Tuesday, May 31, 2016

blockchain 'smart contracts' to disrupt lawyers

afr |  Among the blockchain cognoscenti, everyone is talking about Ethereum.

A rival blockchain and virtual currency to bitcoin, Ethereum allows for the programming of "smart contracts", or computer code which facilitates or enforces a set of rules. Ethereum was first described by the programmer Vitalik Buterin in late 2013; the first full public version of the platform was released in February.

Commercial lawyers are watching the arrival of Ethereum closely given the potential for smart contracts in the future to disintermediate their highly  lucrative role in drafting and exchanging paper contracts. Smart contracts are currently being used to digitise business rules, but may soon move to codify legal agreements.

The innovation has been made possible because Ethereum provides developers with a more liberal "scripting language" than bitcoin. This is allowing companies to create their own private blockchains and build applications. Already, apps for music distribution, sports betting and a new type of financial auditing are being tested.

Some of the world's largest technology companies, from Microsoft to IBM, are lining up to work with Ethereum, while the R3 CEV banking consortium has also been trialling its technology as it tests blockchain-style applications for the banking industry including trading commercial paper. Banks are interested in blockchain because distributed ledgers can remove intermediaries and speed up transactions, thereby reducing costs. But if banks move business to blockchains in the future, financial services lawyers will need to begin re-drafting into digital form the banking contracts that underpin the capital markets.

The global director of IBM Blockchain Labs, Nitin Gaur, who was in Sydney last week, says he is a "huge fan" of Ethereum, pointing to its "rich ecosystem of developers". He predicts law to be among the industries disrupted by the technology.


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