In the legal sphere, many articles have addressed the ways blockchain systems can be used for “smart contracts,” financial transactions like with Bitcoin or Facebook’s Libra, or other more complex scenarios.
However, a frequently overlooked use case for blockchain in the legal industry is actually much more commonplace—the ability to use blockchain technology as a means to allow permanent verification of legally significant documents and data.
Using blockchain technology, lawyers can prevent fraud, alteration, or forgery of documents, contracts and other legal instruments, copyrighted materials, photographic or video evidence, and much more.
Traditional document verification methods relied almost exclusively on the slow, costly, and insecure use of third party verifiers. The advent of blockchain technology is primed to make these outmoded verification methods a thing of the past.
Blockchain: A Growing List of Records
Currently, electronic copies of documents and other information are generally stored using centralized databases maintained on servers in a single and fixed physical locations. A distributed ledger, on the other hand, is a database that exists across various nodes (computers) on a peer-to-peer network.
A blockchain is a type of distributed ledger that packs and organizes transactional information, known as datasets, into cryptographic hash-linked blocks within a sequential chain, thus giving the system that name “blockchain.”
Put more simply, a blockchain is a growing list of records that only allows data to get added onto the database. This means the records of information are impossible to alter or delete on a blockchain.
In short, the intended purpose of blockchain is to bring transparency, efficiency, and security to the storage and maintenance of digital transactions.
Security and Confidentiality
A recent American Bar Association article asserts that blockchain technology is significantly more secure than other data storage methods, because the infrastructure eliminates the need for third parties to process or verify transactions. In addition, blockchains help protect client information by storing digital “fingerprints” as opposed to actual and full documents.
In fact, blockchain methods are an efficient way to provide document authentication and significantly secure data and sensitive information. For example, accountants are exploring blockchain systems to help prevent fraud and allow easy verification of financial transactions.
The technology works by creating an append-only public key, known as a hash sequence. The hashing process uses a sophisticated algorithm to output a unique and fixed length of numbers and letters. No matter the original file size, the hash function will produce a fixed-length code.
With a cryptographic hash:
- it is impossible to produce the same hash sequence for different inputs;
- it is impossible to determine information based on the hash sequence;
- the slightest change to an input will result in a completely different hash.
Every block is verified and connects to the unique hash sequence which details the exact date and time of transaction along with every verification performed to create a continuous blockchain of indisputable information.
Blockchain Solutions in the Legal Space
Because blockchain technology provides accurate records of transactional history, they are effective solutions for law firms and legal departments to implement into practice.
Lawyers are already using distributed ledgers to protect evidence for clients. Blockchain technology allows lawyers to prove the authenticity of wills and trusts, trace the chain of custody effectively, assess intellectual property rights, and more.
Additionally, blockchains confirm complex transactions which require proof of untampered and official title, maintained by a reliant source. Such information is critical to providing a clear concept of ownership and title for registry, custody, and control, and contract matters.
Adoption of the permanent recordation aspect of blockchain technology assists lawyers in at least the following aspects:
- Corporate filings
- Preservation and proof of audio and video evidence
- Intellectual Property rights
- Document notarization
- Long-term contracts
- Testamentary and other legal instruments
- Public records verification.
The value of blockchain allows lawyers to spend more time on less custodial aspects of the law. For instance, lawyers with cases of property ownership can depend on the technology to quickly verify the chain of custody of a property for a client in a matter of seconds. Without blockchain, determining the provenance of the records would take much longer, and potentially additional legwork to actually shore up reliable evidence of each prior custodian.
As another example, some have opined that litigation could run more smoothly if electronically stored discovery information was maintained using blockchain records. Less time would be needed to authenticate the information. The decentralized nature of the storage method would do away with fears of tampering or withholding the information. And, chain of custody would be easily demonstrable and more difficult to challenge.
Legal technology applications such as these are becoming more widely available for lawyers to use, some of which do not require them to set up or create an account in order to have documents and other digital files verified years or even decades into the future.
Asset or Ownership Tracking
Thus far, we’ve only scratched the surface of blockchain’s base functionality. With the proper application, it can be used to revolutionize asset and ownership tracking.
Blockchain allows for records of assets to be locked until a specified time or specific conditions are met. When the specified time arrives, or the specified conditions are met, the assets can be securely and easily transferred, all using blockchain.
IBM and others are already using blockchain to track shipped products, like vegetables or other food products. But blockchains are not just useful for tacking physical assets.
Blockchains can also be used to release or transfer shares of a company or other records of ownership or other rights, while maintaining an immutable transaction record. This streamlined and easily automatable process is attractive to both lawyers and clients alike, for both its convenience and its transparency.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Author Information
Holly Urban is the CEO and co-founder of EffortlessLegal LLC, an award-winning innovator in software automation solutions for law firms. She has over 20 years of progressive experience in management and leadership positions in a variety of industries including technology, consulting, banking, retail and hospitality.
