Blockchain has become something of a buzzword, and the term is used often. In every corner of the Internet, you will undoubtedly find terms like “cryptocurrency” or “NFT”. But what do these terms really mean, and how will they ultimately affect the legal industry? Let’s go back to basics: what is blockchain and all things interrelated?
Blockchain refers to a system that can securely store and record information and transactions in a database, which can then be replicated and widely circulated. It is also known as “distributed ledger technology”. Such technology can be made public or private, depending on the needs and requirements of the ledger and those who use it. It also records all possible transactions through a peer-to-peer network and acts as the global technology that enables mechanisms such as cryptocurrencies to work.
By using the blockchain network, transactions are confirmed and recorded without the need for a higher central clearing authority. The secure digital storage of information means that a wide range of industries can take advantage of and make use of this innovation. Blockchain usage varies and includes (among other things) allowing people to transfer funds internationally, trade settlement, supply chain logistics, voting, and more.
We see the growing global adoption of blockchain across a wide range of industries, with societies around the world taking active steps to increase their knowledge and understanding of this powerful innovative technology. Blockchain will really change the world, and influential institutions like governments and banks are already taking notice. Regulations in various jurisdictions, including Australia, are gradually developing around blockchain implementation and its consequent impacts. As a community, we should see reasonable regulation as a positive step towards the eventual expansion and adoption of blockchain within our society.
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Cryptocurrency, or “crypto,” is another major disruptor in the world of digital payments. Cryptocurrency is a form of digital or virtual currency that is essentially secured by cryptography. This makes it nearly impossible to duplicate or spoof as it is based on a decentralized blockchain network. It is a digital asset that is based on a decentralized structure, which in turn allows for an independent existence away from central authorities or entities such as governments, which often seek to control and regulate the currency.
Cryptocurrency has a reputation for being a disruptor, and Bitcoin (BTC) has long been known as the first of its kind. There are various pros and cons to using cryptocurrencies, some of which include the following:
- positives — Cheaper and faster transfer of funds, as decentralized systems do not collapse at a single point of failure, unlike centralized systems that rely on human-designed and potentially flawed systems. They also offer transparency and freedom from traditional financial infrastructures; Y
- Negatives — price volatility, high energy consumption for mining activities and potential for criminal use and leverage. There is also a lack of proper legal regulation in many jurisdictions around the world.
Non-fungible tokens, or NFTs, are units of digital data stored on the blockchain. However, NFTs are quite different from cryptocurrencies, which are transposable and fungible. NFTs are unique in this regard as they are not interchangeable.
NFTs essentially “live” on the blockchain, thus providing verifiable proof of ownership, as the blockchain tracks and records every move. NFTs have gained popularity with large supportive communities backing them. Connection is critical to success in this niche and the NFT community has done quite well in attracting attention, creating pretty ridiculous asking prices, like when Beeple sold ‘HUMAN ONE’ for $28.9 million.
NFT practitioners reject all claims that the growth of this sector is simply a gimmick or that it will eventually die a slow death. Businesses, on the other hand, are struggling to understand the real-life connection and impact NFTs can have. As the industry develops, it will surely become clear that NFTs are here to stay, and global institutions have simply been forced to catch up.
How does this affect the legal industry?
Blockchain technology has the ability to disrupt many industries, including the legal industry. This technology is already expected to be as revolutionary as the Internet. For centuries, the legal industry has resisted change, adopting archaic practices and quickly dismissing any sign of transformation.
As more and more companies implement blockchain in their system, the greater the need for lawyers to understand the workings around it and the issues that can arise. Blockchain technology is expected to change the way law firms typically serve clients, as well as the way they are managed in general.
There are many benefits to using blockchain, including immutable storage of legal agreements, smart contracts, automated contract management, and reduced overall time spent on preparation. The transparent nature of the blockchain also creates a predictable and fluid environment for all parties involved in a transaction, allowing everyone to better understand the deal they are closing.
Today, change makers in the legal industry are leveraging blockchain in a number of ways, including the following:
- electronic signatures;
- Identification and storage of intellectual property;
- Property rights;
- Chain of custody;
- Decentralized Autonomous Organizations (DAO); Y
- Limited Liability Autonomous Organizations (LAOs).
Blockchain technology is making headlines, and those who take advantage of the technology are quickly becoming leaders in their field. The global market is moving fast and with blockchain, the developments are endless.
Christine Bulos is an attorney at Allied Legal.