Blockchain, Bitcoin and Brexit – the three 'B's which continue to dominate the headlines. But, as far as distributed ledger technology is concerned, much of the real progress is happening in other areas such as improving the traceability of goods, food and freight through supply chains, developing energy trading platforms and health related identity and information projects.
Through our early involvement with the Accord project (working on the development of smart contract standards) and the working groups coming together as the 'UK Blockchain Coalition' which have emerged from the recent Holmes Report on 'Distributed Ledger Technologies for Public Good: leadership, collaboration and innovation' to which we contributed, we can report that real momentum in this area continues to build.
In a series of articles looking at the issues surrounding the use of blockchain technology in a legal context, we've looked at the issues around Initial Coin Offerings and will be publishing our thoughts on whether the new rights granted to individuals under the GDPR are as much of a hurdle to blockchain solutions as some have reported.
In this short article, we look at the use of smart contracts and what they actually mean for lawyers in practice?
While a simple concept in theory, the term often seems to conjure the image of a fully coded contract, with little natural language engagement from lawyers. However, in reality, their more likely immediate application comes in the form of smart contract 'modules' which are already quite capable of being built into agreements to automatically monitor, report and potentially give effect to certain outcomes based on trusted data sources. Simple examples might be the monitoring of:
- Availability service levels (using an agreed reporting source), the calculation of service credits and their payment to a customer's nominated account.
- The timeliness of delivery of goods and the application of late payment amounts where relevant.
- The state of perishable goods on delivery and the calculation of the price due as against an agreed scale (a topic we have written about in the past for the Society of Computers and Law)
While providing clear potential benefits such as simplifying/streamlining a number of processes more traditionally recorded in the schedules to a contract (and which then require more active performance management) and providing a clear evidential trail, this modular approach is also driven by real questions as to the enforceability of fully coded contracts in certain jurisdictions and difficulties in cross-border disputes.
A number of jurisdictions, for example, require a contract to be in a specific language in order to be legally binding (take Indonesia, which requires Indonesian language for any contract involving Indonesian government institutions, private entities or individual citizens, regardless of the governing law chosen for the contract). Accordingly, a combination of the tried and tested approach to contracting (including as to dispute resolution) partnered with the use of identified smart contract modules looks set to be where real use cases exist.
Ultimately, we are not looking at 'tomorrow' but what is available to us now - so it's for lawyers to be sufficiently informed about the use of technology in these areas and how that technology can be paired with the more traditional contracts we are used to dealing with.
In parallel, the recent international developments in blockchain related regulation - such as Malta's 2018 public consultation on draft legislation including the certification of DLT based platforms and Tennessee's new laws which legally recognise transactions conducted using distributed ledger technology – show that we're also certain to see governments continuing to explore the application of this technology and how it should be regulated.
Keeping track will therefore remain important so that we and our clients can take advantage of the real applications that are with us now, as well as ensuring that the legal support we provide continues to remain relevant.
Our blockchain group will continue to monitor developments and engage on the key issues both through our reports, our continued involvement with the Accord Project and the UK Blockchain Coalition and at a series of our own events.
Next up is our Fintech Forum (taking place in London on 10 May 2018) at which we are delighted to have convened an expert panel to focus on the latest blockchain and DLT trends and breakthroughs, and how businesses should adapt to what is coming next. More information about the event can be found here and we will be writing about the trends emerging from those discussions in due course.
To find out more about our experience of smart contracts or blockchain technology more generally, please contact any of our blockchain team.