Can lawyers help mitigate the risks associated with Smart Contracts and blockchain technology?

With the proliferation of blockchain technology I’ve seen my traditionally conservative profession approach timidly, if at all. The law is a centralized and regulated industry, and lawyers are in the business of risk mitigation. In stark contrast, blockchain technology exhibits unprecedented growth and volatility. I see a burgeoning opportunity for us. Three of the biggest challenge areas where the legal profession should be excited to add value are:

1. Regulation, 2. Scaling, and 3. Security.

“Smart contracts” (programmable, automated contracts that run on digital blockchain platforms such as Ethereum) represent a natural progression in an increasingly digitized world. These digital applications are similar, in many respects, to the traditional contract law that lawyers are already familiar with, except for a few key differences.

One notable change is that self-executing smart contracts, if properly coded, are inherently irrevocable. There is no trusted third party or escrow. An effectively written code could potentially eliminate the option to anticipate a breach, terminate the contract for repudiation, or unwind it due to misrepresentation, mistake or duress. This is in addition to unexpected problems that could arise from technical coding errors, or from discrepancies between computer “code” and the “natural” legal language of the parties.

Lawyers will have to counsel their clients on the liabilities associated with any particular smart contract. Due diligence requires that we not only know what the parties are intending, but that we also seek out expert opinion as to whether the contract’s code will actually execute those mutual intentions.

One company that is looking to provide this technical expertise is Quantstamp (Token: QSP) https://quantstamp.com/ a recent Canadian ICO comprised mostly of bright young engineers and computer scientists. They hope to provide an independent, automated, third-party to algorithmically audit smart contracts for errors. The overwhelming majority of coding mistakes can be found through this type of automated filtration. The few remaining mistakes are then manually audited and reported. While no auditing protocol can be perfect, this affords the client an independent verification process through which to understand and mitigate their risk. Not every client will seek out this reassurance, but it’s a valuable option to be able to offer, if it proves to be as effective as promised.

Lawyers should be working with companies like QSP to supplement their smart contract auditing process. QSP just happens to be first-movers in what I expect to be a rapidly growing niche. Lawyers may soon be regularly providing auditors with the expertise required to make sure that coded language accurately reflects the parties’ intentions while complying with the regulatory framework of any particular jurisdiction. Lawyers and automated audits would drastically reduce the risks associated with smart contracts, then supplementary manual audits would lower that risk even further, and insurance companies could cover any remainder for a predictable fee.

Please note that I am not a financial expert of any kind and that absolutely none of this is financial advice for you. Investing in any business or cryptocurrency is inherently risky and you could lose everything. None of this should be construed as legal advice. I am not your lawyer and you are not my client. Please seek independent legal advice with a lawyer in your area before making ANY legal decisions. I can not and will not be held responsible for your choices. Buyers beware. This blog is purely for entertainment purposes while I continue to educate myself about blockchain technology.