What if someone told you that a new technology would significantly impact every law firm within the next 10 years—and would influence how your firm gets paid, the types of services it offers, and everything in between?
Consider this a wake-up call for a future that looks very different than today, thanks to the technology called blockchain. While still a nascent trend, blockchain is already proving to be a transformational force, changing how people and businesses around the world transact with each other by enhancing the trust, accountability, efficiency, and effectiveness of those transactions.
Don’t assume that blockchain is only for cryptocurrency enthusiasts and specialists. It’s poised to make rapid inroads into all types of industries across many different use cases beyond cryptocurrency. As such, clients will need expertise and guidance for the proper legal frameworks for using blockchain. Law firms that don’t want to get left behind need to pay attention, and start gaining experience and planning their blockchain strategies now.
Defining blockchain simply
Let’s start with what blockchain is not. It is not software that you can buy from a vendor nor is it “owned” by any one company. No one group or country controls it, and anyone, anywhere in the world can use it. While these characteristics can make blockchain seem complex and nebulous, when you think about it, the Internet has the very same characteristics. We don’t have to understand the technical details of the Internet to know it has tremendous impact on our lives and livelihoods.
So, what is blockchain? It’s open source technology that enables the creation and management of a global, autonomous network where information is secured in an immutable and transparent ledger. There are already thousands of networks in use, both publicly and privately. What’s special about a blockchain network is that it gives everyone who uses it access to the same information in a way that ensures the information can be trusted.
Changing the legal industry
Because it’s somewhat early days in the blockchain evolution, innovators are still identifying all the ways it can be used. Perhaps the most common application right now is for peer-to-peer transactions that transfer digital value between two parties in a trusted way without a third party involved.
However, blockchain is also being envisioned and tested to make supply chains more efficient, give artists greater control over digital ownership rights, streamline real estate transactions, manage Internet of Things networks and much more.
Because it changes the way people and businesses transact and communicate with each other, blockchain will begin to impact and evolve the way legal services such as contracts, escrow account management, transactions and much more are handled. Here are some ways blockchain is already poised to reshape how law firms work:
- Smart contracts: Instead of being traditional, static documents (whether digital or paper-based), contracts will evolve to be programmatic components of a blockchain network, where the terms and conditions of the contract are automatically applied.
- Automated securities settlement: Many of the routine change of ownership transactions handled today by law firms will be automated within blockchain networks in the future, such as transferring real estate or ownership shares in a business. Compliance and restrictions all happen automatically, as they are built into the blockchain protocol code.
- Payments via digital assets: As clients adapt digital assets such as cryptocurrency, it will be increasingly important to be able to accept these types of payments.
- Escrow accounts: Smart contracts can automatically release funds into a digital wallet at the completion of some pre-determined criteria, eliminating the need for escrow accounts in many transactions.
Establishing an essential role in the blockchain evolution
For forward-thinking law firms that have embraced the changes on the horizon with blockchain, it’s already opening up new practice areas and service opportunities, which can eventually replace those that will shrink and go away. Sharp legal minds are required right now to help organizations understand the appropriate legal framework for using various blockchain networks for different use cases. There is much to do to move from physical assets to digital ones, and the legal industry must be a vital part of the effort.
Lawyers who understand the concept of smart contracts will be in high demand as more businesses begin moving to blockchain. By combining understanding of how blockchain networks function with deep legal knowledge, firms can create blockchain practices that provide legal guidance to organizations of all kinds as they both create and participate in blockchain networks.
Taking the first step
As the world evolves towards transferring assets and information digitally using blockchain, your firm must be ready to both adopt blockchain and provide legal counsel on how your clients can adopt it as well. One way to ease into the world of blockchain is to begin accepting digital assets as payment for legal services rendered. Unless you already have blockchain expertise on staff, turning to a trusted service provider can expedite your implementation while helping your firm avoid missteps.
In any case, you need to begin understanding blockchain now. If clients aren’t already asking about it, they will be soon, which means you need to start establishing blockchain expertise before your competitors beat you to it.