Preparing for a blockchain world

Interest in the use of blockchain technology to develop business applications has evolved well past the days of the offerings of unregulated cryptocurrency and coins. It is emerging as a preferred method of delivery of many digital information-based goods and services. Blockchain's growing role in facilitating business means that legal professionals need to think about how they get training to understand, work with, and ensure that governance and regulatory compliance are met when the technology is used in active business applications. These are no longer the days of the "Wild West," with developers and users simply exchanging digital messages, using miners to verify inputs, and blindly or willingly ignoring the requirements that come with a properly documented and regulated technology.

The focus on blockchain training for lawyers has been on explaining how the technology works instead of how it interfaces with businesses and the law that then applies. We need to get past that phase. Lawyers need to have technical understanding only to the extent of knowing how blockchain affects the transactions they are supporting legally. Blockchain is a business tool that interfaces with legal relationships; the result is a need to understand the effect on governance, regulatory compliance, and contract law. The use of a blockchain application does not change the legal relationships or how the underlying goods and services which it digitally represents are contracted, governed, and regulated. Lawyers need training to understand how blockchain technology delivers the goods and services they have otherwise supported.

To provide legal services in connection with the development, application, and monetization of blockchain technology for their firms and their clients, lawyers initially need to understand the relationships among participants involved in the blockchain structure in the traditional sense and then the changes that blockchain functionality introduces. They also need to be able to apply governance and compliance requirements raised by blockchain use and work with the development of contract drafting concepts designed to fit the blockchain environment.

Initially, when establishing a blockchain application, one must choose between going with an open public blockchain or a private permissioned one. Going the private route is, increasingly, the preferred option in the business world. A lawyer must understand how a private permissioned blockchain is different from the open public systems that have been the focus of "how it works" explanations when it comes to access, control of access, and the involvement of peers who provide the validation rather than miners. The language is different, the functionality is different, and the governance issues vary.

Once the lawyer understands the differences in practical functionality, they can properly apply the legal concepts provided they are aware of the standards for governance protocols, given the relationships involved. Governance protocols provide the rules for access to and use of the blockchain network, and the interfaces with the, usually cloud-based, server support which is used to host the application.

A blockchain is a digital means of transferring verified information from one person to another. The open public blockchain has traditionally been a linear transfer, from person to person, with verification done by designated miners who access the chain and who earn value from the system for ensuring that the information and persons who post it are technically valid. In the private permissioned blockchain the transfers are not necessarily linear, and the information is transferred among a network of users through peers, who verify it to the persons who then use it to complete a transaction. In the private permissioned blockchain a peer is not necessary, but adds efficiency and ease of governance by having a trusted verification. The peer is intended to bring industry knowledge, not just the computing power of a miner, to the validation process. Lawyers should be part of designing the functionality of the blockchain application to ensure that the legal relationships are respected, governed, and documented.

Lawyers will continue, as we always have, to document and draft agreements which govern the relationships among those who use the blockchain-based business application. These relationships are no different from the traditional business relationships they digitally represent. Unlike cryptocurrency and coin offerings, which did not necessarily reflect traditional legal relationships, most blockchain applications are made for traditional business purposes and therefore do. Lawyers, accordingly, can prepare a contract to be uploaded, signed, and agreed digitally. Or they can collaborate with the coders on smart contracts, which are digital contracts incorporating usual legal concepts with the feature than they self-execute on certain contract terms automatically when they receive the appropriate information which has been blockchain verified.

Blockchain tools are helping speed up access to credit, goods, logistics, and other traditional business applications. Increasingly, the applications rely on the efficiency of a private permissioned network to speed up approval processes and the transmission of information. The applications have a broad range of uses, such as tracking goods for logistics and customs purposes or simplifying, and speeding application for and receipt of credit in an equipment lease setting.

Lawyers must expand their knowledge about blockchain and how it supports these increasingly prevalent changes to the way business is being done. It means updating their legal skills in much the same way as they did to adapt to the digitization of securities, payment transfers, banking, and even online gaming. For all those technologies, lawyers had to understand how businesses were using new digital means of transferring and exchanging information, goods and services — the same challenge as blockchain presents.

There needs to be a shift from teaching the basics of blockchain which involves explaining how it works technically to teaching the why, what, and implications of its use in an increasingly regulated legal and business environment. This will happen soon. It's why providers of continuing legal education need to adapt quickly to prepare lawyers for the deployment of blockchain technology into a growing range of industries.