Blockchain technology is moving from its nascent stage to transforming how the world is exchanging value. It is offering secure, transparent, and decentralised ways of recording and verifying value exchange. For legal professionals, understanding blockchain has become fundamental, as it’s gone beyond just cryptocurrencies. Blockchain technology has now extended to sectors which concern legal professionals, such as offering new frameworks for contracts (smart contracts), governance structure (DAOs), goods transfer, proprietorship and intellectual property rights, and regulatory compliance. This article strives to explain blockchain in simple terms and explore why it matters in the evolving world of law and governance.
Simply put, blockchain is a type of distributed ledger technology (DLT - a digital system that records details of transactions in multiple places at the same time). When transactions are carried out on a blockchain, the details of the transactions are recorded across multiple computer networks, guaranteeing that once it is made, it cannot be altered without the consensus of the network participants.
Each block in a blockchain contains a list of transactions that is linked to a previous block, forming a chronological chain. Blockchain is decentralised, meaning it is not controlled by any single entity or authority. The decentralised structure of a blockchain is seen as one of its biggest advantages.
Blockchain’s decentralised and immutable nature creates both opportunities and new challenges for the legal field. Some areas of impact include:
These are self-executing contracts that automatically enforce predetermined rules without the need for intermediaries. While they are efficient, they also raise concerns regarding their admissibility and adjudication in the event of a dispute.
Blockchain can provide secure and verifiable digital identities, essential for KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance; however, regulations in this area are still developing and not yet universal.
Blockchain’s timestamping feature can foster the integrity of digital evidence in court cases. However, for it to be admissible, it has to be recognised in national legislation (e.g., the law of evidence).
Blockchain introduced a new form of decentralised governance structure known as DAOs (Decentralised Autonomous Organisations), which moves away from the traditional governance process and instead relies on smart contracts and token-ownership. The issue is that DAO structures are not yet legally recognised in most jurisdictions, which raises issues such as contract enforceability, liability, and corporate personality.
Inasmuch as blockchain can simplify and ease international goods transfer, the unclear jurisprudence in this area remains a concern, especially regarding cross-jurisdictional legal adjudication and enforcement.
Through blockchain, assets (real estate, arts, etc) can be owned by tokenisation (also known as Non-Fungible Tokens - NFTs) and their ownership recorded on the blockchain. However, most legal systems still require traditional proof of ownership (e.g., record in property registers), and this hampers legal enforceability. Additionally, where the asset involved is an intellectual property, it raises additional concerns as well, such as whether the tokenisation automatically transfers the intellectual property rights to the holder of the token, and the enforcement of such rights.
Having looked at some of the areas in the legal field being impacted by blockchain technology, it is also important to highlight how laws and regulations can adapt.
If more jurisdictions give legal recognition to blockchain transactions and their data, they will acquire legal status and can be used as legal evidence or be enforceable.
Due to its decentralised nature, blockchain networks will often span multiple jurisdictions. This could raise the issue of conflict of laws in the event of a dispute or regulatory enforcement.
Finding a balance between data and privacy laws and the public nature of blockchain data is essential.
Due to the technical nature of blockchain, understanding its features, structure, capabilities, and influence in the legal field will require collaboration with technical experts.
Blockchain is reshaping how we view trust, contracts, and regulatory frameworks. For legal professionals, understanding blockchain fundamentals has gone beyond academic exercise and it’s become a career necessity. An understanding of the basics can help you navigate — and contribute — in our increasingly decentralised world.