Last year saw some major developments in blockchain technology. If these trends continue throughout 2017 and beyond, many commentators predict that blockchain technologies will revolutionise business in all sectors and industries.
So – what are these? At a fundamental level, blockchain technologies provide a means of permanently recording transactions on a tamper-proof digital ledger that is available to the world.
Each “block”, which contains data about a transaction or transactions, must be verified by multiple “nodes” before the block is included on the blockchain ledger. This distributed verification process is intended to make blockchains highly resistant to unauthorised attempts to manipulate the blockchain ledger (such as by trying to process an artificial block with false transaction data).
For this reason, blockchain technology is often touted by supporters as perhaps the most significant advancement for the Internet since the World Wide Web. Big call, we know.
Advocates claim that blockchains provide a transparent and secure means for making transactions without requiring a central authority or trusted third party. This apparent ability of blockchains to provide the “trust” required in a transaction has led to predictions that the technology will completely overhaul the way information and assets are stored, tracked and traded across all industries.
Some businesses seem to have recognised this potentially new ground for experimentation and have begun to explore the opportunities. One exciting area is the emergence of “smart contracts” in commercial relationships.
In simple terms, unlike traditional contractual agreements, smart contracts are written in source code and recorded on a blockchain. When a given event occurs (e.g. X transfers money to Y), the smart contract automatically executes and processes the transaction on the blockchain ledger (e.g. title to Y’s shares and other given assets are transferred to X).
In this way, the smart contract is automatically enforced without either party having to trust that the other party will perform their obligations (or having to rely on a central authority or escrow).
That said, it is still now sure how these blockchains (at least for now) can completely replace traditional contractual agreements. That is because commercial agreements are far broader in scope than the simple processing of transactions, and are carefully drafted to address many more aspects and uncertainties inherent in commercial dealings.
We have a lot of clients in the technology space, and we love talking to them about how technology will affect not only businesses in general, but the ‘business’ of law.
Watch this space and get in touch with us to talk more.
The team at Motus Legal