The market for blockchain is expected to reach $60.7 billion globally by the year 2024, up from $708 million in 2017.
And in 2018, no one can seem to stop talking about it.
What, in plain English, is blockchain, and how can we expect it to affect your firm in the coming years? We’ll walk you through it below.
What is blockchain?
Blockchain, put plainly, is a type of database that runs each new piece of data through a rigorous validation process before storing it. Once that piece of data is stored as part of the “chain,” it cannot be altered. The database is transparent; it is a public ledger, and can be viewed by anyone at any time.
Blockchain is the technology behind the cryptocurrency Bitcoin, which came about nearly a decade ago following the Great Recession.
To help demonstrate how blockchain works, here’s a look at what a typical Bitcoin transaction looks like:
- You want to transfer 10 Bitcoins from your wallet to someone else’s.
- You get their digital wallet address, and submit your intended transaction for approval.
- Your transaction request is sent to a random, widely dispersed group of people in the Bitcoin community, each of whom count as a “node.”
- Each node on the blockchain is asked to individually confirm your transaction. Do you actually have the required funds in your wallet? Are these funds truly “unspent” and able to be transferred? Can the receiving wallet accept these funds?
- If at least 6 of the nodes validate the transaction, the transfer will go through.
- Record of the transfer will be added to the blockchain, to help inform future validations and transactions.
This validation process is one part of “Bitcoin mining,” a process where the miner validates individual transactions, compiles multiple transactions into a “block,” completes a math problem as “proof of work,” and is rewarded for their work with Bitcoins.
The theory is that this motivates the miners to be accurate and honest in their validations, since that’s the only way they’ll get paid.
How will blockchain affect your law firm?
People are particularly taken with the technology because, thanks to the complicated and decentralized validation process, it’s a way to store legitimate data without risk of it being compromised.
Today, there are a few areas in particular that blockchain is expected to “revolutionize” (a list that will grow as industries uncover additional applications for the technology):
- Financial transactions in the form of cryptocurrencies.
- Financial transactions in the form of “smart contracts” that can automatically trigger the transactions once predetermined conditions are met.
- Protecting and authenticating your identity.
- Tracking assets – digital or physical – in a way that prevents titles and other records of ownership from being lost or tampered with.
- Storing data in a way that protects it from being lost or tampered with.
Ultimately, blockchain technology is still very young; for most firms, it probably won’t have a monumental impact on your operations for some time.
Cryptocurrency, as we’ve already seen, is a volatile market that is not ready for widespread adoption; the value of a single Bitcoin fluctuated by thousands of dollars over the course of mere weeks. Today, only about 1 percent of the world’s currency is accounted for in this market. Most of us won’t have much to gain by accepting these transactions in place of dollars any time soon.
When it comes to applications like smart contracts and tracking assets, on the other hand, it makes complete sense for this to be at least loosely on your firm’s radar, especially if you deal in real estate law, civil law, or similar fields that would be most directly impacted.
We’re also already seeing large nonprofits like the World Food Programme work to use blockchain-based digital identity verification to provide aid to refugees in a more efficient and cost-effective way, and may see other humanitarian aid programs follow suit.
So if your firm is generally looking to get ahead of the curve on this up-and-coming industry, or if you see your clients taking particular interest in it, you would be wise to start reading up on the subject and the legalities surrounding it (what happens when someone disputes a transaction, for example).
There are some real benefits to this distributed, verified transaction technology that can’t be replicated by traditional institutions. We have a ways to go before it becomes mainstream, but there are certainly some exciting times ahead!