LegalTech sees financial transactions as a contract and seeks to resolve the legal ramifications of this. To ensure responsible and fluid digital financial exchanges, legal technology ensures all legal requirements or a contract are met. When approached from a legal perspective, all digital transactions require some sort of contract. This article discusses legaltech essentials.
LegalTech is a branch term used here to discuss developments of smart contracts and changing legal identities in our technological ages. In addition the completion of legal online forms is an area of legaltech which helps companies remain complaint. Developments in this area are closely linked to artificial intelligence and blockchain. These technologies can be used to change how law interacts with the finance sector.
Smart contracts and Blockchain hold great potential for LegalTech.
Smart contracts are an important part of legaltech; they are self-executing contracts which use blockchain. As they are decentralised, they remove the need for a middleman. Smart contracts convert contracts to computer code and store them on the system. Thus, the financial exchanges – contracts – are supervised by the network of computers that run the blockchain.
Smart contracts continue to define rules and penalties of an agreement. This difference is that these obligations are automatically enforced. Smart contracts are really an automated blockchain transaction.
Developing from 2017 to 2018, it is likely that the technologies will increasingly converge. Smart contracts are just one example of AI teaming up with Blockchain technology.
‘Smart contracts are, in essence, a computer program code that can facilitate, execute and enforce the terms of an agreement to ensure performance,’ according to Lexology. They mean that ‘if a service isn’t delivered, a customer doesn’t pay,’ says Sooraj Shah. Importantly, smart contracts avoid ‘the long legal paper chain’ when breach of contract must be argued.
Cloud technologies will change data usage.
Legaltech uses technology to streamline law firm processes such as eDiscovery or Law Firm Management. More than half of the US based lawyers make use of cloud technologies, says Lamiroy. Cloud technologies and social media enable lawyers to diversify client communication.
Cloud computing places data – particularly client data – on remote servers. The technology therefore require close integration with strong identity and security protocols. By improving data management, cloud technology allows new connections to be made between previously disjointed ideas by disrupting the ‘silos’ preventing horizontal innovation.
New legal identities bring up new questions.
When separate legal identity was granted to companies, it revolutionised what companies could do with limited liability. AI has the possibility to introduce a new legal identity to the world. Should algorithms be accountable for their decisions? If a legal chatbot is wrong or causes harm, who is responsible?
The accountability of Decentralised Autonomous Organisations (DAOs) is important. DAOs are programs which run on a peer-to-peer network. They construct a set of governance and decision-making rules and run autonomously from humans. When there is no human or traditional corporate entity behind an action, who is accountable for potential error? Who should be regulated in this case? Development of LegalTech will help us answer these questions.
Negligence and responsibility with the use of AI is another big question for this area.
Artificial intelligence has more to offer.
AI is currently used in contract management, eDiscovery, cybersecurity, and in legal research. The presence of AI in legaltech will only increase. This will enable greater deployment of robot lawyers and legal chatbots.
There is a certain level of controversy surrounding the use of AI in law. How do the AI systems reach their conclusions? Transparency of legal reasoning and algorithms is required to ensure fair procedure. AI could introduce a new legal entity to our legal system in addition to natural persons and corporate bodies. Advanced artificial intelligence poses questions to our accepted ideas of legal responsibility. The ethics of advanced AI has been discussed by the European Parliament.
When AI and blockchain are employed together in an integrated system, banking law and financial services law could become so automated that ‘paralegals will be obsolete,’ suggested on lawyer from Lionshead Law.
By Grace Appleford, Research Analyst.