Blockchain in Legal Systems

How Blockchain is impacting Legal Systems

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If blockchain continues to catch on, law offices and corporate legal departments might get a new image. When you think of the legal industry, do you think of piles of paperwork, tons of meetings, and hefty bills? Blockchain technology seems poised to streamline many clunky and outdated processes related to the agreements people make with each other and the disputes that can arise over them.

Legal Challenges Blockchain Can Help Solve

Blockchain’s distributed ledger technology stores copies of the same data on numerous computers—every computer in the chain—making it nearly impossible to alter, lose, or destroy. The data is also hashed, which means it’s stored in a way that’s highly secure.

  1. Chain of custody is easy to break. When a crime occurs, police gather evidence. But when evidence disappears, gets lost, is accidentally destroyed, or its whereabouts can’t be consistently and thoroughly accounted for by the time the trial takes place, that evidence can be thrown out. Using a blockchain to track the chain of custody could improve the chances that a case’s outcome is based on a full account of the facts. Plus, it can reduce paperwork. “Blockchain can create a more efficient documentary evidence standard,” write the authors of Blockchain: A Practical Guide to Developing Business, Law, and Technology Solutions.

Blockchains can be more reliable than paper trails because once data is recorded onto a blockchain, it’s essentially permanent. If anyone tries to modify or remove a previous block of data, the network will detect the mismatch and reject the block. For the same reason, blockchains are a good way to store digital evidence and track its chain of custody.

  1. Law firms are targets for hackers. Blockchains provide more backups and far superior security compared to today’s common methods of data redundancy, such as storing documents on a local hard drive or server and backing them up to the cloud. Because they store sensitive and valuable information that can make or break people’s fortunes, freedoms, and reputations, hackers target law firm data. Blockchains help prevent data loss and manipulation because they store data across many computers rather than a single server.
  1. Law firms and corporate legal departments waste time and money on routine tasks. By adapting blockchain technology, smart contracts have the potential to streamline many issues related to contract creation and execution, contract disputes, and finalizing transactions such as real estate closings. Smart contracts are blockchain-based computer programs that execute automatically when pre-established terms or conditions are met.

For example, participants in a partnership could use a smart contract to arrange automatic payments on a certain date (or whenever the firm has reached a certain income threshold) for a certain percentage of the business’s profits, explains David Adler at the Fordham Journal of Corporate & Financial Law blog.

Smart contracts can eliminate vague contract terms, prevent breaches of contract, and eliminate the lawsuits that can arise from such problems. Less time may be spent before judges and arbitrators when contract terms can be memorialized in blockchains and self-executed by smart contracts.

Still, when the law is applied improperly in the creation of a smart contract, we’ll rely on the legal system to remedy any harms, write Primavera De Filippi and Aaron Wright in Blockchain and the Law: The Rule of Code. De Filippi and Wright point out that if smart contract code is not disclosed and written in a way that most people can read, it could “facilitate the creation of standardized contractual arrangements that few people understand.”

Blockchain: The Future of Contracts?

Various organizations are working on blockchain-based platforms that could disrupt the legal industry.

  • OpenLaw employs blockchain to make it easier and less expensive to create and secure peer-to-peer contracts. It’s also developing tools to store contracts and looking for ways to cut out lawyers as intermediaries. The platform already allows users to automate contracts and store signatures and evidence of executed contracts. Agreements can be stored publicly or privately.
  • Agrello is a legal startup that’s developed a way for individuals to create legally binding agreements on the blockchain—and they don’t need legal or coding skills to do it. The platform provides a library of templates to simplify contract creation. Agrello incorporates an “airtight digital identity service” that lets users instantly verify themselves online as part of the contract-signing process, after registering with a government-issued document such as a passport or driver’s license. Agrello also allows for the automation of contract obligations, such as payments, using blockchain-based smart contracts.
  • The Global Legal Blockchain Consortium consists of 250 large companies, universities, and law firms—including Baker, Hostetler, & Orrick, and IBM Watson Legal—working toward protocols for the use of blockchain technology in the legal profession. They’re developing standards for data integrity, authenticity, privacy, and security in contracts, documents, and communications. They’re also working toward integrating blockchains with existing legal technology and ensuring interoperability between large corporate legal departments and law firms. They’re also looking for ways blockchains can save legal departments and law firms money and improve productivity.


Knowledge of blockchains may become important not only for handling legal tasks, but for advising clients on blockchain-related issues: from tracking down an ex-spouse’s cryptocurrency for a divorce settlement to ensuring patients’ privacy in blockchain-based medical records.

Because of the ways blockchain may affect the legal industry both directly and indirectly, lawyers, paralegals, legal secretaries, and other legal professionals would benefit from educating themselves about this technology if they haven’t already. They will strengthen their skill sets and find new ways to serve both clients and employers through learning about the current use and future potential of blockchains and smart contracts.

Amy Fontinelle

Staff Writer

United States