How the Legal Industry is Adopting Ethereum-based Smart Contracts
Smart contracts may revolutionize the legal industry, but great care must be taken when writing them.
Ethereum smart contracts have great potential to increase efficiency in the legal industry. These self-enforcing contracts ensure that only once specific terms are met will the contract follow through with its instructions. A smart contract will always run exactly as written, so great care must be taken when creating one.
Due to their immutable and autonomous nature, smart contracts provide an alluring alternative to traditional legal contracts, and law firms are taking notice. In August of 2017, ten law firms and four legal institutions joined the Ethereum Enterprise Alliance. Among these is Hogan Lovells, the 14th largest law firm by revenue in the United States. This is a big deal, as it signifies Ethereum’s adoption by major law firms, and with it, the adoption of smart contracts. However, legal interest in smart contracts goes beyond the EEA.
Frost Brown Todd (FBT), a 500+ attorney law firm based in the US, has taken the initiative to understand the implications of smart contracts in the legal field. In May of 2017, FBT announced their completion of a prototype smart contract to be used in software escrow agreements. Attorney Josh Rosenblatt, head of FBT’s Blockchain team was able to get first hand experience with smart contracts. He stated that:
“For a lot of people in the industry, until you get your hands dirty, it’s hard to understand what the advantages and disadvantages really are.”
While smart contracts are certainly a viable option for law firms, it’s unlikely that attorneys will be working alone to create them. Attorneys generally don’t have the technical skill set needed to do so. Smart contracts are written in computer code, so third party smart contract specialists would likely be pulled in by law firms to collaborate with attorneys. This means that while smart contracts may ultimately replace traditional contracts, they demand a new set of skills to do so. This may slow adoption of smart contracts in the legal industry.
The immutability of smart contracts is a double-edged sword. When written correctly, it ensures a contract is successfully carried through regardless of the circumstances. When done poorly, it can open up the contract to exploitation. Carefully laying out clauses and edge cases can take a long time, as great care must be used when programming a smart contract. Until a standard format for legal smart contracts is laid out, these contracts may not make a routine appearance in the legal industry.
Smart contracts can streamline and enforce legal contracts, but they aren't going to be replacing attorneys. In fact, smart contracts need attorneys to help lay out their terms and conditions. It’s more likely that smart contracts will bring developers and attorneys together to collaborate and provide progressive solutions for the legal industry.