How digital contracts and blockchain change the law

Upon taking office as President of the Federal Supreme Court, on September 10th, 2020, Minister Luiz Fux reinforced the idea that it is time to increase the use of innovation and technology in law. The process of technological transformation in the area has increased substantially since the 1990s and accelerated with the Covid-19 pandemic.

The use of the internet and computers change the form of legal research – which before the 90s was carried out in person in large libraries – as well as the way of writing procedural documents and contracts, which began to be written on computers, making research much more accessible with the advent of the internet.

After the 2000s, especially in 2006, the law underwent a major technological transformation with Law No. 11,419/2006, which provides for the computerization of the judicial process. In 2013, Resolution No. 185/2013 of the National Council of Justice (CNJ) instituted the Electronic Judicial Process System as a system for processing information and practices of procedural acts.

And more recently, Resolution No. 354/2020 regulated virtual hearings as well as remote courts, further increasing the need for legal professionals to interact and adapt to technologies.

As a result of this transformation, appears companies that seek to create solutions that help and/or solve legal problems. Companies specializing in process automation, artificial intelligence, monitoring of public data, office management, online conflict resolution, analytics and jurimetrics are increasingly being created. The so-called legal techs and law techs.

According to the Brazilian Association of Lawtechs and Legaltechs, the number of legal startups has grown by approximately 300% in recent years. International and national universities are already including subjects related to technology and computing in the curriculum, such as Stanford, Cambridge and, in Brazil, Insper.

Technological innovations are sources of competitive advantage, as they can reduce costs, increase productivity by automating repeated tasks, without, however, losing high quality.

Among the numerous emerging technologies that impact law and legal activity, blockchain technology and smart contracts have the potential to substantially modify the way in which contracts are entered into, making agreements of will immutable and self-executing. Blockchain technology, as we know it, emerged with the Bitcoin protocol, written in 2008 and operating since 2009, by Satoshi Nakamoto.

Blockchain technology can be conceptualized as the result of an ingenious combination of robust techniques derived from reliable distributed computing (Byzantine fault tolerance, peer to peer systems); cryptography (asymmetric key, hash functions, cryptographic challenges and game theories (incentive mechanisms). This is an immutable data file that carries the records of all transactions involving crypto assets (tokens and cryptocurrencies).

Smart contracts are defined as a computerized transaction protocol (software) that automatically executes what has been programmed. They are programming codes, that is, they are written using a programming language and not a traditional language like the well-known contracts.

Such technologies have given rise to what has come to be called cryptoeconomics, that is, an economy in which economic agents transact through tokens and cryptocurrencies. According to data from CoinMarketCap, currently the crypto economy moves more than 1 trillion dollars in business volumes.

In this economy, which is growing every day, smart contracts inserted in the blockchain solve the great problem of mutual distrust, by ensuring that a given agreement of will will be immutable and executed without the need for an order from the Judiciary, that is, the parties they do not need to know each other to ensure that an agreement will be fulfilled.

This totally changes the way economic agents transact in the market and directly impacts the performance of legal professionals, who in general do not have expertise in the construction of smart contracts. For this reason, an interdisciplinary approach between legal professionals and computer professionals is suggested for the construction of efficient architectures that observe the legal rules of contracts.

Imagine a contract in which there is no need to seek the Judiciary for its execution. Imagine that there is no need to know the identity of the person you are transacting with, as technology ensures that the agreement will be fulfilled. Imagine automating a certain clause of a contract bringing greater efficiency and security to both parts. These are situations that smart contracts already solve.

Academic production on the subject of smart contracts on the blockchain, by legal professionals, as well as the demand of these professionals for courses has increased daily. Likewise, countless businesses involving blockchain technology and smart contracts are growing every day, as can be seen with Forbes’ annual publication of the top 50 companies that have adopted blockchain technology.

The time is for education, training and understanding of the crypto-economy movement so that, in the near future, the world of contracts and registration of ownership and property will no longer be the same.

By *Caio Sanas, lawyer in the blockchain and crypto-assets market.


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