The not so fleeting trend of blockchain technology

This article explains a commonly heard term, but something that still confuses some of us - blockchain. I will go into further detail about what blockchain is and its use with smart contracts. It explores the wide-reaching impact of blockchain technology in Dubai, United Arab Emirates. Moreover, it looks at how this technology impacts the traditional role of a lawyer and lawyers to be. 

Introduction

In the 1980s when personal computers were first gaining their popularity, the people that never learned to use it, still often struggle today to use the many applications of the technology that has become commonplace in our day-to-day lives. From a technology and usability standpoint, blockchain is now on par with personal computers. Similar to the rise of personal computers, blockchain is not a fleeting trend but is actually an advancement of society that is here to stay. 

Blockchain

What is blockchain?

Blockchain is a software, which is often compared to a bank’s ledger - effectively, it records transactions. This information is stored across a network of unrelated personal computers, known as the members of the blockchain network. Each member has their own copy of the ledger, which is continuously and simultaneously updated with the other ledgers. Transactions are grouped into "blocks" only when approved by each member and then added to the ledger. Therefore, this forms a record (or "chain") of transactions (or "blocks"). Hence, the name "blockchain."

Is it still relevant?

Blockchain technology is often linked to providing a platform for unregulated cryptocurrencies, such as Bitcoin. However, the use of the technology has rapidly evolved, since 2009 when it powered Bitcoins, to cater for many business and legal applications.

What are its benefits?

Blockchain ensures that records cannot be fabricated or modified by any person. As each block references the one that came before it, it is difficult to modify the past blocks without changing every following block within the chain. This forms an immutable trail of the data.

As mentioned above, information on the blockchain is distributed amongst members on the network. This makes the system decentralised and distributed so that no single entity can own it, yet all the members can use it and help to run it. This allows for its security as it is nearly impossible for one member to take down the network or corrupt it. A potential hacker would have to get access to every copy of the database within each computer contemporaneously to be successful, making it difficult for anyone to tamper with the data. This makes blockchain transparent and secure.

Moreover, the blockchain system uses "hashing" technology to protect confidentiality by disguising data. Rather than storing entire documents, hashing technology stores “hashes” or individual pieces of each document. Each hash is made up of a unique code that consists of a string of randomly generated numbers and letters, known as the "hash value." Each hash value is specific to the data it encrypts. This makes it harder for cybercriminals to steal any data of value.

For example, imagine you are storing documents that are shredded in a filing cabinet. It would be too difficult for the thief to steal the entire cabinet. However, even if the thief is able to steal a few pieces of the shredded papers, he (or she) would not be able to make sense of it. This is because he (or she) does not have all the pieces to form the whole document.

Lastly, the efficiencies afforded by blockchain technology such as in time and reduction of manual intervention saves costs.

Smart contracts

What is a smart contract?

To simply illustrate, a smart contract works like a vending machine. If you think about a vending machine, you input the numbers of the snack you want through buttons along with the requisite money. The machine then produces the outcome of providing you with the snack you wanted with the money being retained. The key point here is to note is that the transaction cannot be stopped in the middle of the process.

A smart contract is a piece of code that can be deployed on a blockchain. The code can, for example, contain contractual terms. The code will sit on the blockchain passively, waiting for a message to come in. When that message has been received, the code determines what outcome to produce and automatically executes the outcome. As it can be seen, there is nothing really "smart" about a smart contract. It is merely reactive and only doing what it has been programmed to do.

Smart contracts can offer increased productivity, cost efficiency and enhanced trust as well as reducing the ambiguity and misinterpretations often seen in contracts. This is because the code is certain. Its input is pre-determined to produce an expected outcome. On the other hand, with the use of everyday language, there is a real risk that it could create ambiguity in the contract with the potential of ultimately rendering it invalid. Moreover, if the code works it can be replicated for similar transactions without the need to pay for high fees of third parties.

Blockchain and smart contracts

Its practical applications

Many new blockchain applications have emerged and the ways in which the technology can be used are still being explored.

For example, the Dubai Land Department (DLD) is in the midst of creating a blockchain system to house and maintain records of title deeds and real estate contracts. By maintaining information on current and past transactions in an undisputable database, the system theoretically should enhance transparency and trust in real estate transactions.

Blockchain technology can be taken one step further. Through using smart contracts, the DLD could also register leases and allow tenants to access their tenancy contract digitally. The blockchain system can store information on Emirates ID, the validity of residency visas and allow tenants to make payments electronically. Since the data stored on the blockchain is unchallengeable, it could be shared with different governmental and private entities such as the Dubai Electricity & Water Authority (DEWA), telecommunications and air conditioning providers. This, ultimately, would have the benefit of making the current manual set-up of these tedious procedures redundant, whilst allowing users a quick and easy way to manage them remotely.

