Blockchain Part 1: What Is It, and How Is It An Opportunity?
Author: Tahrimah Faruque
The European Union recognises blockchain as a form of decentralised, distributed ledger technology (DLT) which coordinates the authentication and recording of transactions within interconnected blocks. While transactions can be financial in nature, blockchain can also record non-financial activities, such as voting records, supply-chain data, or healthcare information.
In the legal sector, blockchain is reshaping the way that we think about contracts, transactions, intellectual property and risk management in various practice groups. By providing secure, transparent, and decentralised systems for recording information, blockchain directly challenges traditional models of legal record-keeping, contract enforcement, and dispute resolution. This makes it one of the most disruptive technologies lawyers and regulators can understand today.
How blockchain works: a library analogy
At its most basic, blockchain can be compared to a public library ledger. Imagine a large, permanent book fixed to a library table. Each page represents a set of records, and once written, these entries cannot be altered or erased — there is no Tip-Ex in this library. New information can only be added in subsequent entries.
A panel of librarians collectively decide which entries should go on the next page, analogous to the consensus mechanisms that bundle transactions into blocks. This page or block is given the unique, cryptographic hash (like a fingerprint) of the block before it, a timestamp, and transaction data. By giving each block the hash of the block before it, a chain structure is formed whereby each block is linked to the one before. Attempting to remove or alter a page would require altering every page that follows which is computationally near-impossible. In this way, blockchain ensures both immutability and security.
The benefits and opportunities of blockchain
Blockchain technology offers significant opportunities for multiple sectors, including the legal, for various reasons. It is emphasised that the following are the theoretical benefits of the blockchain; within these benefits lay significant risks.
Security and Immutability:
Instead of relying on a single, centralised server, blockchain distributes records across a network. As explained in the library analogy, each block is cryptographically secured, making blockchains difficult to tamper with. That theoretically means fewer single points of failure and a system that is naturally off-putting to fraud. These security advantages are not absolute though; approximately $2.2bn worth of crypto was stolen in the first half of this year and hacks are becoming increasingly common as the value of the industry hits record highs.
Nevertheless, for legal tech more specifically, this immutability remains an opportunity. Whether it’s a contract, property/financial transfers, or pieces of evidence, blockchain provides a record that is relatively resistant to manipulation - a feature that addresses one of the law’s perennial challenges: trust in documentation.
Efficiency and Disintermediation:
Blockchain cuts out middlemen (banks, brokers, and even lawyers) by using smart contracts: self-executing agreements that automatically enforce conditions without human oversight. This can drastically reduce costs and speed up financial settlements, supply chains, and real estate transactions.
Swift, for example, is working with major banks including Bank of America, Citigroup and NatWest on a blockchain-based shared ledger designed to “record, sequence and validate transactions” using smart contracts. The initiative is a direct response to competitive pressure from cryptocurrencies - particularly ‘stablecoins’ which are digital currencies pegged to assets like the US dollar and enable near-instant, low-cost cross-border transfers. Their speed and price stability make stablecoins especially attractive for international trade, remittances and digital commerce, where efficiency and predictability are paramount.
Unlike Swift’s traditional system, which relies on interbank messaging and can take days, stablecoins like ‘USDC’ allow direct international payments in seconds, without intermediaries or conversion fees. If adopted widely, this could weaken Swift’s dominance and push legacy banks to innovate, explaining why both US and European banks are now exploring their own stablecoins in response to the market and regulation.
For lawyers, blockchain and stablecoins are reshaping the profession. Legal advisors must now understand coding, digital assets, and smart contracts to interpret, audit, and draft blockchain-based agreements, blending legal expertise with tech insight. Concurrently, smart contracts’ rigidity raises complex questions about enforceability, flexibility, and remedies in disputes; a frontier issue for both legal tech and legal theory. My subsequent blogs will explore these questions in more detail.
Transparency and Auditability
Public blockchains allow anyone to view and verify transactions, which enhances trust, accountability, and traceability. In commercial contexts, this helps to verify the provenance of goods, tackling counterfeiting and improving consumer confidence. For regulators and auditors, it provides a verifiable “paper trail” of transactions – this can be particularly helpful in due diligence and litigation contexts.
Identity verification
Put simply, blockchain identity tools are legal tech too because they enhance compliance, client service, and risk management in law. Traditional identity verification methods via centralised authorities are vulnerable to hacking and fraud. Blockchain theoretically offers a more secured, decentralised approach.
The first challenge that this presents is that blockchain-based identity verification protocols sometimes require technical knowledge to use effectively, posing accessibility issues. Being user-friendly seems to be the simple solution, as companies such as Civic (CVC) attempt. Furthermore, interoperability (the ability to use protocols across different platforms and systems) has become the goal of many developers such as Trust over IP Foundation. This would enable users to employ their digital identities across multiple platforms.
Ensuring that these protocols comply with varying legal requirements across jurisdictions is an additional challenge. Several countries such as Estonia, UAE, Canada, Switzerland and India have nevertheless taken steps to establish legal frameworks for blockchain-based identity verification. As countries continue to adopt these systems, legal frameworks will likely evolve to accommodate its usage in a user-friendly manner.
Innovation Potential
While blockchain’s earliest mainstream applications were tied to cryptocurrencies and financial transactions, its potential reaches far beyond finance. Because blockchain combines immutability, transparency, decentralisation and programmability, it can now reshape how entire industries operate and the consequent legal practice pertaining to these areas:
Supply chain: blockchain allows every stage of a product’s journey (from raw materials to store shelves) to be recorded immutably. This can helpfully track ethically sourced materials (e.g., conflict-free diamonds, fair-trade coffee), preventing sourcing counterfeit goods (e.g. luxury fashion, pharmaceuticals) and ensure food safety with transparent farm-to-table records. For example, Walmart was able to reduce a 7-day search for the provenance of US based mangoes to 2.2 seconds using blockchain-based tech.
Healthcare: Blockchain could enable secure, interoperable, and patient-owned health records across hospitals and borders. This could be valuable in clinical trials too, where trial data and results cannot be tampered with on the (theoretically) immutable blockchain. By using blockchain to record the production and distribution of medicines, there is the potential to reduce counterfeit drugs in circulation too.
Intellectual property: Blockchain has the potential to modernise how intellectual property is created, managed, licensed, and enforced. Creators can timestamp their work on a blockchain as soon as it’s created, and this can potentially form evidence where disputes are formed. Patent disputes often hinge on who filed first — blockchain timestamps can strengthen evidence of priority. The next blog on the blockchain will outline the challenges around using blockchain as evidence in courts.
Looking forward:
Blockchain presents a paradox: it promises security, efficiency, and transparency, while simultaneously introducing risks relating to privacy, compliance, and governance. Regulatory bodies such as the EU, which is committed both to innovation and to strong data protection standards, will require striking a delicate balance between these tensions so that blockchain can successfully integrate into mainstream legal and economic systems.
Keep an eye out for my next blog on the specifics of these regulatory challenges which will incorporate some pretty interesting and memorable case studies!
