One thing is for sure. That a revolution is here which is characterized by a set of technological trend that will digitize the industry and take it to another level, a level where full automation will be achieved allowing maximum efficiency at the lowest cost. Among these technologies are:
• Artificial Intelligence
• Virtual reality
• The internet of things and
• 3D printing
However, based on the data from market analysts, one of the industry 4.0 technology trend that is estimated to have the highest impact in transforming the society is BLOCKCHAIN.
It is important to educate oneself on what Blockchain is and why it is important. Think of ways in which your organization could benefit from it.
To help us understand a bit about Blockchain, we will be considering the following:
· What is Blockchain
· Blockchain Technologies
· Blockchain applications (Crytocurrencies and Smart Contracts)
· Blockchain ecosystem
· Why should Lawyers adopt the use of Blockchain
· Advantages of Blockchain
· Challenges of Blockchain
· Opportunities in Blockchain
· Foreign Exchange
· Digital investment
· Regulatory framework for Blockchain and Foreign Exchange
WHAT IS BLOCKCHAIN
Blockchain is a peer to peer decentralized, distributed ledger that records transactions efficiently, and in a verifiable and robust fashion. Blockchain is a time-stamped chain of immutable records, managed by a cluster of computers and not owned by any single entity.
Blockchain is a technology that allows users to interact without the need for intermediaries, guaranteeing the confidentiality, authenticity and integrity of transactions.
· Smart Contracts
Smart contracts is a Blockchain enabled Application. A Smart Contract is a term used to describe computer programme code that is capable of facilitating, executing, and enforcing the negotiation or performance of an agreement using Blockchain technology. The entire process is automated, It can act as a complement, or a substitute for legal contracts, where the terms of the smart contract are recorded in a computer language as a set of instructions. In general, smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict – free way while avoiding the service of a middleman. Smart Contract is a computer protocol intended to digitally execute certain tasks if pre-defined conditions are met, thus allowing to digitally facilitate, verify or enforce the negotiation or performance of a contract.
Cryptocurrency is a technique to secure data by writing or generating codes that make the information unreadable for the unauthorized individual. It is derived from mathematical concepts and a set of rule-based calculations.
They are also referred to as virtual currencies, which are digital means of exchange created and used by private individuals or groups.
TYPES OF CRYPTOCURRENCIES
Below are some notable cryptocurrencies
· Bitcoin Cash
To use Cryptocurrency, you need to open a wallet with unique information that confirms you as the temporary owner of the unit. Your private keys confirm the authenticity of a cryptocurrency transaction.
The Blockchain Ecosystem consists of multiple layers:
WHY SHOULD LAWYERS ADOPT THE USE OF BLOCKCHAIN?
Some organisations are already aware of the fact that the Blockchain technology is growing fast and nobody can stop it from being used. One of the first thing we should do is to use technology to replicate what we do. As lawyers we would be better placed if we align ourselves with this technology adopting it to learn more about it and see how we can leverage on it for improved and sustainable practice while coming up with solutions to close the loopholes through a collaborative relationship with Blockchain developers. With or without our adopting the technology, it has and will cause a great disruption to the legal practice as the services of legal professionals in most cases will be dispensed with as it is viewed as cumbersome, time wasting, subject to a lot of human error and expensive to use.
Banks have formed a consortium to analyse how to integrate Blockchain into the financial entity by developing a financial accounting solution. They are investing in this technology (Blockchain) because they are aware that no one can stop it from being used.
The need for the adoption of the Blockchain by legal professionals is motivated by the following:
- Regularity – Legal professionals deal with challenges from regulatory compliance, globalization, and even reporting management. Blockchain provides unaltered, consistency, reliability and uniformity of data.
- More efficiency and uniformity – Smart contract provides more efficiency and uniformity. With an immutable record of finalized smart contracts and time-stamped signatures, there will be less room for conflicts.
- Enhanced security and protection – Blockchain change security risks because of secured data handling. No single point of failure and cannot be changed from a single computer.
ADVANTAGES OF BLOCKCHAIN
- No centralized authority- Blockchain minimizes the trust required of ecosystem participants of these intermediaries in any number of ways.
- Greater transparency – once the data has been written on a Blockchain, no one, not even a system administrator, can change it. As a data provider and recipient, user can prove that the data has not been altered.
- High Availability – Highly available due to decentralization. Any number of nodes can go down without affecting the Blockchain. It protects institutes from DOS (Denial of Service) attacks.
- High Security – All transactions on a Blockchain are cryptographically secured and provides integrity. Each block is connected to all the blocks before and after it. Network participants have their private keys that act as a personal digital signature.
- Faster dealing and cost savings- Blockchain removes third-party intermediaries and overhead costs for exchanging assets, that reduce transaction fees significantly. Blockchain allows quicker settlement of trades as it does not require a lengthy process of verification, reconciliation and clearance.
