The cost of litigation in the United States is completely out of control. Not only does litigation cost the tax payers, who have to pay for wasted court time, but it also costs businesses who have to overspend on insurance to protect their assets from litigation, which is passed on to the consumers, leaving taxpayers with a double bill.
The great mass of litigation in the United States and Great Britain center around two fundamental issues: Contract disputes and non-payment. The rest usually revolve around negligence claims in one form or another. Interestingly enough it turns out that cryptocurrencies have the ability to solve most of these problems before they ever get to court.
“Smart” Contracts
The average attorney time spent litigating a contract case from beginning to end is more than 300 hours and nearly $US100,000 in legal and filing fees does will not even cover the expenses of such a trial that the government must absorb. But by using the structure of Bitcoin, many of these expenses can be avoided.
There are a number of contractual clauses than can be embedded in code, or even in hardware, in such a manner that a breach of terms can be prohibitively expensive. This enables to remove clauses like collateral, delineation of property rights, bonding and escrow from paper and lock them down with cryptographic code.
We can use an automatic teller machine as a hardware example of a smart contract. The difficulty of breaching an ATM (as most of them are in very public places) usually outweighs the potential gain from breaking into one. The machine reads your card, checks your balance and dispenses cash, or even pays bills, if the card verifies.
When we agree to terms and conditions and automatic billing we are essentially using smart contracts. Your service will continue as long as regular billing is uninterrupted. The ATM and automatic billing are both contracts between you and the bank or vendor. As long as you possess the correct information and have a sufficient balance, your operation will be automatically approved.
Extending the Paradigm
Keeping the above examples in mind, is it difficult to imagine extending the paradigm to embed contracts in different types of property and controlling it digitally? This technology allows us to reference a specific property dynamically, even proactively, enforce conditions, and automatically detect any breaches. The Bitcoin protocol has been considered almost since it inception as a possible vehicle to streamline and modernize how businesses operate and incorporating smart contracts has always been a possibility.
But now with more and more people starting to understand the potential of the blockchain, some are beginning to speculate that it could be introduced into the legal system. The above mentioned legal fees are what keep most people from seeking any type of justice. The truth is that most contracts are relatively simple.
The problem is that a pair of attorneys can take a few simple instructions from clients and turn it into a 25-page brief that requires a judge to interpret. But if you and Bob make an agreement that you will pay Bob a specific amount if certain conditions are met, why should this take 25 pages of legal incantations? Smart contracts can essentially replace attorneys and judges with strict code.
The average person, usually unaware, can sign as many as ten contracts each week. When you pull into a pay parking lot you enter into a contract with the parking lots owners. When you rent an apartment or take a taxi, you are contracting with the owners of the apartment or taxi.
Under the current system, a centralized authority - the courts - were created to settle disputes. However, we know that with centralized authority comes bureaucracy and with bureaucracy come complexity, for which we need professional judges and attorneys.
Out with the Old, In with the New
While still too early to be implemented in the criminal courts system or the civil process, using the Bitcoin protocol for smart contracts could already revolutionize the legal system when it comes to contracts and dispute resolution. The terms of the contract could be imbedded in the code and if attorneys or advisers do not adequately explain the terms they, in turn, can be held liable for negligence.
Once the contract is agreed upon by all parties, it is signed and the validity period begins. This process could also eliminate the possibility of biased judges using discriminatory laws or making broad sweeping judgments. A smart contract is unambiguous and is secured by cryptography.
While there are a few companies working on contract style platforms, the best known currently is Etherium. Etherium does not use the Bitcoin protocol and is instead building a new one that they claim will be much easier for developers to build applications, smart contracts and even other altcoins as well as allowing users to “codify, decentralize, secure and trade just about anything.”
Another honorable mention is the freshly released BlackHalo, which has smart contracts and escrow features built in. The blockchain could also be applied to other legal aspects such as intellectual property and patent law.