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The technology has affected so many other industries and is still at it in the legal industry that relies on paperwork and outdated procedures.
Certainly one of the most significant leaps in bringing forward technology is blockchain technology, which holds promise to turn records of legal contracts, as well as all documentation, to be verified, tracked, and enforced.
Blockchain’s natural traits of decentralization, immutability, transparency, and security are bringing an amount of efficiency and security that is sorely needed by the legal industry.
In this article, we consider how blockchain is streamlining contracts and documentation in the legal industry.
Blockchain Technology as we know it today
Simply, blockchain is a distributed ledger technology (DLT) for securely and transparently recording transactions on an (otherwise) decentralized network and ensuring all transactions are recorded with total accuracy.
Better known for its applications in cryptocurrencies like Bitcoin and Ethereum, it’s just the beginning.
Blockchain is an openly shared and distributed ledger system where no single member, other than those who share the network, cannot obtain a copy of the blockchain.
Blocks are added to the chain, and once a block is added to it, it can’t be deleted or altered. In between, each transaction or entry on the blockchain is recorded in a block.
This means that legal documentation and contract management are better served because the immutability of data on the blockchain makes it impossible to edit.
Smart Contracts: Automating Legal Agreements
A smart contract is one of the biggest ways by which ‘blockchain is changing the legal market. A smart contract is a computer program that facilitates, verifies, records, and reinforces an agreement between two or more parties of intelligent agents (anything from human beings to mechanical equipment).
Once specific conditions are fulfilled, these contracts automatically become executed and enforced, and the terms of the contract are automatically dictated.
Main Advantages of Smart Contracts
Automation: Smart contracts are special because they do not require middlemen to verify or carry out the terms of a contract.
When the specifics laid out in a contract are fulfilled, a smart contract initiates the contract on its own. It can also significantly minimize control procedures, time, and costs associated with contract management.
Accuracy and Precision: The best advantage of smart contracts is that since they’re coded, they do not have flaws inherent in typical legal contracts.
The terms are computed accurately right to the code written and programmed, minimizing cases of human discretion.
Transparency: Smart contracts reside on the blockchain, and hence, any stakeholder has access to it.
The key objective of this approach is to increase the contract’s legitimacy so that once signed by all the contracting parties, everyone is informed of the agreement made and thus the least probable to use it as a floor to press an unlawful claim.
Security: With the help of smart contracts, the data is protected by the blockchain’s unique encryption models.
Smart contracts by definition do not allow for change or fraudulent activity, this is so because once coded and deployed on the blockchain the contracts can not be altered.
Cost Efficiency: Since the intermediaries are eliminated when adopting smart contracts, some costs related to the process of contract management, such as the legal fees, administrative costs, and time lapse that is occasioned by the need to legally verify the contract, are also eliminated.
Dispute Resolution: People have identified that smart contracts can enhance the efficiency of dispute resolution because they are transparent and automatic.
Since the terms are bargained beforehand and independently executed, most of the contract controversies arising from the failure to perform the contract are likely to develop.
In addition, providing a clear record of the performance under a contract block can be used in case of any legal controversy.
Some smart contracts applied in legal services
Real Estate Transactions: In real estate, smart contracts can many times include the provision of changing the title deeds for properties once the payment has been made, without involving lawyers and notaries.
This simplifies the property-selling business, cuts down on the instances of fraudsters, and fast-tracks the transaction phase.
Intellectual Property (IP) Protection: A smart contract enables one to protect an intellectual property right through having an automatic incorporation of the royalty payment time.
Payment operations are made transparent, and the parties interested in acquiring the products of IP transactions receive their agreed payment proportions using blockchain technology.
Supply Chain Agreements: In manufacturing and other industries, blockchain finds application in supply chain contracts.
Smart contracts can trigger payments or products based on consumption based on time or quality; this eliminates time wastage on unnecessary quarrels.
Use of Blockchain in Contract Management
Smart contracts can be defined as an aspect of blockchain that automates agreement execution and completion, whereas blockchain-based contract management can complement conventional contract management by providing an immunization system for contract storage and tracking.
Blockchain-based contract management systems offer several benefits
Immutability: Blockchain retains the view that once a contract is uploaded to the blockchain, it cannot be tampered with or deleted.
This, to me, is a central feature of the contract management system because it creates complete transparency and keeps an exact record of every change made to the contract such that everyone can confirm the status of the contract at any one time.
Access Control and Permission: Blockchain permits flexibility in terms of control of who has direct access to a specific contract.
Unlike other systems where contracts are accessible by any user, only authorized requesters or updating agents are allowed to view or change the contract, which is more secure than other systems.
