The Role of Blockchain Technology in Revolutionizing Contracts and Transactions

This article is particular to India

BLOCKCHAIN: WHAT IS IT?

A blockchain is just a series of blocks where basically Blocks are bits of digital data, and the chain is a public database. Still perplexed? Blocks maintain transactional information like date, time, and sales volume. Each block is identifiable by an exclusive digital code, called, rather than utilising purchaser names, a “hash.” A network of computers validates the transaction’s specifics once a purchase is made and records the information in a block. The block is included in a chain when it has been confirmed and hashed.^[1]

Here is the cause of all the commotion. About the topic. The blockchain is replicated over tens of thousands of computer networks, making hacking very challenging. To compromise the system, hundreds of copies of the blockchain would need to be altered by hackers. With the use of blockchain technology, each piece of data is put through a multi-level validation process and securely stored across several computers, making it very difficult to alter or remove it.

The World Bank states that “Blockchain is one type of Distributed Ledger Technology (DLT)”. “Distributed ledger technology has the potential to fundamentally alter the financial industry by enhancing its effectiveness, resiliency, and dependability. Instead, of keeping data centralised as in a traditional ledger, distributed ledgers employ separate computers, also referred to as nodes, to record, share, and synchronise transactions in their electronic ledgers.”

Impact Of Blockchain On The Legal Profession

Blockchain technology has impacted the legal profession in a variety of ways:

1. Smart contracts

Self-executing contracts, or smart contracts, convert contracts into codes that are saved, duplicated, and monitored by a network of blockchain computers. Smart contracts are being marketed as a much quicker and easier alternative to traditional contracts, which often include a client visit to an attorney’s office, discussions between competing lawyers, negotiations, and execution of the agreement.

A bitcoin is simply added to a ledger that automatically adds all other essential information when using smart contracts. It not only defines the terms and consequences of a contract, and it also automatically enforces it.

2. Evidence of service

Anyone who has attempted to serve someone with paperwork knows how difficult it may be to serve someone who doesn’t want to be served. This issue may be resolved by blockchain technology, which enables the entry of a digital tag that tracks all offline and online movements.

According to reports, one process for a service firm is also developing using technology which would track delivery attempts and offer immutable proof of service delivery using a blockchain.

3. Chain of custody

Blockchain is incredibly helpful for establishing the chain of custody due to its high level of security. Lawyers may follow the digital motions of permanently saved documents with blockchain without worrying about manipulation or destruction. It can also be applied to the digital labelling of tangible objects. Then, any movements can be recorded via GPS monitoring, providing unfalsifiable evidence for legal processes.

Impact Of Blockchain Technology On Transactions

“The impact of blockchain technology on payments is multi-faceted and transformative”.^[2] Let’s see how blockchain technology has impacted transactions:

1. Cross Border Payments

The difficulties associated with traditional cross-border payments, such as their high prices and protracted processing periods, can be overcome by using blockchain technology.

Blockchain technology enables cross-border transactions to be carried out directly between participants, doing away with the need for middlemen and cutting costs. This enables quicker settlement times, more transparency, and improved liquidity, all of which are ultimately advantageous to both enterprises and people.

2. Transparency and Accountability

The transparency of blockchain technology is one of its fundamental characteristics. A transparent and auditable payment environment is produced by the fact that every transaction recorded on the blockchain is available to all participants. This openness encourages responsibility, reduces the possibility of fraud, and improves regulatory compliance.

3. Smart Contracts for Streamlined Payments

Smart contracts, which are self-executing agreements with present conditions, may be carried out thanks to blockchain technology.

These agreements make sure that transactions only take place when certain criteria are satisfied, automating payment operations. In sectors like supply chain payments and royalty distributions, By doing away with middlemen, smart contracts save costs and boost productivity.

Blockchain Technology Drawbacks In Contracts And Transactions

Blockchain technology has helped in reducing the workload of law firms by streamlining the processes. But it has certain disadvantages too, let’s look at them:

1. Energy Consumption

The process of validating transactions on a blockchain network consumes a lot of computer power and energy. Concerns regarding carbon emissions and how blockchain technology may affect the environment have arisen as a result.

2. Scalability

Blockchain networks may be slow and ineffective because of the enormous processing needs necessary to validate transactions. As the number of users, transactions, and applications increases, emphasis is placed on how well blockchain networks can handle and verify transactions and applications quickly. Therefore, it can be difficult to implement blockchain networks in applications that require short transaction processing times.

Proof-of-work and proof-of-stake consensus algorithms are used by traditional blockchains like Bitcoin and Ethereum, although they may be resource- and time-intensive. Because of this, these networks’ throughput constraints for transactions frequently cause congestion and high transaction costs.

3. Interoperability

Another major issue facing the sector is compatibility or the capacity to connect and exchange information, several blockchain networks. There are numerous blockchain systems available at the moment, each with its guidelines and requirements, and they frequently don’t work together correctly.

Because individuals and organisations could need to use a number variety of networks using tokens or cryptocurrency, Interoperability issues could lead to inefficiency. This fragmentation may also hinder innovation, make it more difficult to work together and account for the ineffective transmission of data and value between different blockchain ecosystems.

Conclusion

Blockchain technology was first introduced in the year 2018, so it is a relatively new concept right now and is developing constantly. The correct implementation and utilisation of this technology are beneficial for law firms as well as other industries which have a lot of workloads, which this technology can easily streamline.

Though as a relatively new and developing technology that must address numerous current problems, it could be able to change whole sectors.

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[1] Services, A.L. (2020) Legal tech: How blockchain can quickly change the legal industry, abclegal. Available at: https://www.abclegal.com/blog/legal-tech-blockchain#:~:text=Blockchain%20has%20multiple%20use-cases%20in%20the%20legal%20industry,how%20law%20firms%20conduct%20a%20multitude%20of%20services. (Accessed: 10 June 2023).

[2] Techstory (2023) Blockchain technology: Leading the way in payments revolution, TechStory. Available at: https://techstory.in/blockchain-technology-leading-the-way-in-payments-revolution/ (Accessed: 10 June 2023).

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