Editor’s Note: The authors of this post are attorneys at Holland & Knight and are writing a series of articles on blockchain technology and its potential application to the legal industry. Below, the article sets out practical uses of the blockchain and its potential applications in the future.
By Joe Dewey, Partner, and Shawn Amuial, Associate, Holland & Knight
Over the last four articles, we’ve covered a lot of ground, much of it in an effort to simplify the mechanics of the blockchain and show our readers how this technology will lead to radical changes in our lives — with our focus being on the legal profession. As we finish up our series, it’s time to answer a question we’ve ignored up until now — what should law firms be doing to leverage these technologies and position themselves to be leaders in a blockchain dominated world?
As with most new industries or paradigm shifts within them, the first question posed by firm management is which traditional practice group (e.g., corporate, real estate, litigation) should manage that firm’s capabilities with respect to the new practice niche. While virtually all firms of any size still have some organizational structure tied to these traditional groups, many firms have rightfully shifted organizational focus to industry specific groups— such as the financial services industry. For firms who have begun this transition, the answer to the question posed above will be more easily grasped, which is to say, no one practice group is better suited than another to provide client services in this area, and maybe more importantly, no practice group will be immune from the impact of the blockchain.
But for even the most entrepreneurial firm, a successful approach to the blockchain is not necessarily intuitive.
Consider another paradigm shifting technology — the internet. There are not many “internet” practice groups still in existence. There are, however, lawyers across many disciplines who have a deep understanding of the technology and the regulatory regime imposed upon various stakeholders involved with the internet, such as internet service providers, content providers and social media companies. The spectrum of laws that now impact these industry players is too broad to list, covering everything from anti-trust laws to FCC regulations. As a result, there are regulatory lawyers who specialize in net neutrality regulations, corporate lawyers who handle corporate affairs for companies like Facebook and litigators who litigate intellectual property disputes involving internet based applications and technologies.
Will the same thing happen with the blockchain? To some extent, most likely. There is, however, something unique about the blockchain and its relationship to the legal profession inasmuch as the blockchain has direct implications on how contractual relationships are formed and enforced.
As transformative as the internet was to society, it did not fundamentally change the manner in which people contracted for goods and services. It provided tools to make contracting easier and more efficient, but it did not require any fundamental policy changes or significantly change how lawyers practice law. Even the nature of the internet is different than the blockchain. While the internet created a revolution in terms of information sharing and global communication, the blockchain embodies a system that can facilitate multi-person interactions without the need for any third party intermediary—including the government. In reality, the blockchain will have a far greater impact on the social contract and the organization of society in general than the internet alone has had. So where does that leave those law firms that recognize the significance of this technology and desire to best position their firms. We don’t know all the answers (or frankly any definitive ones), but we will offer a few suggestions that merit consideration by law firm management.
The first is to not consider the blockchain as simply a regulatory issue. Too many firms have limited their focus of the blockchain on regulatory matters, such as licensing requirements for Bitcoin companies and other cryptocurrency payment processors. While this is certainly a legitimate focus as there are clients that need counsel on how to traverse the numerous regulatory regimes that can impact these types of companies, it’s only a small piece to the puzzle. Firms who end their focus on this particular practice area will miss the boat on the much larger implications of blockchain technology.
Consider forming a team which consists of lawyers who have an interest in the technology and draw those lawyers from across multiple disciplines AND include members of the firm’s information technology team. Not all lawyers are coders (although there are some of us out there) and most IT personnel are not lawyers. But working together, each side of the equation can work collaboratively to consider how the blockchain will impact the firm, from both a legal and technological standpoint. To be clear, we are not suggesting that any firm’s IT department will have a great grasp on blockchain technology. To the contrary, many (even the most competent) may not even be familiar with the blockchain beyond the average person’s knowledge of Bitcoin. And to be fair, their primary job is to make sure that a firm’s core technology infrastructure (which today does not include the blockchain) is operating properly and securely. Nevertheless, now is the time to bring those individuals into the discussion in anticipation of the blockchain becoming a part of a firm’s infrastructure. What will the firm need to invest in over the next five years? Those questions can’t be adequately addressed without input from the firm’s IT personnel.
Communicate with clients to see how they are using the blockchain. While many clients will not even be familiar with the terminology, certain industries, such as the financial services industry, are filled with companies investing millions of dollars in developing blockchain technology. Talk to those clients about where they see the future in five or ten years. In addition, let those clients know that your firm is also devoting significant resources to the technology. In some cases, it may even be appropriate to work together with certain clients on projects that can provide a strategic benefit to both the client and firm. And for anyone who still doubts the impact this technology will have on us, we suggest you google “wall street invests in blockchain” or just check out the cover of October’s edition of Bloomberg Markets — “It’s all about the Blockchain.”
Make sure that you have professionals within the firm involved in the blockchain community and that they are actively working together to distill the growing amount of information about the blockchain. This is not only important for purposes of growing awareness within the firm, but it also creates a process whereby those individuals can keep senior management in the loop on important developments and continually provide them with recommendations. As the technology continues to grow both in popularity and, perhaps more importantly, practical application, senior management will have to call on these individuals to both assist in the implementation of the blockchain into the practice as well as advise clients as to the viability of utilizing the blockchain in their businesses.
Consider strategic relationships with technology companies or incubators who are developing or facilitating the development of technologies in this area. But rather than focus your efforts on creating another marketing arrangement whereby the firm is simply looking to increase deal flow, focus on truly working with these companies to jointly develop technology that will ultimately increase your profitability. Remember, technology companies alone can’t develop blockchain applications for smart contracts and the legal profession without an incredible amount of collaboration with lawyers — why not have those lawyers be members of your firm?
Well, that about wraps it up for our series. We hope that you have found our articles both informative and easy to read. Our objective was to ease you into the basic building blocks of blockchain technology so that you can more easily understand the mechanics of smart contracts and how they apply to the legal industry. For those who are still a little confused and/or are interested in continuing to follow developments in the space, there are several great resources available, including www.ethereum.org and the numerous resources cited by the folks at Ethereum. You can keep up with news about the blockchain and technological innovation in the legal profession generally at our incubator’s site — www.Legaltechlabs.com or follow us on twitter @legaltechlabs.