How would your job change if there was a record of client transactions in the cloud that was perfect, indisputable and uneditable? Blockchain is the technology making that a reality.
The term Blockchain is slowly creeping in to popular vernacular. To many it is an alien concept loosely linked to the virtual currency, Bitcoin, which seems an intriguing idea with questionable relevance. However, for those in the tech community, Blockchain is one of the most exciting innovations of our time. I have heard its current state compared to the early evolution of the internet, and many believe that it has the potential to completely overhaul the way large institutions and private individuals interact with each other.
So what is it? At the most basic level, it is a decentralised database that stores a registry of assets and transactions across a peer-to-peer network. It is created by thousands of computers linked together and each computer holds a public registry of who owns what and who transacts with whom and where. As individual transactions are recorded, they are encrypted and grouped with other transactions to form a block, and then added on to the Blockchain. Once this data is added, all the computers in the network are updated with the information in the block. This step makes the information immutable and unforgeable because any computer in the network can then check to make sure its record of transactions is consistent with the record on each of the other computers in the network.
What makes the Blockchain so powerful and exciting is that because it is essentially a ledger stored on a cloud created by the network of the thousands of computers, it is owned and controlled by no one person or institution. It is stateless and immune to bribery and corruption, as to override or control the network, you would have to seize individual control of over half of the computers in the network.
So far, Blockchain is being carefully considered for its ability to store the ownership and location of many assets. It is already being used in the art world to track titles of pieces of art and the serial numbers of diamonds. It is believed that over time this will destroy the black market of fine art and blood diamonds as the provenance of each piece will be accessible to everyone and its location and ownership will be indisputable. Developing countries, such as Ghana and Honduras, are beginning to utilise Blockchain to create land registries that are no longer vulnerable to local corruption. Once a smallholding is registered to a particular owner, it would be impossible for the title of that ownership to be changed or destroyed as any changes to the title would be logged and time stamped. Disaster charities, such as Save the Children, are utilising Blockchain at refugee camps to store the identities of the refugees seeking their help. Through the Blockchain, the charities can know which refugees have been given aid, as well as how much, and which camps they are travelling between. They can also successfully map large families across camps through their identification materials.
In legal services, Blockchain has several stand-out applications that can transform the way we interact with clients.
The Blockchain will allow us each to create one global platform of our identity through which we will be able to prove comprehensively who we are to anyone in the world instantaneously which will fundamentally change the way institutions can manage the KYC compliance for their clients. This means that a new client will be able to share their nationality, address, proof of funds and any other identifying document we require at the first meeting and we will be able to fully trust the provenance of all the information they choose to share with us.
Smart Contracts deploys the concept of a contract created in a cloud space where the title of the asset being transferred is available instantly and indisputably and where all the parties are fully identified as soon as they sign up. The technology will also allow for contracts to be drafted so that when the parties sign them, utilising individual digital encryption keys, the title of the asset transferred and the money paid will instantaneously switch between the owners. The ledgers will be simultaneously updated with no human interference. This brings a great deal of certainty, transparency and efficiency to contracts and ensures that every stage is secure. If the idea works, then there will be no need for original “wet-ink” signatures, counterpart documents or funds held on trust for other parties. Imagine the billable hours saved if Land Registry and Companies House could be updated with details of the transaction instantly. Real Estate and Corporate law could be transformed.
Currently however, the technology is still in its infancy. The primary concern is how private information can be stored on the Blockchain. The current weakness is the cryptography of the blocks. At present it is possible to create private spheres within the Blockchain through which companies can keep internal ledgers that only their staff have the permissions to access. The concern is that, if in a few years hackers were able to break the encryption on these private spheres, the full contents of data contained within the spheres would be laid bare. There is no way of deleting anything off Blockchain and so it would be impossible to repair a data breach like that and restore the decrypted information. As a result, specialists are warning people not to use Blockchain to store sensitive information. This is of course a major barrier that must be overcome but programmers are confident that in time they will succeed.
For now, public institutions like Land Registry, Companies House and HMRC are seriously considering utilising technologies like Blockchain to create their centralised registries immutably to speed up efficiency and vastly cut down ways that people will be able to commit fraud. Major financial institutions, including Goldman Sachs and Mastercard, are actively leading and financing the development of these technologies and law firms globally are keeping close tabs on how these technologies can be used to transform their businesses.