Lexpert Magazine

LEXPERT MAGAZINE | SEPTEMBER 2016 61 | IN-HOUSE ADVISOR – FINTECH | "cryptographic certainty that the agree- ment has been honoured in the ledgers, da- tabases or accounts of all parties." Ergo, exit the middle man yet again. No surprise, then, is the Tapscotts' observation that expertise in smart con- tracts "could be a big opportunity for law firms that want to lead innovation in con- tract law." But the opportunity could be just as fruitful for law departments. Tim- othy Hill, Technology Policy Adviser at the Law Society of England and Wales told media that Walport's report makes it clear that blockchains "are a powerful innovation that could have a profound impact on both the law and the provision of legal services." e applications seem endless. "[Smart contracts] could be used to declare wills, transfer property or create self-executing contracts," Hill says. "ey also raise pro- found questions about the future balance between technical code and legal code — something Walport suggests that lawyers and technologists will need to work to- gether to get right." Already, a Chicago-based law firm, Em- powered Law PLLC, is focusing on digital currencies. e firm provides legal and con- sulting services to organizations that are using digital currencies, building services with digital currencies or layering technol- ogies on top of blockchain-based systems. e firm also acts as consultants to lawyers seeking to bridge the gap between practice and technology. Of particular interest is Empowered Law's list of primary practice areas, which includes asset protection and estate plan- ning, decentralized and distributed net- work governance, escrow services, expert witness services, mediation services, risk assessment and management, and technol- ogy-based governance solutions. In the UK, meanwhile, Magic Circle firm Allen & Overy is partnering with Deloitte to create a service called MarginMatrix that codifies banking law in various jurisdictions and automates document draing to address statutory requirements. A&O claims that the system will cut draing time from three hours to three minutes, and will reduce the time required to handle 10,000 contracts from 15 years to 12 weeks. MarginMatrix could also remove the need to have separate legal providers in various jurisdictions. KNOWN UNKNOWNS For all its promise, blockchain technology also poses serious legal risks that, as of yet, have not been adequately addressed. A survey earlier this year by Baker & McKenzie and the Euromoney Institution- al Investor ought Leadership canvassed 424 executives and experts from financial institutions, fintech companies and the ar- tificial intelligence field. According to their report, entitled Ghosts in the Machine, 56 per cent of all survey respondents who had some legal background, and 44 per cent of respondents overall, did not completely un- derstand the risks that have been associated with artifical intelligence. "is is a remarkable finding as it ap- pears to clash with financial institutions' ("FIs") approach to legal risk," says B&M in a commentary. "FIs have low appetite for conducting any business or activity with high legal risk, and both numbers — 44% and 56% — are off the radar from the per- spective of acceptable risk levels." B&M suggests financial institutions in- volve their law departments in the devel- opment of AI so as to help gauge the legal risks. "In the past, legal teams were oen involved too late in the process and the opportunity to input during the design phase was missed," B&M states. "is can lead to wasted time, effort and cost as well as inhibit the speed to market." But there's considerable uncertainty in- volved for those giving advice in this arena. "How do you work within the legislative framework when the legislation is not keeping up?" asks Lisa Skakun, Chief Legal & Administrative Officer at Mogo. Paying attention, it seems, might be a good way for law departments and their external lawyers to start. (For more on blockchain, see this month's technology column on page 63.) A LOOK AT BLOCKCHAIN TECHNOLOGY Corporate counsel will need to understand the threats and opportunities of blockchain. Here's your crash course What is it? The blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without the need for a central certifying authority. Potential applications include fund transfers, settling trades, voting, and many other uses. How it works: (1) Someone requests a transaction. The requested transaction is broadcast to a P2P network consisting of computers, known as "nodes"; (2) The network of nodes validates the transaction and the user's status using known algorithms. A verified transaction can involve cryptocurrency, contracts, records or other information; (3) The new block is then added to the existing blockchain, in a way that is permanent and unalterable; (4) The transaction is complete. What is cryptocurrency? Cryptocurrency is a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. Bitcoin is the best known example. It has no intrinsic value in that it is not redeemable for another commodity, such as gold. It has no physical form and exists only in the network. Its supply is not determined by a central bank and the network is completely decentralized. POTENTIAL APPLICATIONS – Automotive: Consumers could use the blockchain digital ledger to seamlesly manage fractional ownership in autonomous cars. Financial services: Faster, cheaper settlements could shave billions of dollars from transaction costs while improving transparency. Voting: Using a blockchain could cast votes via smartphone, tablet or computer, resulting in immediately verifiable results. Health care: Patents' encrypted health information could be shared with multiple providers without the risk of privacy breaches. IN HOUSE INSIGHT SOURCE: PWC; MAKING SENSE OF BITCOIN, CRYPTOCURRENCY, AND BLOCKCHAIN

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