19 Jul Blockchain, Law and Smart Contracts

In this week’s post we are going to make a brief reflection about the impact that new technologies are having in the legal world and, especially, the emergence of a new disruptive technology that begins to sound strongly and which some experts have already considered as the fourth industrial revolution: The so-called “Blockchain”

Throughout history, technological innovations have caused large-scale qualitative changes in the socioeconomic structure of the different countries of the world.

In the 80s came the Internet, a tool that arises from a US military project that sought to create a computer network that would unite the different research centers in case of attacks, thus being able to maintain remote contact and that will continue working in case some of the nodes were destroyed.

The so-called Internet of Information was a real technological revolution, a tool that enables us to access to information from anywhere in the world in a matter of seconds by a simple click.

This internet of information was created based on open standards that enabled the free circulation of information throughout the world and thus becoming an inexhaustible source of information to which, we could access by a simple click with our computers.

All this propitiated the emergence of new business models based effectively on a centralization. Within these models we could mention giants like Amazon, Facebook, Google or Airbnb.

Faced with this Internet of Information, which allows us to access websites from different countries of the world, the so-called Internet of value, which is also created based on open standards, emerges forcefully, but focuses on a new technology: the so-called Blockchain.

Let’s go by parts. What is the Blockchain? As it was explained in the post of last week, Blockchain is a decentralized database that allows to store information in a secure way because all the data of the different transactions are registered in a chain of blocks that is practically impossible to modify or delete.

That is, any transaction that is stored in the blocks cannot be modified or hacked. All this allows to create an unbreakable register of different transactions that will be shared and synchronized between the different computers that participate in this process, because as we mentioned one of the main characteristics of the Blockchain is its decentralized nature: each of the transactions will be registered in the different nodes that make up the Blockchain network, and these nodes will use the same software or protocol which allows them to communicate among them, exchange and synchronize information, all this quickly and safely. Taken to a more practical vision we can say that to be able to “inject a virus” and obtain the information that has been stored in one of the blocks that make up the chain, it would be necessary to infect one by one the thousands of nodes wherein a copy of it, which is practically impossible, since it would be necessary a computer “power” that today nobody has.

This is where one of the strengths of the Blockchain technology resides: the security it provides by allowing to transmit and store information in a decentralized manner, without relying on a central entity that centralizes the process and acts as an intermediary (A Bank or PayPal, Facebook or Amazon among others)

Until now, there was necessary the existence of a third who acts as a mediator between two parties to guarantee the authenticity of the transactions (whether a bank, notary or auditor, for example). With the emergence of Blockchain the panorama has changed completely. This technology allows the storage and transaction of information in a fast, safe and univocal way and it is precisely this inviolable character that gives value to the information, making it more transparent and incorruptible.

In relation to the world of Law, Blockchain technology has incorporated a new functionality known as Smart Contracts, which allows to record in the Blockchain not only transactions but also contracts or process that can be executed in the future if a series of conditions that have been defined within the contract itself, are met.

This explanation is easier to understand if we give an example. When someone books an airline ticket he decides to take out a travel insurance that covers a possible delay of two hours. Through the Blockchain technology, this intelligent contract would be included in one of the blocks and, if certain conditions are met (delay of more than two hours), the contract will be executed (It would be take place an automatically re-entry of money). Therewith, we obtain an automatically result without any third-party mediation

Using these Smart contracts, it could be possible to standardize certain processes, thus making more efficient the execution of some objective legal clauses that we may have included in a contract.

 However, this does not imply a direct substitution of traditional contracts, given the subjective nature that always accompanies the law. A norm is almost always susceptible of interpretation. And depending on this interpretation the result to be applied is different, so perhaps the future lies in a collaboration between the Smart Contracts for those objective clauses and the traditional contracts for those clauses that are impregnated with greater subjectivity. However, in both cases, the legal figure of the lawyer will continue to be not only important but also necessary

During the era of technological innovation, the lawyer of the 21st century shall be adapted to the circumstances of the moment and acquire the necessary skills to be able to bridge the gap between new technologies and their legal regulation.

 It is worth recalling the fact that most of legal bodies were created in a completely different technological age, so it is necessary legal figures who know how to adapt the content of these laws to current technological situations.

Therefore, the role of lawyers in this adaptation is essential, since there is no specific regulation in this regard, which is an important challenge for jurists who must face with controversial situations such as the regime of responsibility of the interveners in the process, the problematic of the subjectivity of the regulations or the barrier that supposes the fact that each country has a different normative.

In turn, the currently lawyer shall understand the technology, leaving behind the traditional “lineal” consulting wherein only purely legal aspects are considered and begin to offer a transversal consulting, wherein they keep in mind different aspects such as technologies and in full collaboration with other professionals and disciplines such as the IT department, engineers, economists …

It is still early to be able to talk about the scope that this new technology will have. As many experts comment, the Blockchain is here to stay, it only remains to see the form it will adopt and the influence that the Internet of Value will have on the current socio-economic landscape and how it can change and revolutionize the way we organize our digital life

Javier Navarro Lacambra

Abogado