You have probably heard of blockchain. If you didn’t, I am sure you’ve heard of bitcoin. There is a chance you have also heard that blockchain or bitcoin are the next big thing. I believe that blockchain is the next big thing, and the purpose of this essay is to explain why and to show blockchain’s significance for lawyers and law practice.
Blockchain is an escrow of conclusive transaction evidence. That’s it. Don’t worry about hashes, blocks, distributed ledger, encryption and so on for now. Those are implementation details. All you need to know as a lawyer, a banker, a creditor, a vendor, a buyer, and a debtor is that blockchain eliminates transaction disputes. Accordingly, blockchain eliminates litigation over transactions in its escrow and automates enforcement. It’s magic, really, and no lawyers are involved. And a whole segment of the world economy has transacted through blockchain for a few years already—by buying and selling bitcoin.
Blockchain was impossible before the Internet. Lawyers were, actually, the humanity’s original effort to build blockchain. They are trained, vetted professionals with a lot to lose who sell trust and escrow services. Professional trustees are another example. The problem with lawyers is that they are human. It means two things: (1) they make mistakes or lie; (2) they are not scalable.
For a trusted conclusive transaction evidence escrow to be the next big thing, it needs to work over any distance, across all borders, with any amounts or assets, without errors or fraud, instantly and with negligible transaction fees. DOES NOT SOUND LIKE LAWYERS, especially the no-transaction-fees part.
(I am a lawyer and I like lawyers. I believe blockchain is good for lawyers because it means liberation. Freedom from trivial cases that waste lawyers’ enormous creative human potential on what machines can do well enough. One of the promises of evidence and dispute-resolution automation technologies like blockchain is that lawyers can focus on truly controversial cases that advance the law such as liability for self-driving car accidents or the right of governments to put people on secret black lists. If you are a lawyer, would you agree that in your practice many cases are controversial only because the opposing counsel is sloppy, did not do enough research or has a giant ego?)
Bitcoin is an application of blockchain and a kind of value transacted through blockchain. It is value by scarcity and agreement, not by nature—just like dollars or gold. Yuval Noah Harari, the author of a brillian book “Sapiens,” would also probably call assets such as bitcoin, gold, dollars, or law degrees “imaginary.” It means they don’t really satisfy our physical needs directly. But by agreement and complete social faith and due to the natural or artificial scarcity of the assets, we exchange these assets for food, shelter and other true necessities.
There are only two fundamental differences between bitcoin and national currencies: (1) bitcoin is issued by an algorithm rather than a central bank so predictable machines rather than arbitrary humans control the “printing” and the total amount of bitcoin; (2) creditors can sue you if you present bitcoin to settle a debt denominated in national currency but if you present the currency it will be a defence to the creditor’s suit under some form of a “legal tender” statute (Currency Act, RSC 1985, c C-52 in Canada; 31 U.S. Code § 5103 in the US).
By the way, I don’t think blockchain is a “fundamental” difference between bitcoin and national currencies. In theory, nations can switch their monetary systems to blockchain. Technically, nothing even stops nations from replacing central banks with algorithms (no, lawyers will still be human). This will have an ENORMOUS effect on transparency, taxation, and economic activity. But I am digressing, which just shows how deep this subject is.
So back to blockchain being an escrow of conclusive transaction evidence. A bitcoin transaction is a pair of entries in two parties’ digital ledgers: one debit and one credit. That’s how bitcoins change hands. Each ledger is a list of debits and credits with a current balance. Sounds undistinguished? Well, imagine the ledgers are the bank accounts at the same time. No reconciliation needed. Making an entry moves the actual assets. And it’s near instant, near cost-free, regulation-free, pseudonymous or potentially anonymous, direct, machine-vetted to the point of near guarantee against fraud. The evidence of the transaction is conclusive and guaranteed. Making entries (contract) causes automatic transfer of assets (enforcement/performance). Conclusive, transparent, secure evidence eliminates disputes over parties, amounts, and direction of transfer.
Of course, disputes over the background facts are still possible. If the bitcoin transaction was a part of a larger deal the rest of which originated and continued outside of blockchain, you’re back in Kansas. Bitcoin is the simplest application of blockchain. But future applications will move complete deals on to blockchain.
The word “deal” will mean something different just like the word “handshake” means something different in the networking world. Deals will be like the financial electricity. They will flow without human intervention and potentially between non-human parties: machines will enter into agreements, pay, and deliver at machine speed. Blockchain is the first act of that future machine-ready financial infrastructure that is so hard to imagine right now because of the baggage we carry with words like “deals,” “transactions,” “money,” “lawyers.”
Blockchain will be lawyer-free by design. Lawyers will focus on what they do best: structure unprecedented human affairs, translate human facts into legal system/machine-readable contracts, and litigate truly controversial cases. Great for lawyers, great for the world.