By Ashley Kelso, Senior Associate, AustraLaw
- Machine learning
- Internet of things
- Blockchain and distributed ledger
- Smart Contracts
- IPFS (decentralised storage of data)
We in the legal industry must at least gain a working knowledge of these technologies if we are to leverage them, give effective advice to our clients, and address the risks that they entail.
Most of the above technologies are fairly self-explanatory:
- Machine learning allows us to train a computer by trial and error to perform repetitive analytical tasks (this holds major potential to allow smaller firms to punch above their weight)
- The internet of things is about feeding data from sensors to an internet-connected server and then performing some action or analysis on it (the weather app on your iPhone is an example)
- Decentralised storage is basically a cross between bit torrent (peer-to-peer file sharing) and dropbox (cloud-based storage). i.e. files are sourced from ‘the cloud’ by reference to their content rather than their location on a server. So if an identical copy of the file you are after is located on a computer nearby, your computer doesn’t have to pull that same content all the way from a server in the US.
However, smart contracts and blockchain technology require a little more explaining. As smart contracts are built on blockchain (e.g. Ethereum) and distributed ledger (E.g. Corda) technology, it best to start with an explanation of blockchain.
Blockchain – how does it work?
As an engineer I always found it more effective, when dealing with complex ideas, to communicate them visually through diagrams and drawings. Blockchain technology is a complex idea. This video provides an excellent visual explanation of what a blockchain is and what it is useful for.
Blockchain as a register of transactions
As the video demonstrates, blockchain provides the benefits of:
- A trusted common register of information that is highly resistant to forgery
- Decentralised recording of transactional data (good for data preservation, but also a privacy issue)
The importance of reliable common registers to record the exchange of property rights between parties will be well familiar to those involved in conveyancing and sale of business work.
The first blockchain technology was Bitcoin. This simply tracked the creation and exchange of bitcoins between users. However, it is the next generation of blockchain technology called Ethereum that has really got people interested. This is because Ethereum allows users to customise the kinds of transactions that are performed, recorded, and tracked on the Ethereum blockchain.
Users can do this by writing smart contracts and loading them onto the Ethereum blockchain. In simplistic terms, a smart contract defines the items of value that parties to the contract will be exchanging, and the rules by which they will be exchanged. (i.e. Define the things whose state will be tracked, and how their state will change based on the information that the contract receives).
What do smart contracts look like?
To avoid talking too much in the abstract, here is an example of a smart contract from the Ethereum website. It is written in a programming language called Solidity.
In basic terms, the ‘functions’ become actions that users can perform on the contract – for example, to tell the contract to process a transaction between two parties, or to check the balance of an account. Ethereum provides an application called the Ethereum Wallet that allows you to load your contracts on to the Ethereum blockchain and provides a user interface to interact with your contracts.
Risks and benefits of smart contracts
Smart contracts are the reason that people are talking about blockchain. Benefits include:
- Automatic execution of the contractual effect of events (i.e. reducing the legwork of contract administration)
- Automatically generates a record of all transactions that is highly resistant to forgery
- Ability to create entire trading environments and schemes to exchange customised items of value (e.g. could be used to implement a private carbon credit scheme)
Negatives of smart contracts on Ethereum include:
- Privacy of contract data
- Difficult to prevent a party from exploiting a bug in the contract code
- Charges Ether to process transactions (Ether is the currency of Ethereum)
There is a rapidly growing developer community around this technology; AustraLaw has already had an enquiry about drafting a smart contract; and a quick glance at the Enterprise Ethereum Alliance site demonstrates keen interest from major corporates (including Thomson Reuters). Exciting and uncertain times lay ahead.
Corporates experimenting with blockchain technology
- BHP Billiton is implementing a blockchain-IPFS system for tracking its supply chain.
- The Commonwealth Bank participated in a successful demonstration of the use of smart contract-IoT system which allowed payment to be trigged once a shipment of cotton reached a geographical location.
- The Queensland Treasury Corporation and the Commonwealth Bank have demonstrated the ability to use smart contracts for the auction and issuance of bonds.
About our Guest Blogger
Ashley Kelso is a senior associate at AustraLaw. He holds degrees in mechatronics engineering and law. Prior to becoming a lawyer he worked in project management and systems engineering roles in the Department of Defence. This background allows him to communicate effectively across multiple disciplines and industries to assist clients more efficiently with their ADR and contract needs.
Ashley has a keen interest in applying the tools and methodologies of engineering to optimise the quality and efficiency of legal services.