Blockchain and Law: Some Insights on Using Blockchain in Governance
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We all know by now that blockchain has the capacity to disrupt and transform the way we live. But, how much and to what extent? Given the recent trends, it is expected that blockchain will become mainstream by 2020. For now, let's explore its surpassing impact on the legal industry.
With respect to blockchain in the blockchain industry, a majority of the disruption lies in a scripting language and a set of protocols commonly known as smart contracts. You can see them disrupting banking, financial services, payment industries for now, though these disruptions are not limited to merely these industries. In simpler terms, smart contracts use blockchain to facilitate transactions and their use is preferable over traditional modes because of their ability to save payment and transaction costs and facilitate the instantaneous clearing of transactions.
Given the disrupting effects that blockchain has generated over the course of years, by delivering increased convenience, reduced risk, efficiency for service consumers and lower cost of operations for financial services providers, it has become almost essential for lawyers to understand how to communicate securely and protect their client data.
Let us look at some of these governance use cases and their use cases for a blockchain development company in the legal industry.
E-discovery and Evidence: Changing the Rules of the Game
Traditionally, e-discovery software is prevalent in India and other jurisdictions abroad and are used to search documents, emails and other artefacts in the litigation discovery process. Given the fact that blockchain is an immutable and virtually infinite log, it is natural to expect that a majority of legal procedures will be supplemented with blockchain in obviating most evidentiary issues. But this also raises several perplexing issues, for instance, treating blockchain data as evidence will be a crucial problem in making blockchain legally accessible. For instance, in the United States, the standard for admissibility of evidence is dependent upon whether a human has sworn under penalty of perjury that the information is true. Stand-alone documentary evidence such as blockchain records are usually not permissible and are categorized as mere ‘hearsay'.
In India, similar evidentiary principles apply. For example, to submit evidence from the government or other sources, we produce the artefact and attach an affidavit to attest that the artefact was kept in the usual course of business and that the information in the artefact is true, to the best of the custodian's knowledge. Blockchain technology, an immutable log of events, will change these evidentiary rules and in the process, create a more efficient documentary evidence standard.
It has been seen from past instances that law firms are relatively weak in terms of information governance and employ control mechanisms that are easily subject to breach. For instance, data break-ins at large law firms outside India have resulted in stolen client information, apart from reputational damages. Blockchain can secure this privileged information held by large law firms, especially those pertaining to contracts and other information that is legally protected. Futurists and technology vendors are working on realizing this vision as to how the blockchain will change the way lawyers operate.
Changing Privacy laws
Like any formal ledger, blockchain has the ability to become an official record for tracking the validity of transactions and other information. Though this record is effectively visible to all, individual elements of the transactions are encrypted and not publicly visible. Let's say that if information pertaining to your passport is put on such a ledger, only the proof of transaction could be used publicly on a blockchain to prove your identity for purposes of validating that transaction, while your passport or other identity information might be securely encrypted. Hence, the underlying private data is secured.
On the other hand, there also exists the possibility of severe misuse of blockchain in breaching privacy laws. Nefarious transactions such as the sale of illegal goods or supporting a ransomware payment model can be easily facilitated through public blockchains, due to its anonymous nature.
In order to avoid these, financial organizations may be required by law to be able to permanently remove data when required to do so by a court. In Europe, GDPR is already under scrutiny with respect to its "right to erasure", which presents issues that need to be addressed when personal information is stored in blockchain-based storage systems like IPFS, primarily since the information stored in the blockchain cannot be altered or deleted once added. With the data protection bill of 2018 in India in sight, it will be interesting to see how the law tackles these perplexing situations.
Another risk that may exist is where blockchain applications are implemented across multiple jurisdictions without a single entity responsible for their operation in any jurisdiction. Applications like these will be required to resolve issues relating to cross-border data flows and also address wider legal questions concerning enforceability, liability, dispute resolution, discovery and extraterritorial application.
Blockchain Records: Legally viable?
Computer generated information is already admissible as evidence in Indian courts, albeit in a limited capacity. In countries like the USA, companies have already started exploring blockchain technology for record-keeping purposes. As blockchain ledgers systems enter mainstream use, their usage in evidence and discovery purposes will become more likely. Consequently, lawyers will have to be well versed with such records as well as know how to access and handle that evidence.
Though no such precedent exists in India, it may be worthwhile to look into domestic laws to provide for such use cases, which are more efficient and desirable than traditional methods.
Property ownership is obviously an excellent use case for a blockchain application in legal governance. Though wealth is primarily created through ownership, one of the most challenging aspects is determining who owns a certain piece of land. A majority of disputes occur when corrupt governments misuse their power to take advantage of the undereducated.
Not anymore. Public blockchain ledgers allow everyone to be aware of the ownership and therefore, makes the transaction more equitable. This allows impenetrable authentication mechanisms that governments can use, while also reducing disputes.
We can already see these use cases flourishing in other countries. For instance, the Republic of Georgia has collaborated with Bitfury Group, a provider of blockchain infrastructure, to use the Bitcoin blockchain to validate property-related transfers, thereby becoming the first national government to use blockchain in validating and securing government actions. Another team of pioneers in blockchain technology from Denmark, Ghana and the USA have launched the Bitland initiative to establish usable land titles and free up trillions of dollars for infrastructure development in West Africa.
Traditionally, there are complex rules for recognizing a digital signature and Indian courts have not provided any guidance on the use of blockchain to sign digitally. Nevertheless, the use of it in this domain provides for efficient and safe use in transactions. On the blockchain, if signature data is kept, it is easier to later authenticate the transaction record by referring to the digital signature used to validate the transaction. This will help meet the evidentiary requirement that the blockchain record "is what the proponent claims it is," i.e., the blockchain receipt for the specific transaction. Further, in most legal systems, blockchain evidence can be considered but only with the help of expensive expert witnesses to explain what it means. This process eliminates the potential efficiencies gained through the use of blockchain technology, and would instead increase court costs and decrease access to justice.
Though governments are looking to streamline rules of evidence to allow blockchain evidence to be deemed admissible without an expert, it remains to be seen how Indian governments would perceive blockchains use cases in this domain.
In summary, the blockchain, the distributed database technology with the capability to execute smart contracts, is more than a platform for cryptography. The universe of use cases in governance is expanding exponentially. Though blockchain is becoming mainstream in everyday use, it has also brought forth perplexing challenges and complex legal issues and is pushing the boundaries of existing laws. This makes clear one thing- the laws will have to adapt to blockchain technology, just as they adapted to the internet, medical technology, e-discovery and social media.