Transparency and Accountability: Due to blockchain, all parties having a copy of the contract can view a single copy of the document, eliminating the occurrences of disputes that result from different copies of documents.
Contract performance transparency is a key attribute of blockchains, which can thus be useful to ensure all parties’ compliance.
Reduced Risk of Fraud: Through security, blockchain ensures that contracts cannot be altered or modified in some way without permission from the rightful owners.
This indeed minimizes the probability of fraud or misrepresentation of some legal agreements.
Streamlined Execution and Record-Keeping: Currently with blockchain, legal professionals are fully capable of tracking the status of contracts like the time of signing, executing, or modifying a contract.
Where each contract exists in its digital format, it means that the record of the lifecycle of every contract is maintained on an immutable ledger, and less paperwork is required.
How Blockchain Can Be Used in Document Management and Authentication
Furthermore, inside the legal framework, the practical use of blockchain is also employed to modify and authenticate legal papers besides contracting.
Lawyers and law firms handle colossal amounts of papers, and confirming the validation of these papers can be quite time-consuming and expensive.
Document Verification: To this end, blockchain can be used to provide evidence for the legal documents where each document is assigned a unique signature.
Once the document is created and kept on the blockchain, it cannot be altered as data are stamped with time stamps.
This affords a basic method to confirm if a document has been forged or not, as well as if sections have been removed or added.
Decentralized Storage: Legal paper storage is another useful application of blockchain because it creates an environment for their storage when they are not tied to any central authority and thus cannot be easily attacked by hackers.
This minimizes the probability of conducting a breakdown in middle-of-the-road confidential storage facilities, including theft or hacking of data.
Proof of Ownership It is valuable to employ blockchain as it is a proving ground for possession of a wide range of legal papers, including deeds, patents, and wills.
Once a document is recorded on the blockchain, it remains within a constantly existing and publicly available record that cannot, therefore, be altered, offering final and evident evidence of ownership.
Reducing the Cost and Time of Document Review: Through this process, existing legal documents can be created or modified with the use of blockchain and be given to lawyers and legal.
Ensure Regulatory Compliance: It is equally evident that blockchain can guarantee that a record of all performance and action, which in some way involves a specific contract or document, is kept.
This may aid in policing the laws and regulations that are both loved and cherished by the parties because the whole process is recorded on the blockchain.
Automated Reporting: Due to blockchain, compliance reporting can be made automatic, and an organization will be able to meet some compliance reporting without having to develop reports.
This has the advantages of conserving time and costs and, at the same time, lowering the possibility of human mistakes.
Cross-Border Compliance: Because of its structure, blockchain is suitable for intercompany transactions, particularly those that involve multiple countries.
It can help in contract and legal writing to improve conformity to other jurisdictions and international standards, which makes international business appear less complex.
Problems and Constraints in the Usage of Blockchain in the Legal Sector
Legal Recognition: The laws governing blockchain technology and its contracts and documents have not yet been acknowledged by many jurisdictions.
Although Estonia has attempted to incorporate blockchain into its legal systems, the legal standards dictating the use of blockchain technology are not quite established universally.
Integration with Existing Systems: Most legal organizations still operate outdated systems and procedures. Blockchain technology implementation is inherently cumbersome when implemented in existing processes and frameworks.
Regulatory Uncertainty: It should be understood that the regulation of blockchain is still in its infancy. Members of the legal field deal with unpredictable legislation and policy; it is difficult for organizations to apply blockchain technology for contract management and documentation.
Scalability: Blockchain is highly secure and easy to explain, though it lacks the scalability that is needed to support numerous applications.
High transaction volume blockchain networks may require more time or cost per transaction than the conventional database systems, which may be problematic in practically used areas like law firms and CDs.
Conclusion
The legal sector is one of the areas most suitable for the application of blockchain technology, that being the case because it shall help reduce the time required in preparing contracts, documents, and other compliance-related activities.
Smart contracts, automated contract management, and secure document’ authentication schemes are all built on blockchain, which is more efficient, transparent, and secure than traditional legal models.
However, it can be noted that more and more often, blockchain is used in the legal field, so its role in forming the development of legal services will only increase in the future.
Blockchain may provide an opportunity for the legal industry to effect changes in the process that will shorten the time and cost of legal transactions and reduce the bureaucracy inherent in such transactions.
This is because blockchain solutions have only remained on the periphery of allowable legal practice as the technology advances and the rules governing their applicability improve; numerous possibilities remain untapped, which will ultimately help law firms and their clients from around the globe.
