Crypto's smart contracts can revolutionize legal payments, and the legal profession
Just as the e-commerce revolution transformed the world of consumption, the internet of agreements is going to revolutionize supply chains, finance, real estate, intellectual property and employment.
While experts suspect the digital revolution within the legal realm will be gradual, it is inevitable that lawyers will have to adapt to the use of blockchain and artificial intelligence. The internet democratized access to information, and now cryptocurrencies are democratizing access to financial services; the next wave of the digital revolution has the potential to democratize access to justice.
For example, the firm Allen & Overy, in collaboration with Deloitte, developed MarginMatrix, which codifies the financial laws of different jurisdictions and automates the drafting of contracts. The time required to classify a document dropped immediately from three hours to three minutes. Similarly, a robot lawyer invented at Stanford was able to process 375,000 traffic ticket payments in two years. This technology allows firms to take data-driven decisions instead of relying on intuition.
The cryptographer Nick Szabo proposed smart contracts in the 1990s, but it wasn't until 2014, with the invention of Ethereum, that they were put to use. A traditional contract is a subjective and complex legal document, which can be ambiguous and subject to various interpretations. Even a firm contract can be evaded if the subject can pay for the right lawyer.
By comparison, a smart contract is written in code, and therefore entirely objective. The contract automatically takes form when both parties have completed their requirements; if not, it remains inactive. With no third parties involved, no judge to bribe, and no way to hack the blockchain, both parties can be assured the agreement will be executed.
Smart contracts will likely find application in many fields, including insurance, mortgages, and even client referrals. In 2017, UBS, Barclays, Credit Suisse, Thomson Reuters, KBC and SIX began using smart contracts to comply with international regulations that help prevent money laundering. Further, Capgemini Consulting estimates that smart contracts could help save 12.5% of all insurance processing costs.
The smart contract industry is still in its infancy. However, several legal-tech startups, including OpenLaw of ConsenSys (United States), Accord Project (United States and United Kingdom), Agrello (Estonia), are using smart contracts in legal applications already. The primary challenge this industry faces is the development of infrastructure that makes it possible to implement the contracts, including intelligent locks and other IoT-connected hardware.
The legal profession has long been defined by thousands of hours of dreary study of legal texts. Those days might be ending with the advent of artificial intelligence and high-powered programs like IBM’s ROSS and JPMorgan’s COIN. These programs can read 360,000 hours worth of documents in just a few seconds. This quick and low-cost process is pushing traditional legal firms to reduce their prices or innovate.
Property registry is one of the most significant challenges the legal profession faces. In countries like Honduras, land registry officials have a history of altering documents to take land illegally. Similar issues have arisen in the Brazilian Amazon and southern Chile. These challenges have pushed countries like Honduras to test a land registry system backed by the blockchain so that no one can manipulate the database. The country of Georgia is testing a similar program.
Paper records and digital files can be tampered with, destroyed or lost. Not so with the blockchain, which allows for secure records of every transaction or payment.