Blockchain’s potential within the legaltech sector is vast and increasingly gaining traction.
Although still in its early stages, the capabilities of blockchain are being explored through various applications, from smart contracts to blockchain-based arbitration systems and automated regulatory compliance.
Use cases in legaltech
A key use case of blockchain in the legal sector is smart contracts. Smart contracts are contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met. This eliminates the need for intermediaries and minimises the risk of human error. Ethereum is a commonly used platform for smart contracts, particularly for transactions within real estate and intellectual property.
Blockchain technology can also improve the transparency and security of document management and the sharing of legal data. Once a document is logged on the blockchain, it cannot be modified, which ensures that it is a tamper-proof record. Data integrity is especially crucial for legal matters as a significant amount of sensitive and confidential information is exchanged. Blockchain enables greater traceability in the legaltech industry by recording transactions on a distributed ledger that can be accessed by all parties.
Online dispute resolution and arbitration is another use case for blockchain within the legal industry. Kleros is an example of a blockchain-based decentralised dispute resolution platform, which settles disputes by crowdsourced jurors whose incentives to make fair decisions have been calculated through game theory. The digital court is currently used for disputes that arise range of areas such as e-commerce, freelancing, and content moderation.
The use of blockchain is particularly valuable in practice areas such as real estate. In 2018, HM Land Registry conducted a pilot project to explore the use of blockchain and smart contracts as part of its Digital Street R&D Project to improve the property buy-sell process. Despite reporting a successful trial there has been no news of HM Land registry adopting smart contracts for conveyancing. This is reflective of blockchain adoption more generally, where the technology is being explored and the benefits are recognised yet there remains hesitancy about its adoption due to the risks and challenges with its implementation.
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By GlobalDataChallenges to adopting blockchain in the legal industry
Some of the challenges to adoption in the legal sector include regulatory uncertainty, high implementation costs, data privacy and security concerns, and issues around legacy infrastructure. Moreover, it is not desirable for all contracts to be automated as it limits their flexibility.
Regulatory uncertainty is a key hindrance to smart contract adoption as its uncertain legal status makes it difficult to fully embrace. However, despite existing uncertainties regarding the legal enforceability of smart contracts due to regulatory gaps, the global market for smart contracts is anticipated to grow. Juro, a contract automation platform, estimates that the global smart contracts market will reach $345m by 2027.
It can be expected that as regulations surrounding blockchain evolve and its applications expand across different industries, there will be an uptake in the adoption of blockchain-based solutions for contract management.