- Improved traceability- Blockchain enables every party to trace the goods and ensure that it is not being replaced or misused during the process. Blockchain helps to easily locate any problem and correct it. If there is any, and create an irreversible audit trail.
- Historical transaction – data can help to verify the authenticity of assets and prevent fraud.
CHALLENGES OF BLOCKCHAIN
THE DAO ATTACK
A DAO is a decentralized Autonomous Organization. Its goal is to codify, through a so-called smart contract, the rules and decision-making apparatus of an organization, eliminating the need for documents and people in governing roles, thus creating a structure with decentralized control. As at 2016 when the DAO was launched on the Ethereum Blockchain, an unkown hacker identified a loophole in the DAO smart contract and exploited or hacked it. Which allowed the attacker to drain more than 3.6million ether. As with the traditional agreement that might not cover all the scenarios that can arise from the contract execution, the same happened with the DAO smart contract.
The peculiarity of smart contracts is that their rules are on a string of code, and in this case, a hacker exploited a coding loophole in the smart contract.
Some other challenges of Blockchain are:
- Who is liable for the Blockchain?
- Who is responsible for the smart contract?
- Governing law and forum selection
- Liability and service levels
- Intellectual property rights
- Privacy compliance issues
- Limited scalability.
- Storage restraint
- Access to external data. It can’t access information from external source that are not on Blockchain
- Unavoidable security flaw. The 51% attack
- Unsustainable consensus protocols
- Regulatory framework
OPPORTUNITIES IN BLOCKCHAIN FOR LEGAL PROFESSIONALS
The Blockchain technology can be used for a wide variety of situations. The Smart contract on the Blockchain has provided the legal professionals with great and large opportunities. You can use Smart contracts for all kinds of situations such as:
- Financial derivatives
- Insurance premiums
- Breach of contracts
- Property law
- Credit enforcement
- Financial services
- Legal processes
- Chain of supply
- Crowdfunding agreements
- Legal documentation. Creating smart contract over the Blockchain between associated parties. Banking, insurance and healthcare all have contract dispute rates.
- Intellectual Property. Digital rights stored on the blockchain will build immutable ownership time-stamps and allow companies and individuals to share their designs and patents securedly.
- Chain of custody in legal industry. A Blockchain based solution for legal documentation. Creating smart contracts over the blockchain platform to access the reports and evidence.
- Litigation and settlement. To build a Blockchain based solution for litigation process. The litigation will become more convenient and transparent.
- Land Registry. Sometime this year, the Lagos state Land registry stated its interest in a webinar it held of its intention to adopt the Blockchain technology but that it is first working on digitizing its records.
case study of Sweden land registry
Lantmateriet- Sweden Land Registry was one of the first public authorities to make their land registry digital in 1970. They first started testing Blockchain technology in 2016, completing its second stage of trials in march 2017.
- It automated the land title registration
- Parties can save the digital files and verification records of the entire chain of events digitally.
- It partnered with telecom company Telia CO.AB and consulting firm Kairos Future for the WSJ reports, a Blockchain real Estate development project.
In the case of the DAO attack, Had the code of the smart contract been drafted correctly, the hack could have been avoided.
Given the current uncertainty as to the legal implication of blockchain, the proper drafting of a smart contract becomes crucial. Especially in relation to the following:
- Governing law and forum selection. Due to the nature of Blockchain, a smart contract needs to regulate the law applicable to it and the competent court, in case of dispute. Besides as with the internet, there is the issue of compliance with the local laws which is addressed in the smart contract, also considering to limit the possibility to enter into entities or individuals located only in jurisdictions where a prior assessment of the implications of the Blockchain based model of business has been performed.
- Liability and service levels. Issues around liability and service level agreements are complex with smart contracts since, as occurred for the DAO, the operation of the Blockchain can get out of control. The solution could be to put in place a quite broad liability limitation clause. However, this solution would not work for agreements with consumers, where such a provision might be deemed unfair.
- Intellectual property rights. The blockchain can be advantageous and disadvantageous for intellectual property rights because of its many potential usages:
- What Intellectual property rights apply to the technology?
- What intellectual Property rights apply to the content of the blockchain?
- What Intellectual rights can be recorded and tracked?
- What happens in case of termination or exit?
- What are the issues in terms of due diligence?
- Privacy compliance issues of Blockchain. The issue is very complex and there is uncertainty as to:
- What kind of data on blockchain is personal data?
- What are the roles and responsibilities of the parties involved?
- How can privacy compliance. Principles be complied with?
- How can privacy rights be enforced?
- What security measures should be put in place?
