Blockchain For Law Firms: Revolutionizing Contracts And More

Law firms and judges are notoriously slow when it comes to adopting new technology, and it’s hard to blame them—ABA rules remain stringent to protect both law firms and the privacy of clients they serve. Improper language on a website, unsafe cloud storage procedures, reckless behavior with client information, and more can result in serious reprimands.

That said, as blockchain technology continues to make deep inroads in other industries, attorneys and judges won’t be able to simply leave crypto economics to a few specialists—it will be widespread, and firms will need to adjust to life on the blockchain.

Here are some potential blockchain use-cases for legal firms to look forward to. Some may not be far away.

Accepting smart contracts and fractional tokens as payment

If a client needs to make a significant advanced payment to a law firm as a show of good faith, but that volume of funds is wrapped up in Bitcoin, a law firm could accept a tokenized payment, in theory.

“The main concern in regards to smart contracts and cryptocurrency payments is ABA Model Rule 1.15, or the rule stating that lawyers must avoid commingling client funds with the lawyer’s,” explains Darwin Overson, a Salt Lake City criminal defense lawyer.

“[Law firms] have made life significantly easier for clients by accepting PayPal payments, and I think Bitcoin and other tokens could be included down the road.”

Estate planning via Ethereum

If you plan to lock assets in a trust until a previously decided-upon event or date, you can use blockchain technology to automatically release the assets into the executor’s wallet. Nobody will be able to access the funds until the specified date, and the transfer will be secure and seamless.

If anything, this use case demonstrates the need for estate planning attorneys and judges to “brush up” on their blockchain understanding—years from now, crypto economics could change the way wills and trusts are drawn.

Escrow accounts managed by blockchain

As cryptocurrency increases in trust and popularity, potential business partners will increasingly ask to be compensated in Bitcoin, Ethereum, and other blockchain-enabled forms of currency. This will hold especially true in the tech and startup sectors.

However, transferring shares of a company often incurs the need for escrow, which can be costly (as with any service including a lawyer) and complicated.

Blockchain technology allows for the development of smart contracts that will automatically release funds into a shareholder’s wallet upon the completion of a previously determined set of criteria. All changes would be immutably recorded on the ledger, and transactions would be secure and more affordable than hiring a law firm.

Litigation funding through tokenized payments

Similar to the escrow use case above, litigation funding is a popular outlet that would benefit tremendously from Blockchain.

Investors could sign a smart contract placing their agreed-upon investment in the law firm’s funding account, and depending on the outcome of the case, a percentage of the settlement or reward could be disseminated into their wallet.

Fractional interest is much easier to reward via Bitcoin and other tokens, and it is also easier to assemble qualified investors through blockchain technology than through traditional means.

Prosper Shaked, a Miami personal injury lawyer, thinks blockchain-enabled litigation funding could expedite the start of large class-action lawsuits. “As long as law firms are careful to follow the same rules regarding the commingling of funds, utilizing a smart contract (‘smart contract’ meaning the wallet that can verify the transaction that is trackable and irreversible) to move funds from the advanced (pre-funded) account into the law firm’s litigation wallet could make it easier than ever to get expensive litigation off the ground.”

ADR platforms for online dispute resolution

When two parties are engaged in a business or financial disagreement, a lawyer must often enter the picture. A knowledgeable, authoritative, and independent third party is often the only way forward since the two individuals in question are unlikely to set their subjectivity to the side.

However, many struggle to afford the price of proper mediation, and when rates range from $300-$600/hour, it’s not hard to see why. More complex cases can easily range up to $50,000, and that may not be feasible for many individuals in need.

Kleros is seeking to increase access to mediators and make the process more affordable by creating an arbitration ecosystem built on crypto economics.

Anonymous jurors volunteer to participate, and they are financially rewarded (in cryptocurrency) for good work. On the inverse, unqualified jurors who sign up to participate in a case will lose money—the founders are looking to create a Wikipedia-like atmosphere, where malicious users can try and participate but are almost immediately weeded out and banned.

The Kleros process commits to a 90-day limit per case (they shouldn’t be drawn out longer than that), and both parties will agree to the type and veracity of evidence to be used in the arbitration decision.

Parties participating in Kleros’ dispute resolution process are free to reject a resolution, although after agreeing to the process in full before mediation gets underway, individuals will tend to accept the decision (in theory).

While projects like Kleros may not be mainstream for now, the future looms. Attorneys and managing partners at law firms will benefit from adopting blockchain technology as it becomes available.

For more on emerging technology, see “What’s Ahead For 2019: Doing More With Intelligent Technology.”