The Immediate Impact of Blockchain on the Legal Industry
The early days
We are in the early days of Blockchain or Distributed Ledge Technology, but there is rapid forward development in one particular area in the space. While many use cases have yet to be proven, they are starting to take shape. I have been involved with Bitcoin since 2011 and one of the watershed moments I experienced occurred at Consensus 2017 in New York City recently. The Blockchain conference is the largest in the US with approximated 2,500 attendees.
At the conference, the discussion around ICOs (Initial Coin Offerings) permeated nearly every conversation and session held at the event. While I had watched ICOs over the last eight months, I had not bought into the idea completely. The ICO is essentially like an IPO (Initial Public Offering) whereby with the IPO a company raises funds by going public via a mortgage banker e.g. Morgan Stanley. A week later, the stock is launched via a publically traded exchange, e.g. NASDAQ, DAX, or LSE. In this ICO example, a company raises funds via their own website in a crowdfunding like manner. Typically they produce a whitepaper outlining the business and how they plan to use the funds. The actual fundraising leverages the Blockchain to store who contributed, when they did and how much they sent.
The process of storing the information securely on the distributed ledger uses “Smart Contracts” which is an enormous development in this space, more on this later. To skirt current regulation, companies in this space designed it so that if you wish to invest, you “donate” funds via Bitcoin or another popular cryptocurrency called Ether. Once you send your currency to them you are typically given shares in the company called “coins” or “tokens”. Those electronic coins bought at the ICO rate are eventually listed on publically traded cryptocurrency sites. Recently this is where the mania has ensued, minting millionaires overnight. Often investors see a huge bump in price followed by a seesaw movement in valuation until the next ICO is released as traders then move to the next shiny ICO. These offerings now seem to happen multiple times a week compared to handful a month last year.
Typically these ICOs have an open window for people to invest for a week or two but one company called EOS which specializes in “Decentralizing Everything,” will have their ICO for the next 360 days. When making a donation to invest in the fledgling company they offer rather large amounts of tokens for Bitcoin or Ether. In the example of Civic, which is a new company offering a secure identity platform, they requested USD be donated for their token called CIV. The rate was one online CIV token for each $.10 USD. So you can imagine that if someone were to buy $1,000 they would get 10,000 tokens. As an order of magnitude, people that bought in would have made seven times their money in about a week, as currently the CIV token is now valued at $.70.
The amount of money invested in ICOs is remarkable. While at Consensus it was announced on the main stage that all of these new companies combined with their token valuations crossed over the 100 billion dollar mark. This valuation was in the few billions not long ago. Put another way, all of the companies who have launched ICOs are worth more than Morgan Stanley at 78.3 billion – according to Forbes.
As you may have gathered, there is tremendous opportunity with ICOs for law firms, in house counsel and government agencies. Blockchain practices have emerged across the globe, specializing in assisting companies with the process of the ICO. Cooley and PerkinsCoie are two innovative firms that have specialized attorneys working in this space. Currently many regulators are carefully watching from the sidelines. So these law firms are providing guidance in a brand new area considered confusing for all parties. These firms tend to focus on Federal and State money services law, privacy and security, Intellectual Property and Money Laundering as it pertains to these cryptocurrencies.
While the eruption of these coin offerings are in general considered to be very positive, lately there have been some challenges. The market is increasingly seeing potential phantom companies who are trying to leverage this mania to turn a quick buck without a real business case. In the coming days or months we will likely see an ICO go very wrong with thousands of people losing millions of dollars and ultimately upsetting the entire ecosystem. At that point several aspects of the legal industry will begin to take shape. Certainly based on this theory there will be a call for regulation locally and internationally. Beyond that I would foresee possible class action suits following. Recently an increase in ICOs happening which strictly forbid some countries from participating for fear of these suits.
The Initial Coin Offering is an incredibly exciting use of this technology for business and individuals. The Blockchain’s use of the smart contract to record information, execute actions securely, and in a distributed manner is revolutionary.
At this moment in time, the technology slashes the middle man in a very profitable business once reserved for the big banks and whale investors. With that said, we are in early days and so while billions of Euros, Dollars, Yen and every other major currency races toward these new companies, the legal industry is charting a path to assist in many forms.
About Joseph Raczynski
Joseph is an innovator and early adopter of all things computer related. His primary bent is around the future of law and legal technology. He also focuses on several fields including Blockchain, Artificial Intelligence, Cybersecurity, Cryptocurrency, and Robotics (drone technology). He founded wapUcom, LLP, consulting with companies in web and wireless development. As a side project DC WiFi was created to help create a web of open wireless WiFi access points across cities and educate people about wireless security. Currently he is with Thomson Reuters Legal managing a team of Technical Client Managers for both the Large Law and Government divisions. Joseph serves the top law firms in the world consulting on legal trends and customizing Thomson Reuters legal technology solutions for enhanced workflows. He graduated from Providence College with a BA in Economics and Sociology and holds a Masters in eCommerce and MBA from the University of Maryland, University College. You can connect with Joseph at JoeTechnologist.com or JosephRaczynski.com or @joerazz