A properly drafted smart contract might help to identify and secure property rights on the blockchain and ensure control of its legal implications. Legal professionals collaborating with developers will help to advice properly and eliminate some of the loopholes and can advocate for proper regulatory framework. The lack of court precedents on the usage of this technology and all other challenges of the technology leads to potential issues but represents, at the same time an opportunity to be exploited by legal professionals in this changing world.
Digital investment brings investments closer to the people, making them simpler and easily understandable.
In these present days, investors can conduct trades from a smart phone with a simple tap. And in this investment climate, smart digital investment.
The advent of technology digitized the investment process and democratized wealth management for the masses by reducing advisory fees to a marginal cost. In digital investments, you can invest into the digital currency like the cryptocurrencies or asset.
Investing into cryptocurrencies can be by buying ICOs (Initial Coin Offerings) or STOs (Security Token Offerings)butbe sure to do your due diligence part of which is checking and reading the white paper of every ICO you intend buying in order not to fall a victim of scammers. Coins are usually sold in order to raise money for investment in a project.
With asset Tokenization of real world assets, which involves issuing a digital token on a blockchain, whereby that token represents an underlying tangible and intangible asset, it will bring about liquidity, transparency and peer to peer investment in major commercial assets without the need for expensive and time consuming intermediaries.
The biggest game changer will likely be found in unlocking the liquidity of smaller investors through democratizing access which is made possible by fractional real estate (FRE) opportunities. Since this class of investment was previously only accessible to high-net worth investors, real estate investment vehicles managed by major banks, or institutional investors, the tokenization of investment – grade assets into FRE significantly lowers the barrier of entry, priced at single token value with no traditional minimum investment limits or lock-in-periods- creating a simpler and more secured opportunity for investors to buy into.
You can trade cryptocurrencies on different platforms. To do this, you need a wallet– A Blockchain wallet is a software programme that enables users to buy, sell and monitor balance for their digital currency or asset. A wallet stores private and public keys for a transaction. Wallets are classified as software, Hardware and paper wallet, available to store and reflect a transaction on Blockchain.
Note this, Digital investment could be very volatile. therefore, make sure you have the proper knowledge of it before you venture into it.
Foreign Exchange (FX) market is the place where the currency can be exchanged for another. The forex market is the world’s largest trading market. It is a legitimate trading market where the world’s currencies are traded. Without it, it would be difficult to trade the currencies needed to buy imports, sell exports, to go on holidays or do cross border business. However, to make a significant profit in this market, it takes a considerable learning curve. the Nigeria’s Foreign Exchange is made up of three main categories:
- CBN Window
- Interbank ( Authorised dealers and Authorized buyers)
- Bureau de change.
REGULATION OF BLOCKCHAIN AND FOREIGN EXCHANGE
- Over the past few years, there has been an increasing number of countries that have begun the process of implementing functional and legal frameworks to regulate Blockchain. Nigeria has no specific regulation on Blockchain, however certain existing laws and regulations are usually resorted to in the Blockchain application across various industries such as the investment and securities Act (ISA) 2007, The Nigeria Data protection Regulation 2019, The Cybercrimes (Prohibition, Prevention, etc) Act and a host of others. Nigeria is yet to introduce a legal framework for cryptocurrencies or crypto exchanges. However, it has made moves through the CBN and SEC, urging them to speed up efforts in introducing a legal framework for cryptocurrencies in the country.
- In Foreign Exchange, the following regulations apply:
- Foreign Exchange (Monitoring and Miscellaneous provisions) Act Cap F34 LFN 2004
- The CBN Foreign Exchange Manual (CBN Manual) and
- The guidelines/circulars issued from time to time by the CBN.
The point here is that centralization will be eliminated. Start studying and thinking about how distributed models will change everything.
The biggest paradigm shift is here. What people don’t know is that Blockchain is growing behind the scenes, even in downtimes.
Economies are in free fall. People are loosing their jobs, companies, large and small are going out of business. The corona virus affects more and more sectors.
Despite not being at the fore front of consumer’s imagination right now, consortiums like Linux and huge private organisations like IBM are building on Blockchain technology for the future.
The revolution is here, make sure you are a part of it.
One of the biggest stumbling blocks with any disruptive technology is the lack of understanding. Blockchain technology is an emerging technology that is helping and will help to solve a lot of issues both in the present and future.
Regardless of sector or industry, to thrive in today’s commercial battlefield, embracing the emerging technologies, trend and cultural shifts is crucial.
The biggest paradigm shift is here. There are certain opportunities available in this disrupted world and as such it is pertinent to use this time to learn and prepare to becoming a better Legal professional. If we fail to embrace this change and position ourselves as lawyer, we run the risk of becoming obsolete and dispensed with in a technological world that seeks to eliminate intermediaries for a faster and cost effective transactions. As young lawyers, researching, studying, planning and building a blockchain based business model will be a good start.
Written by Deborah Enyone Oni(Esq)
Hilton Top Solicitors