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Smart Contracts | Bitcoin Lawyer

Smart Contracts | Bitcoin Lawyer

Is this the real end of Lawyers?

Blockchain is the underlying technology behind Bitcoin. Work on different crypto currencies and businesses around the technology has resulted in the growth of Blockchain 2. Those who are working with the new platform are recognising the potential that will be unleashed on markets around the world. This is because of the underlying principle, that of the 'smart contract', something that developers of Artificial Intelligence have been prediciting for a number of years.

Richard Susskind spoke about the end of Lawyers some time ago. Perhaps the time has now arrived when it can be said he was right. Put simply, what is being proposed is that computers enforce contracts. A frightening thought it taken to its logical conclusion.

Blockchain is a distributed transactional processing engine. It is described as, 

'A public ledger of all Bitcoin transactions that have ever been executed. It is constantly growing as 'completed' blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.         [ Investopedia].

The Smart Contract

In a recent blog, Jay Cassano  points out that the development of Smart Contracts is getting closer to reality due to the development of cyrptocurrencies. Smart contracts are agreements between computers that are pre programmed by their owners. For example if in future, my front door is controlled by an App, I could give my friend the rights to open my door by sending an authority directly to his gadget ( eg Iphone) so that my front door will regonise him when he arrives at my house.

The effects of such a computerised or 'smart contract' were explained by an interview with Paul Brody from IBM in a video blog, this could mean that in future when you default on a car HP payment, rather than the HP company resorting to lawyers to recover the vehicle, the non payment could automatically trigger an instruction to a 'smart key' that would mean the key no longer works. An instruction will be sent to the collection team to pick up the vehicle from outside your house. Further, an instruction could be given to the car  if it is driverless, to return to base!

The Underlying Technology

As is pointed out by TechCrunch columnist Jon Evans, Blockchain 2 is in many ways a misnomer as we are not yet at Blockchain 1, the current version is 0.9.3. He explains that it doesnt apply to a new software release, but, rather like 'Web 2.0' it refers to new conceptual developments and experimental implementations that significantly extend the flexibility, power and ultimate utility of of the underlying platform.

The full significance of the technology has already been recoginse by IBM who have recenly released their own Proof of Concenpt open source plaftorm called ADEPT [Autonomous Decentralized Peer to Peer Telementry], based on Ethereum, together with Bit Torrent and Telehash, aimed at powering the emerging Internet of Things [ See for example article on this blog 20th Septmber 2014 ]

Evans concludes that,

“The blockchain technology that underlies Bitcoin is a major technical breakthrough that could, in time, revolutionize both the Internet and the financial industry as we know them, and the first steps of that potential revolution are now under way.” 

Two main Blockchain 2 plaftorms are Ethereum and Zerocash. Ethereum has a new website at and is without doubt the hottest property in a hyperactive Silicon Valley race for new Venture Capital, the like of which has not been seen since the development of Netscape and the growth of the internet in the late 90's.

Ethereum's mission statement is, 

'To research, design and build software that, as best as possible, facilitates, in a secure, decentralised and fair manner, the communication and automatically-enforced agreement between parties.'

This requires building back end systems with a browser and associated components and tools, using strong cyroptographic technologies preventing 'affordances to the beliefs of of any single actor against another'. It goes on to say that 'The system must never even have the possibility of disadvantaging a single user or organisation over any other. We accept that full decentralisation is pivotal in accomplishing this.'

Ethereum is an entirely new currency with smart contracts baked into its payment system. Originally developed by 20-year-old programmer Vitalik Buterin, it would replace other "coins" like bitcoin, but appears to be more of a community project. It has its own currency called Ether. Ether is rewarded to miners and it also serves as a mechanism for paying transaction fees and eliminating spam. It will be sold in an initial fundraiser, but from then on it will be mined, resulting in a permanent linear inflation model. There is no cap, says Buterin.

Zerocash, authored by a group of cryptographic academics, is a blockchain protocol wherein senders, receivers, and amounts are all kept entirely anonymous. In a world where privacy is withering away like ice in summer, a little more anonymity would be a welcome development.

The end of Cloud Computing?

Blockchain 2 is Peer to Peer [ P2P]  technology that has grown out of the distributed software that was initially used for file sharing of music with Napster. Later companies and projects successfully followed its P2P file sharing example such as Gnutella, Freenet, Kazaa, and many others. Some services, like LimeWire, Scour, Grokster,Madster, and eDonkey2000, were brought down or changed due to similar circumstances. The original company ran into legal difficulties over copyright infringment and was acquired by Roxio. The second incarnation was acquired by Rhapsondy from Best Buy on December 1 2011.

The great advantage of P2P technology is that the software resides on the gadget or device that connects directly with the second party. Blockchain avoids the need for a centralised authencitation service, and thus Bitcoin can undercut the cost of traditional money transfer services such as Visa or Western Union. Hence there is no need for a large central server farm which is expensive to run in terms of both computing power and energy to power the network. In Blockchain, the authentication service is provided by the distributed 'Miners' who are rewarded for their work by the discovery of new Bitcoins. As a result, it is believed that Blockchain 2 technology could do away with the need for many large scale server farms in the model that has become known as 'Cloud Computing'.


The arrival of automated contracts will have a dramatic effect on not only the legal system, but the commercial world in general. The difficulty that will be faced is that an absolutist view of the nature of the contract, although possible in simple transactions, can not be properly worked through in advance in more complex arrangements between people and organisations. 

It is the view of the author that there will be a tremendous growth in the use of Blockchain 2 technology for both electroinic trading platforms where they will probably go unnoticed as they are fulfilling a 'back office function' and IoT transactions - ie the linking up of smart gadgets where the public will suddenly realise that they are ceding authority to their devices and begin to wake up to the reality of what they have agreed to. Presently, we all tick the box to allow Google, Apple or Amazon to deal with our most personal information. Once the computers can decide in advance which agreements to enforce without human intervention, then perhaps peoples worst nightmares about the advances in AI technology will have come to frutition.

Jeremy Barnett is a practicing Barrister at St Pauls Chambers Leeds, and Gough Square Chambers London. For 5 years he was the Visiting Professor of Law Informatics at Leeds University Department of Computing.

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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