No matter the practice area, asset transfers are a key part of work for any lawyer. Whether it be property closings, divorce proceedings, the sale of a business, or executing a will, asset transfer has a way of being an integral part of work for lawyers. These long drawn out transfers often require a “middleman”. What if with technology, you could save time and reduce complex transactions?
Let’s Focus on Bitcoin and Blockchain
Bitcoin is a relatively new form of cryptocurrency that entered the market in early 2009. It’s was the first cryptocurrency to use blockchain technology to verify transactions, which eliminates the need for a central authority. This process may sound strange but it allows for an efficient asset transfer between two parties. A blockchain is essentially a secure ledger.
Blockchain allows for asset ownership records to be recorded and then “broadcasted” using an anonymous key to a group of parties in a network. Also recorded is changes of ownership within the network. These changes also use an authorization key that verifies the legitimacy of the transfer. The network’s decentralized ledger records all transactions, which decreases the possibility of fraud and error.
Many major Fortune 500 companies are beginning to look at how they can incorporate blockchain into their current daily operations. Currently, corporate finance specific blockchains are being developed. Consumers do not use these new versions of cryptocurrency, like Bitcoin. Instead, businesses use them to make asset recording and transfer quicker and cheaper.
So What is a Smart Contract?
Smart contracts take advantage of using a decentralized ledger. These contracts are “self-executing” contracts that use blockchain to exchange any form of assets. These types of contracts have defined rules and penalties for an agreement and can automatically enforce any outlined obligations.
Moving forward, lawyers could possibly no longer be writing traditional contracts but instead developing standardized smart contract templates. Attorneys with practice area such as securities and litigation may be the first to see these kinds of contracts. In fact, the NASDAQ has even announced that it will begin using blockchain to speed up the securities clearing process.
It’s important for firms to start familiarizing themselves we these new possibilities. That way, if a new client was to ask about a smart contract, the attorney would know exactly how to proceed.