eDiscovery Daily Blog

Understanding Blockchain and its Impact on Legal Technology, Part Two

Editor’s Note: Tom O’Connor is a nationally known consultant, speaker, and writer in the field of computerized litigation support systems.  He has also been a great addition to our webinar program, participating with me on several recent webinars.  Tom has also written several terrific informational overview series for CloudNine, including his most recent one, Will Lawyers Ever Embrace Technology?, which we covered as part of a webcast on November 28 of last year.  Now, Tom has written another terrific overview regarding blockchain and legal technology titled Understanding Blockchain and its Impact on Legal Technology that we’re happy to share on the eDiscovery Daily blog.  Enjoy! – Doug

Tom’s overview is split into six parts, so we’ll cover each part separately.  Part one was Monday, here’s the second part.

Understanding Blockchain and Bitcoin

To understand blockchain and bitcoin better, let’s take a look at the background of how they were created and discuss how blockchain works.

Background on Blockchain and Bitcoin

Credit for bitcoin creation is given to an anonymous person using the name Satoshi Nakamoto who claimed to be a Japanese citizen.  Much speculation centered around the name being based on a setting in the 1996 movie Rising Sun; however, it was believed the true authors were several cryptography and computer science experts of non-Japanese descent.

What is not disputed though is that bitcoin was based on the first blockchain database which allowed digital information to be distributed, but not copied. Once established in bitcoin, it was not long before blockchain came to be used for any transaction that needed a trust factor among all parties and a verifiable audit trail. Areas such as financial services, technology, manufacturing, pharmaceutical, and energy industries all needed systems with these two factors.

How Blockchain Works

Blockchain is a digital ledger that can be programmed to record multiple transactions.  Think of a spreadsheet that is duplicated thousands of times across a network, updated on a regular basis as people access it, in a distributed database that is not in one location, but rather is shared by potentially millions of users, accessible to anyone on the internet.

Or think of it as a document in Google Docs that is being seen by multiple people simultaneously. Instead of waiting for one person to make changes and circulate the document, it can be worked on by everyone, with extremely short times for document “lock down” while updates are being made.

This completely digital system self-audits and reconciles all transactions every ten minutes. The audit trail itself is visible to all participants yet allows encryption of individual transactions. Since both the components (blocks) and the blockchain (ledger) are fixed, participants can review the entire history of transactions from the time the ledger is created.

Commentator Bob Ambrogi, in a 2017 article in LawSites, quotes the executive of a blockchain company as describing it this way,  “With a blockchain, every transaction is digitally signed, every transaction is chained together, and it’s replicated on hundreds of computers around the world with digital signatures…”.

The system is what Johnny Lee of Grant Thornton, in his 2017 article Beyond Bitcoin: Leveraging blockchain for forensic applications, refers to as a “ …consensus-based proof of validity [which] replaces the need for a centralized trust authority.”

It reminds me most of the early days of networking with dumb terminals.  Now it is a network of “nodes” which constitute a blockchain, and every node is an administrator of the blockchain. It’s a hacker’s nightmare.

We’ll publish Part 3 – Advantages and Challenges of Blockchain – on Friday.

So, what do you think?  Do you understand blockchain and how it can impact the legal profession?  If not, keep reading!  And, as always, please share any comments you might have or if you’d like to know more about a particular topic.

Sponsor: This blog is sponsored by CloudNine, which is a data and legal discovery technology company with proven expertise in simplifying and automating the discovery of data for audits, investigations, and litigation. Used by legal and business customers worldwide including more than 50 of the top 250 Am Law firms and many of the world’s leading corporations, CloudNine’s eDiscovery automation software and services help customers gain insight and intelligence on electronic data.

Disclaimer: The views represented herein are exclusively the views of the author, and do not necessarily represent the views held by CloudNine. eDiscovery Daily is made available by CloudNine solely for educational purposes to provide general information about general eDiscovery principles and not to provide specific legal advice applicable to any particular circumstance. eDiscovery Daily should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.