BLOCKCHAIN: THE DEATH OF LEGAL ARBITERS IN COMMERCIAL AND ADR ENVIRONMENTS? (Part 1)

By Mike Barker

Part 1: The Reckoning

Globalisation can be a wonderful thing. It has the capacity to reduce systemic racism, improve wealth distribution, minimise gender stereotypes, advance developing countries and encourage free-trade amongst nations. Greater economic competition will be introduced to markets that were once monopolised by domestic firms, and the free movement of labour will rouse members of the population from regions with high unemployment to seek work elsewhere. If globalisation is properly executed, it could destroy the current patriarchal paradigm of social hierarchy that we are currently forced to swallow.

Enter, the Blockchain. The technological phenomenon that has been hailed as ‘the renaissance of money’, revolutionising the interface between economic agents, best analogised by the following: what the Internet does for freedom of information, the Blockchain does for freedom of value. Blockchain is a cryptographically anonymised, transparently distributed ledger, built on a decentralised database, powered by a network of peer-to-peer users. By facilitating a value-exchange protocol, it permanently records verifiable transactional data between parties such as assets exchange, intellectual property ownership, title details, contract conditions, and raw data. It records all of this and secures it safely within the Blockchain ledger, all the while possessing the power to actively trigger programmed transactions autonomously, should pre-defined conditions be met. The result is a foundational technology that Harvard Business School professors Marco Iansiti and Karim R. Lakhani herald as a “new foundation for our economic and social systems”.

Sounds cushy. However, as dialectical monism demands, with yin must come yang. That yang, appears to be the slow death of legal arbiters practising in commercial and dispute resolution environments. As Joanne Frears of Lionshead Law if practitioners in these fields fail to invest time and resources into understanding the powerful diversity of applications that Blockchain technology harbours, their once lucrative supply of services will be out of demand within the decade. Most threatening to this industry is Blockchain’s utilisation of ‘smart-contracts’, arguably the most powerful tool that it possesses. These smart-contracts are the inherent power of the Ethereum Blockchain, developed specifically to execute applications and transactions that “run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.” Custom built for this purpose, the Ethereum Blockchain’s ledger stores registries of debts or promises, moves funds in accordance with pre-defined instructions and executes transactions, all without any intermediary or counterparty risk.

The Reconnaissance

The Ethereum Blockchain’s expertise lies in embedding agreements as digital code within the ledger. It is timestamped, encrypted and irreversible, shared amongst the network of nodes’ databases worldwide, protected from deletion, tampering, and revision. In other words, ironclad, and rich in data — valuable should a civil dispute arise. As Benjamin Ebbink of the Fisher & Phillips legal firm discussesCoinlancer, a Blockchain-based freelance employment platform, features a dispute resolution mechanism where a crowd-sourced “tribunal” of voters evaluate disputes and cast votes in favour of one party or another. The factual details are embedded within the Blockchain data and decrypted to the platform in the circumstances of parties seeking exogenous resolution. The parties can put the dispute to a vote, with the outcome actioned by the platform’s self-executing payment facilities embedded within it. The consequence of this platform renders the necessity for an individual arbiter obsolete. This development of crowd-sourced peer review is not only cost-effective, simple and time-efficient, but most importantly, it is anonymous and objective.

The Blockchain is not limited to data embedded within its own ledger, either. ChainLink is a secure form of middleware built by a team of developers in partnership with global financial powerhouse, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), for the purposes of connecting Blockchains with real world data sources. Not only will real world financial transactions be confirmed within Blockchains, developers of this kind aim to connect with other Application Programming Interfaces (APIs) and the Internet of Things (IoT), too. Data such as weather, real-time GPS coordinates, events information, stock markets, legal databases, business supply-chains, and personal identification; all available. Any form of computational code and any product built on API or IoT (including any smart-home device) all can be timestamped, logged and confirmed, encrypted and securely recorded on the Blockchain ledger.

The Real World

A hypothetical scenario of an arbiter-free Blockchain dispute resolution may be explained by using a current real world model of peer-to-peer exchange: car-sharing (with the imminent advancement of car technology in mind). Imagine the car has ultrasonic sensors, detecting the location and rate of approach of surrounding objects (much like the ultrasonic sensors currently do to assist reversing), and that this information is timestamped and securely stored via ChainLink. Imagine the car has a dashboard camera (much like cyclists attach to their helmets to ensure correct liability in case of an accident), and this data is also timestamped and securely stored via ChainLink. Now, amongst this already-rich environment of data, imagine that the smart-contract executing the agreement possesses connectivity to external weather data, traffic data, and third-party apps such as ‘Waze’, a community-driven navigation app where users record traffic accidents, amongst other informative data. This single digital transaction is now utilising monumental amounts of external information from the real world. Cue scenario:

  • Party A rents car from Party X on an intermediary-free, smart-contract platform, with all funds held in Blockchain escrow, released only when both parties are satisfied with performance.
  • Party A experiences minor accident with Party B at a stop-light intersection — minor superficial damage to Party A’s vehicle only. They exchange details.
  • Later, Party A breaks down and the vehicle must be towed back to Party X.
  • Party A argues the car is defective.
  • Party X argues otherwise, and that Party A must pay for the superficial damage to be repaired.
  • Party A disagrees, stating Party B was at fault, and to pursue reparation with them.
  • Party X is angry, and demands Party A to pay.

The smart-contract has thus far recorded all the vehicle’s internal data and external information in real-time, logged and stored it on Blockchain, and indicates the following about the accident;

  • Party A entered the intersection at the last moments of the light being orange.
  • Blockchain’s access to weather data via ChainLink indicates that it was raining heavily at the time of the incident. As per the speed recorded by the vehicle’s internal system, to have braked for the light would have been hazardous.
  • Recorded by Party A’s ultrasonic sensors, Party B’s rate of approach before hitting Party A indicates that Party B was above the legal speed limit for the area, recorded and confirmed by GPS coordinates.
  • Nevertheless, Party B had run a red light as Party A’s recordings indicate it so.

It is apparent that at this point Party A is not likely to be liable for the accident. Such diversely rich recording of data has thus far removed the need for external arbitration. As for the breakdown:

  • The vehicle’s internal computer indicates that at the time of engine failure, Party A was “red-lining,” causing it to overheat and break down. Timestamped, recorded.

Party A has now contributed to fault. The power of the Blockchain to chronicle vital information is staggering. Arguably, not all disputes are alike, and not all parties desire to leave the fate of an outcome to the will of the public. Nevertheless, couple this computationally universal technology with the emergence of Law-focused corporate data-houses (crunching massive datasets of information and spewing it out the other end in one clean, crisp piece of passive legal advice), it is not an irrational notion to be fearful of the death of lucrative dispute resolution mechanisms (and then some). The demand for intermediaries appears to be on its way out as the world moves toward a peer-to-peer revolution based on crowd-sourcing and decentralisation.

What does all of this have to do with globalisation and the destruction of the patriarchal paradigm? With the advancement of Blockchain technology comes the freedom of value. It is unknown how the overall landscape of law will shift, but the reduction of intermediaries is sure to impact the way people exchange values, financially and ethically. Barlow said it best to a gathering of technologists and entrepreneurs at Stanford University in 2015:

“You are designing the architecture of liberty and enslavement, both, in these tools that are being derived around the Blockchain and other things like it. What you do and the ways in which you do it, will have long-lasting effects.”

About Mike Barker
Mike is a final year Juris Doctor student focusing on the hyperpower of Law + Blockchain technology. Connect with Mike on Linkedin.

Featured image by Adrian Williams on Unsplash

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