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Six uses for Blockchain in the law
in layman's terms
TECHNOLOGY & IP ASSOCIATE
Before getting into the possible uses in the law, I’ll first explain what a Blockchain is (don’t worry I’ll keep it simple).
What’s a Blockchain?
A Blockchain is a spreadsheet that has been duplicated thousands of times which:
Remain interconnected by a network that is constantly updated in real-time (i.e. information inputted in the spreadsheet then updates on all duplicate spreadsheets, after verification)
Are stored on thousands of computers by:
- users of the spreadsheet (i.e. such as those recording their transactions on the spreadsheet); and
- those parties that verify the transactions and the accuracy of the information stored in the spreadsheet.
Are updated as new transactions are recorded after:
- information related to the transaction has been circulated to all parties who hold a copy of the spreadsheet on their computer;
- the information is verified by all parties that hold the duplicate versions of the spreadsheet on their computers; and
- new information has been inputted in the spreadsheet on a new line (i.e. blocks).
Can be used to record all types of transactions (e.g. the transfer of money, intellectual property rights etc.).
Keeping the above in mind, here are a few uses for Blockchain in the law:
Addressing traditional contractual deficiencies
It’s no secret that traditional legal contracts:
- take efforts of monitoring to ensure compliance by the counter-party; and
- face difficulties in making parties comply with their obligations contained within the contract (i.e. each party must trust the other party).
Rather than the traditional legal contract saying how certain parties must act, and relying on the parties to comply with the contract, a Smart Contract (that is written and is stored on a Blockchain) is capable of enforcing the terms of the contract (through computer code) and executes certain procedures when certain conditions are met (e.g. when some event transpires in the real world or a specified value of a certain exchange good is triggered). The condition is usually fed into the smart contract via an “oracle” (described below in the following example).
A simple example of where a Smart Contract could prove useful is a property rental arrangement, as follows:
1. Details of rental agreement inserted
Landlord defines the scope of the rental agreement by inputting details in the Smart Contract that would usually be seen in a traditional rental agreement, including (but not limited to) weekly rent, address of the property, period of rental, bond amount etc.
2. Smart Contract is signed
Tenant signs the Smart Contract and agrees to be bound by its terms
3. Smart Contract collects bond
At the commencement of the Smart Contract (or the date specified by the Tenant at step 1), the Smart Contract itself collects the bond (in the form of a cryptocurrency known as "Ethereum") from the Tenant, holding such amounts until the conclusion of the rental period
4. Smart Contract collects rent
On the dates specified by the Landlord in step 1 (i.e. dates when rent is due), the Smart Contract collects the rent from the Tenant and transfers such rent to the Landlord
5. Conclusion and release of bond
Upon the conclusion of the rental period, a professional, neutral third-party inspector will ascertain the state of the property, and feed it into the Smart Contract as its “oracle”, with the following scenarios: (1) if the third-party inspector deems the state of the property satisfactory, the bond will be returned to the Tenant; or (2) if the third-party inspector deems the state of the property unsatisfactory, the bond will be paid to the Landlord (or such amount as specified in the terms of the Smart Contract)
This alleviates the need for the interpretation of the terms of a contract and reduces the probability of parties not adhering to their obligations.
Evidence of rights and creation
A party is able to record the existence of specific intellectual property rights on the Blockchain to prove their intellectual property (e.g. words, images, designs, trade marks etc.) was owned and existed at a specific point in time, as the verification of the information that is stored on the Blockchain will be time-stamped (i.e. specifying the exact time and date it was uploaded, in a tamper-proof manner). Further, as per the below example, a content file (e.g. video, image etc.) that is stored on the Blockchain (Original Content) can be processed through a mathematical computer function (Algorithm) that produces a unique code which represents the version of the content (which can’t be reverse engineered) (Original Content Code). When attempting to verify that other content (that appears to be the same as the Original Content) (Unverified Content) is in fact the same as the Original Content, the Unverified Content can be processed through the Algorithm to produce a unique code (Unverified Content Code). If the Unverified Content Code is the same as the Original Content Code, the Unverified Content is exactly the same as the Original Content. The Blockchain therefore serves as a documentary registry.
Content Processing Example
Original Content Processing
Unverified Content Processing
This can prove particularly useful in Australia where, in the registration of a trade mark (in certain scenarios), a party may be required to provide evidence of prior use of their intellectual property they seek to register as a trade mark. Similarly, the Blockchain would be useful for proving ownership of content that is unregistrable in nature, such as copyright works (e.g. words, images, source code etc.).
As previously discussed, Smart Contracts can be used to execute procedures contained in legal contracts. This is useful in the case of various intellectual property agreements, including licence agreements. For example, a Smart Contract may facilitate the granting of a licence to use an image (that can be coded into and distributed through the Blockchain), and as soon as an agreed licence fee is collected from the Licensee by the Smart Contract, the Smart Contract would transfer the licence fee to the Licensor, and at the same time, transfer the image to the Licensee.
On the Internet, nobody knows you’re a dog
In real life, the verification of an individual is generally straight forward – look no further than their drivers’ licence or passport. However, when it comes to online forums, how do you actually know who you are dealing with? Is that person really who they say they are?
One potential answer may be self-sovereign identity systems (which use Blockchain technologies). Self-sovereign identity involves individuals and organisations storing data regarding themselves on their personal devices (e.g. a digital version of an individual’s passport), that are capable of verification as and when needed (through the Blockchain), without the need to refer to a central repository of personal information, that may otherwise be subject to abuse (e.g. breaches to privacy).
Why does this work? Essentially, Bitcoin, the original Blockchain-based cryptocurrency, allows an anonymous individual to prove that he/she has a certain amount of funds without revealing any other personal information. This same technology can be used to prove all sorts of attributes about an individual, effectively creating a self-sovereign identity system.
For example, this technology may enable the Australian Government to assign certain claims about an individual’s identity (e.g. name, age, address, citizenship status etc.) (Claim) to a digital profile that the person would store in a digital form on their personal devices (such as a mobile phone) which can be verified on the Blockchain. For example, if a person tried to purchase alcohol online in Australia, they would send the Claim (i.e. that they are over the age of 18) to the alcohol provider before the alcohol provider verifies (on the Blockchain) the Claim (i.e. that the customer is over the age of 18) . Once the Claim is verified, the customer would be able to purchase the alcohol.
Certificates and qualifications may be uploaded to the Blockchain that are issued by universities and institutions which can be verified on the Blockchain by third parties.
Hard-copy documentation may be converted into a digital form and stored on the Blockchain for the purposes of avoiding deterioration, loss or theft of such (often sensitive) documentation.
Electronic signatures are timestamped upon embedding on the Blockchain, meaning they remain tamper-proof.