Bitcoin technology heralds ‘smart contracts’ era
Topics: Government & politics
The technology behind the Bitcoin digital currency could usher in an era of ‘smart contracts’ and enable the creation of a tamper-proof Land Registry database, legal technology experts said this week in the wake of a landmark government report.
Mark Walport, the government’s chief scientific adviser, last week said that ‘distributed ledger technology’ offers the potential to reduce fraud, corruption and the cost of paper-intensive processes, including contracts.
A distributed ledger is a database of assets – usually financial or legal data – shared across a group of users and secured by cryptography.
All members of the network have an identical copy, with any updates communicated in seconds across multiple copies. It relies on a tamper-proof chain of encrypted data known as a block chain. This used to secure the virtual currency Bitcoin, which has been in use since 2009.
According to the Walport report, it can also be used to create a secure ‘smart’ online contract, ‘with cryptographic certainty that the agreement has been honoured in the ledgers, databases or accounts of all parties’.
Timothy Hill, technology policy adviser at the Law Society, said it is essential that lawyers are aware of distributed ledger technology. ‘As the report makes clear block chains – or distributed ledgers – are a powerful innovation that could have a profound impact on both the law and the provision of legal services.
‘They could be used to declare wills, transfer property or create self-executing contracts. They also raise profound questions about the future balance between technical code and legal code – something Walport suggests that lawyers and technologists will need to work together to get right.’
Rich Folsom, senior associate at specialist technology firm Kemp Little, said the report would demystify the technology and bring it onto boardroom agendas. He said that one potential application could be in securing Land Registry’s database as every transaction would need to be reconciled across the network and a cyberattack would need to attack all copies simultaneously to be successful.
However, he cautioned against any rush to regulate distributed ledger systems, as mooted in the Walport report: ‘It is quite easy to listen to the loudest people – those calling for further regulatory approval tend to be those who would benefit most.’