Thinking Out Loud About the Role of Counsel and Smart Contracts in the Blockchain.

So, obviously, I have to discuss compliance and risk in the modernized world of information such as contracts, or in the case of blockchain – smart contracts.  I believe in innovation: innovating processes, procedures and services.  I think the blockchain innovates in a manner that threatens how compliance professionals and  attorneys traditionally think.  As an attorney, I am challenged by the use and acceptance of smart contracts in the blockchain.  It’s the modernized method of contracts formation and negotiation.

If you’re reading this blog, it’s probably because you are interested in compliance or some sort of risk management.  Perhaps you already know about blockchain (you know – think bitcoin and crypto currency.) In short and in the simplest of terms, blockchain is the technological method or process to join records of information or “blocks” together in a chain.  The “chain” is a string of records.  The blocks are always authentic because the records can never be manipulated, only changed by the network of participants by adding new records.  The records, are protected by strong encryption.  Hacking is minimally successful and the blockchain has proven that, with some limitations, it can be an extraordinary tool to buy and sell goods or services, transfer money and . . . contract.  There are so many other intricacies to the block chain, but for purposes of this blog, that’s all you really need to know.

Okay, smart contracts.  They’ve actually been around for years.  Apparently, in 1994, this legal scholar and cryptographer, Nick Szabo, determined a blockchain could be used to self-execute digital contracts – smart contracts.  Essentially, the way I understand it, a smart contract is merely computer speak or code that writes terms and conditions, and that facilitates or enforces action between parties to the smart contract.   But don’t think of those terms in legalese, but in a scripting language like Javascript or Solidity.  As an attorney, I have negotiated, and drafted contracts, and I’m pretty good at it.   But those skills will only get me so far because you need to be a computer programmer in order to write the logical programming language to develop a smart contract in blockchain.  However, the contracts are similar because they both contain terms and conditions that trigger action by one, both or all of the contracted parties.  Key differences in traditional and smart contracts, is that doing business with smart contracts, saves time, money and eliminates the need for a middleman – the attorney.  Some programmers believe that smart contracts will eliminate the need for attorneys.  While I agree that smart contracting may be faster and cheaper, we have to question the legal risks with that.  Attorneys provide the legal education/experience, negotiating skills and subject matter expertise that smart contracts and programmers don’t.

For example, I’m perplexed how a commercial construction contract (federal, sub or prime) can be successfully negotiated and executed via a smart contract.  There are a host of legal issues like safety, liability and insurance that affect a construction contract, for which a well-experienced and reputable attorney can decipher and negotiate for her client.  What about purchase and sales agreements in a merger & acquisition deal?  I can’t see how smart contracts can manage complex commercial transactions, without the usefulness of the legal mind.   Another example, aside from commercial transactions, is family law.  Adoptions, and divorce settlements.  There’s a host of privacy risks in adoptions and how do you measure performance in a divorce settlement?  Perhaps a cut and dry deal like mortgages or leases could be written in a smart contract, but I think programmers or others who are eager to eliminate the need for legal counsel should get a better understanding of how attorneys can benefit the creation, negotiation and execution of smart contracts.  Perhaps the better arguments should be . . . how can attorneys improve smart contracts?  How can the legal community and technological community join forces to help parties to a smart contract?   Heck, let’s face it, legal fees are costly and as a Pro Bono attorney, I have witnessed a deserving public go under or unrepresented because of time and money.  How about we come together and make technology work for all of us?  Programmers and attorneys . . . let’s unify!

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