As discussed in my previous blog post, thousands of New York attorneys attended the Annual Meeting of the New York Bar Association’s Commercial and Federal Litigation (ComFed) Section, where we considered some of the ways technology is changing the practice of law and business. Blockchain technology is one source of changes to businesses globally and rules of evidence in the courtroom.
When considering blockchain technology, most people think of Bitcoin. However, blockchain technology has significant business (and legal) implications beyond the universe of cryptocurrencies.
A blockchain is an immutable time-stamped series record of data that is distributed and managed by a cluster of computers. Blockchain utilizes distributor ledger technology (DLT), which is a technology that allows data to be stored on many servers throughout the globe, which can be viewed in near real-time by those with access to the connected servers without the viewers being able to gain control of or to alter the data. Blockchain can be public or private. Public blockchain can be viewed by utilizing a network that can be freely joined by anyone. Private blockchain utilizes a private network that can be joined only by invitation from the network administrator.
Applying these concepts to the business world, many believe that blockchain technology could lead to global transactional transparency and tout that blockchain technology has the potential to streamline record-keeping and supply chains, save money, and disrupt technology as we know it across numerous industries, including banking, finance, health care, real estate, security/cybersecurity, government services, music and entertainment, intellectual property, insurance, trusts and estates, and education, just to name a few.
One blockchain technology application that is disrupting industries and sectors is referred to as the “smart contract,” which, in the most basic terms, is actually a computer program that enforces its own terms and is stored on blockchain (so that it can be viewed in near real-time but cannot be changed) and processed by blockchain, including through payment, which eliminates the need for third parties. The uses (and critiques) of smart contracts are beyond the scope of this discussion but are worth Googling if you are interested in learning more.
With such far-reaching global implications, the discussion of blockchain at ComFed included how the spread of blockchain technology is impacting the practice of law and how blockchain evidence is being treated by courts.
Across the United States, most courts have not yet addressed the issue of blockchain evidence. However, the Vermont legislature recently enacted a statute that recognizes blockchain as a presumptively admissible form of evidence. (See 12 V.S.A. § 1913 (effective July 1, 2018).) The statute provides in relevant part:
(a) As used in this section:
(1) “Blockchain” means a cryptographically secured, chronological, and decentralized consensus ledger or consensus database maintained via Internet, peer-to-peer network, or other interaction.
(2) “Blockchain technology” means computer software or hardware or collections of computer software or hardware, or both, that utilize or enable a blockchain.
(b) Authentication, admissibility, and presumptions.
(1) A digital record electronically registered in a blockchain shall be self-authenticating pursuant to Vermont Rule of Evidence 902, if it is accompanied by a written declaration of a qualified person, made under oath, stating the qualification of the person to make the certification and (A) the date and time the record entered the blockchain; (B) the date and time the record was received from the blockchain; (C) that the record was maintained in the blockchain as a regular conducted activity; and (D) that the record was made by the regularly conducted activity as a regular practice.
Vermont is the first (and only) state to address the issue of the admissibility of blockchain evidence. The Vermont rule of the admissibility appears to be exceedingly broad. However, like each of the technologies discussed in my first article on ComFed, blockchain, too, is not without potential risk. For example, if the immutable data stored on the servers is incorrect or corrupted when it was created, it remains corrupt forever. Further, as new applications for the use of blockchain technology are developed, those applications could themselves be subject to software bugs. Additionally, though blockchain is considered to be exceedingly secure, there have been instances when it was hacked and/or manipulated by participants on the server.
So what does this mean for businesses and their lawyers? As the application of blockchain technology expands toward reaching the potential of global transactional transparency in wide-ranging industries and sectors, both transactional attorneys and litigators need to stay aware of how blockchain technology is being used by businesses. Further, in light of what is expected to be an explosion of blockchain technology applications, how blockchain evidence is treated in court is now a pressing issue that will need to be resolved sooner rather than later by federal and state legislatures.