectively stamping them with a digital watermark that authenticates ownership. Roane describes this kind of content as “cryptographically unique and non-copy-able, and whose ownership is clear and provable.”
Blockchain-based technologies—specifically, smart contracts—have the potential to upend legal and commercial paradigms. To quote Szabo, “Impacts on business will be felt in law, accounting, auditing, billing, collections, contracts, confidentiality, and so on: in short, the entire nature of our business relationships will be altered in ways only partially foreseeable.” These technologies can also manage escrow, payroll, collateral, and bonding—all of which factor into the daily operations of businesses across the globe.
In many cases, rather than resisting these changes, companies are preparing for and managing the transition. Amazon is positioned to adopt cryptocurrency payment options. Ujo Music seeks to manage music distribution. Other companies like us, Bitqyck, and Rootstock.io are forging new territory, making blockchain integration our central focus. We even reward our stakeholders with the bitqy token for taking actions that add value to the company, a smart contract we built on the Ethereum blockchain.
A lot of this is about managing incentives that drive certain kinds of behavior. Consumers want to have greater transparency online so they’re not as easy to take advantage of by powerhouse corporations. They also want to simplify and streamline the legal process in order to have maximal protection at minimal costs. Emerging technologies are being developed to implement the changes necessary to prompt these kinds of improvements, and although blockchain technologies still have a long way to go, they offer promising opportunities to modernize the digital marketplace.