In my previous blog posts on blockchain technology, I described how the technology is progressing at a much quicker rate than previously expected and exactly what makes it so attractive to users in the legal and financial industries.
And while blockchain technology is not appropriate for every use case, promising use cases have been identified in banking, capital markets, insurance, supply chains (including trade finance), government, energy, real estate and many more industries.
In addition to the more obvious benefits, such as the elimination of trusted intermediaries and the reduction in transaction costs, there are even more fundamental benefits. These arise from the digital and distributed nature of blockchains, which allow for the application of at least two other revolutionary technologies — the Internet of Things (IoT) and Artificial Intelligence (AI) — to the business logic implemented on blockchains.
IoT shows particular promise in trade finance where, when paired with blockchain technology, virtually any good or commodity can be tracked from origin to destination while eliminating risks associated with counterfeiting, tax evasion and violation of law (e.g., blood diamonds). Indeed, traditional paper letters of credit will soon be a vestige of the past. And AI shows tremendous promise in the finance world by being able to apply intelligent systems like IBM Watson to a transaction’s business logic, or potentially to an entire portfolio of transactions (e.g., permitting a regulating agency to use AI to spot systemic risks in financial systems before human examinations would be capable of doing so).
The law firms that counsel in these areas will likewise need to understand the unique issues raised by the implementation of blockchains and the digital contracts implemented on those digital ledgers.
It is no coincidence that cloud providers, including Microsoft, IBM, Amazon Web Services (AWS) and Google are all battling for a share of the blockchain business. When you consider the potential benefits that can be achieved by the above technologies — all made possible by blockchain — it should become apparent that many industries, especially finance, are in for a major transformation over the next few years.
As a result, the law firms that counsel in these areas will likewise need to understand the unique issues raised by the implementation of blockchains and the digital contracts implemented on those digital ledgers. While it’s impossible to predict the future, it is not too far-fetched to assume that the most sought-after deal lawyers will be those capable of writing deal documents not only in human language prose, but in code as well; or at a minimum, have enough technological knowledge to interface with those that do.
No matter how the details play out, however, given the widespread and significant nature of these advances, the way financial institutions and their lawyers operate in five years is likely to look very different than it does today.