Blockchains are already changing legal processes in different ways and, above all, challenging the validity of the current legal system. While some developers create solutions that replace the activity of intermediaries in the legal sector, several analysts discuss how to apply the law in the case of blockchains.
Next, we will explore the way in which blockchain technology will change the legal exercise in the application of the law and in different aspects that carry legal implications: smart contracts, corporate acts, civil and criminal cases, notarial documents, intellectual property, property titles, and public records.
1. Prevalence of international law
The essence of blockchain technology is decentralization and power distribution, so they work with peer networks (P2P) and do not have a defined physical location. This has provoked an important debate in the legal sector on how to regulate it and the regulations of the jurisdiction – a geographical territory where a State has the authority to apply and enforce the law – to use in case of disputes. In addition, participants (called nodes) enjoy anonymity or pseudo-anonymity, therefore their real identity, nationality, or place of residence is unknown.
2. Smart and Ricardian contracts
Smart and Ricardian contracts are not the same, despite having several similarities and being interesting alternatives to traditional contracts. While it is possible to implement a Ricardian contract as a smart contract, not all Ricardian contracts are smart contracts, and similarly, not all smart contracts are Ricardian.
On the one hand, smart contracts are autonomous, decentralized and self-sufficient. Their terms are written in code and automatically executed when the criteria established in the deed are met. They reside in decentralized and immutable blockchains.
On the other hand, Ricardian contracts are digital agreements that stipulate the terms and conditions of an interaction between two or more parties and that are signed and verified cryptographically. Unlike a smart contract, these are readable for both people and machines, because it combines computer language with human language.
This type of contract has several advantages with respect to its adoption, since its format allows it to be auditable, requires the digital signature of the parties and is not limited to pre-established and immutable orders, such as smart contracts. In the near future, we may use hybrid forms of Ricardian and smart contracts that best fit our needs.
3. Corporate acts
In 2017, Delaware passed a bill that legalized the use of blockchain by corporations. Similarly, Wyoming has passed five bills related to the blockchain. This approach demonstrates its intention to position itself as a blockchain-friendly jurisdiction and to welcome companies that are interested in developing this technology. To achieve these goals, the Wyoming Blockchain Coalition has been created.
In summary, the distributed accounting book is a valuable alternative for registering corporate acts due to the agility and security with which the information is stored.
3. Civil and criminal justice
Blockchains offer a great solution for the timely, safe, and efficient management of archives that support civil and criminal court cases. Records stored in a blockchain can be shared among all system participants without fear that their security and integrity will be compromised.
Changes in the legal status of a defendant would be documented and notified instantly so that the different actors involved – witnesses, victims, lawyers, public, prosecutors, etc. – could keep abreast of these changes.
Inaccurate, outdated, or falsified records can cause a person to be charged and imprisoned. Such is the current problem that a survey carried out in the United States revealed that 55% of users (victims and witnesses) of the criminal legal system said they would avoid using the system’s services at all costs.
4. Document notarization
There are some companies that use the blockchain to offer notarial services. The use of these services can provide proof of the existence of a document at any given time through a unique and unrepeatable cryptographic hash that links to the information recorded in the blockchain. If the content of the document changes, so does the hash, thereby invalidating the record.
5. Intellectual property
The blockchain can provide proof of creation or existence by registering any type of content that is assigned a timestamp and is related to a cryptographic hash. This information stored in a blockchain could serve as legal evidence in court.
Blockchains, however, does not prevent unauthorized use of works protected by copyright or intellectual property, nor do they certify their ownership. Therefore, the intervention of a lawyer will continue to be essential to resolve any type of dispute.
The management of the intellectual property can be made easier through the programming and execution of smart contracts that establish, for example, the terms of sale, distribution, and licensing of copyright. Licenses can be executed automatically, and creators can receive payments for the use of their works in real-time.