Prospective and current in-house lawyers among you, particularly those with an interest in technology (which, let’s face it, should be all of us!), will be interested to learn that blockchain-empowered tools are set to improve the work of in-house counsel in many areas. Some potential changes include faster business transactions, thanks to the use of smart contracts; the introduction of a more efficient KYC compliance system; improvements to cybersecurity; and an easy way to prove that legal documents have been served.
What is blockchain?
A blockchain is a public ledger of transactions. It is sometimes referred to as a ‘distributed ledger,’ meaning that it exists on many computers, rather than being a single record of a transaction on the server of, say, a bank. This means that payments, for example, can be sent directly, without the need for a third party such as a bank or PayPal. Blockchain can reduce transaction times to nearly instantaneous, and potentially cut out all intermediaries between the buyer and seller.
Blockchain’s design makes it almost impossible for anyone to change the details of completed transactions, while the fact that it is public provides transparency. The technology is most closely associated with cryptocurrencies, although technology giants and start-ups are exploring ways of using it in other areas, which include solutions for an in-house counsel. It constitutes an opportunity to build more secure and stable organisations, and speed up the metabolism of a company. Some commentators have predicted that blockchain-empowered tools will substantially affect how corporate counsel manage compliance and contract matters.
How can blockchain-empowered tools help an in-house counsel?
Smart contracts are computer protocols that allow contracts to be digitally verified, facilitated, and enforced, without a need for third parties. With blockchain technology, smart contracts can be automatically executed following a triggering event, while other advantages include faster transactions and business processes, higher accuracy, lower risk of non-performance or manipulation, less need for third-party intermediaries such as escrow services, and reduced costs.
Blockchain-empowered tools can also help with the task of maintaining compliance by ensuring that all transactions are immutably recorded on the ledger, providing a precise, secure, and permanent audit trail. The presence of a single, shared, permanent record eliminates the need for organisations and regulators to maintain private records, while the speed and quality of the regulatory review process is also improved, and the need for reconciliation eliminated.
Regarding Know Your Customer (KYC) rules, blockchain technology offers the ability to quickly and inexpensively verify customers. The immutability and security of blockchain-empowered tools also make them ideally suited for new regulatory requirements, and to serve as a trusted identification repository.
Blockchain technology can alleviate many of the bottlenecks and challenges an in-house counsel frequently confront in their quest to improve cybersecurity. Blockchains are supported by strong and complex cryptography, making them less vulnerable to the actions of hackers.
The use of blockchain technology makes company processes more transparent, verifiable, and efficient. A blockchain-empowered tool allows for server data (such as GPS coordinates, timestamps, or device data) to be posted to the blockchain, which in turn generates a unique blockchain ID. This ID cannot be tampered with, and therefore serves as an ideal form of verification.
What blockchain platforms are out there?
Ethereum is a platform built specifically for the creation and execution of smart contracts, while Counterparty can be coded using the same language as smart contracts on the Ethereum network. Steller does not have a specific language for scripting smart contracts, but some basic forms of smart contract can be deployed on the platform. With Lisk, programmers handle contract execution, rather than the programming language, while Monax supports Ethereum’s smart contracts.
The KYC compliance application from Synechron, which was built upon R3’s Corda blockchain platform, completed a first trial with 39 participants including BNP Paribas, Deutsche Bank, and Coindesk in December 2018. The app’s self-sovereign design allows firms’ customers to build and maintain their own identities, as well as to approve or reject access requests from banks.
Innovators have begun applying blockchain-empowered technology in a number of sectors to prevent fraud and increase data protection. Guardtime takes away the need to use keys for verification; instead, they distribute every piece of data to nodes throughout the system. If someone tries to alter the data, the system analyses the whole mass of chains, compares them to the metadata packet, and then excludes any that don’t match up. MaidSafe decentralises the web and creates something like an alternative Internet, where users are able to run apps, store data, and do everything else they normally do online – but in a more secure environment.
ServeManager has created a functional proof of concept for service of process on blockchain. Utilizing the technology from Integra Ledger, data related to service of process attempts are posted to blockchain.
How can blockchain-empowered tools be improved at your firm?
To derive maximum competitive advantage from this technological shift, it is important for in-house counsel to communicate with various business units on how blockchain might impact their company, and employed to generate profound new efficiencies.
This post was originally published by Verena Della Vedova on KorumLegal Forum.