Furthermore, smart contracts on blockchains can also assist in purchasing properties. Transfer of property title would take place automatically, once the buyer deposits funds to the appropriate account. This eliminates the need for middlemen like escrow agents and brokers in a transaction, saving costs and time.

Aside from real estate, blockchain technology can be used to access the real-time status of products moving along a supply chain. Usually, supply chains are complex because they bring together various parties such as farmers, warehouses, shipping companies, distributors and retailers. For instance, Maersk, the well-known shipping company, found that a single shipping container requires approval from 30 different parties. This generates a significant amount of records using different record-keeping methods; from electronic databases to email chains to paper printouts. Using blockchain to collate the information could reduce delays, increase transparency, and reduce human errors.

Its impact on the role of a lawyer

The scepticism with embracing blockchain technology is that it will reduce the workload of lawyers, as it eliminates the need for middlemen facilitating transactions. However, blockchains are nothing more than tool - a tool that changes the way a transaction occurs and therefore also changes the way a lawyer would typically carry out that transaction.

For example, to return back to the real estate example; property lawyers can rely on blockchain to verify the chain of custody of their clients’ properties, thereby expediting the legal process, which can normally take months to conduct in person. With regards to blockchain keeping records of products moving through the supply chain, it would be more time and cost-efficient for lawyers to have an up-to-date, consolidated and trusted digital trail should a dispute suddenly arise.

In addition, whilst smart contracts offer many advantages, a transaction using this technology would not completely cut out a lawyer. This is because a lawyer will still be needed to assist in negotiating the legal and commercial terms of a contract, advise the client on the law and then take the negotiated deal and convert it into a legally binding agreement. In fact, most people do not understand code that programmes blockchain. Therefore, terms would probably be drafted for parties to read before being transferred to code. This is where there would be an additional step for lawyers to take as they may have to sit with programmers to dictate what the code must to do.

With the blockchain revolution, it has become increasingly important for lawyers to not only understand how the technology works but also to grasp how contract formation (for smart contracts) and delivery of goods and services occur using the technology. This is because potential disputes arising from transactions conducted through blockchain technology will raise questions of governance, regulation and contract law. As the parameters develop for the regulation of blockchain technology, it will become prevalent for lawyers to not only explain its uses and its benefits but also its drawbacks and its consequences. Instead of being a threat, law firms can view the rise of blockchain technology as an opportunity to expand their service to clients. However, this means that lawyers must be equipped with digital skills in order to accurately explain these issues.

This is especially the case when the governmental and legal system itself is in the process of being powered by blockchain technology. The Dubai government, under its Blockchain Strategy 2021, aims to power all applicable governmental transactions through blockchain technology. Moreover, the very first Court of the Blockchain is set to launch in the Dubai International Financial Centre (DIFC). Whilst it is currently unknown how the court would function, there are examples of blockchain technology increasing efficiency in legal proceedings. The technology has been used to allow parties to access the same version of documents, eliminating the need for duplicate papers in cross-border enforcement matters.

Its impact on future law graduates

In the last five years, it has been significant for law students to demonstrate commercial awareness to be a competent commercial solicitor. Now, in line with the demand of savvy clients asking more of their lawyers for less, lawyers are expected to be able to advise on technological advancements such as blockchain. Therefore, legal education must evolve in line with the changes to the legal market, which time and again have been changing the traditional role of a lawyer. Legal education, particularly at the LLB stage, is fixated on the rigid structure of learning laws and applying it to facts in various scenarios. Whereas the reality is that a legal career involves adaptability. It is the core nature of the work that must be addressed, to equip law students to deal with the drastic change between learning legal theory at university to life practising as a lawyer. If legal education was practical, responsive and forward-looking, it could equip students with the digital skills to enable them to deal with the current rise of technology within the legal market.

This change would increase awareness and understanding of those seeking to be a solicitor. Law firms repeatedly emphasise the importance of their recruits being able to explain the role of a commercial lawyer and their reasons behind them pursuing a legal career during the application process. This begs the question of why that is the case when a student has spent three years studying Law, incorporating commercially-focused legal modules. Now that approximately 50% of trainees in most law firms are non-law graduates, it reinforces the fact that legal education does not address what it means to be a lawyer in this day and age. Moreover, the Law Society’s Report (2018) states that the Solicitors' Qualifying Exam (SQE) leaves out Information Communication Technology (ICT) skills. It recommends that the subject areas for law firms to focus training on are ‘technology, business acumen, project management and design thinking for business contexts.’ This skillset describes a technology consultant rather than a lawyer.

Conclusion

In conclusion, blockchain technology is part of the fourth industrial revolution. It is not just a fleeting trend that will end anytime in the near future. It impacts every sector and therefore, the advisers within those sectors. The evolution of the legal market must be reflected in legal education to equip aspiring solicitors with the right skills, knowledge and qualities for a career in law. Technology, such as blockchain, has had a substantial impact on the global legal market as it has led to the emergence of a new kind of lawyer.

Naina Pagarani

1 October 2019