The legal industry has developed a reputation for avoiding next-generation technologies, but with the blockchain and metaverse, that perception is shifting
At the opening keynote of the International Legal Technology Association (ILTA) 2022 conference, futurist Patrick Schwerdtfeger had a warning for the attendees: “When things change, there are winners and there are losers. We need to make sure we’re some of the winners.”
From there, Schwerdtfeger spoke on technologies of the future, from blockchain to Web 3.0, from solar batteries to the metaverse. Just about every industry is changing in some radical way, he explained, and legal is no exception.
However, there was one crucial detail that he may have forgotten: Schwerdtfeger was speaking to a room filled with veterans of the legal industry. The legal industry is built on precedent mixed with a healthy dose of risk aversion, after all, and the industry has received a well-earned reputation over the years of never even trying to explore use cases for next-generation technologies. So, of course, it’s reasonable to believe that the legal industry would be dragged kicking and screaming into the third generation of web technologies like the metaverse and blockchain, rather than trying to capitalize on those opportunities.
Some innovators in legal have envisioned blockchain as a way to explore more business-oriented applications of distributed ledger technology.
Along the way, however, a funny thing has happened. In recent years: Law firms and corporate law departments alike have gotten more intelligent about both being a part of the conversation surrounding these technologies’ development, and exploring novel ways to separate themselves from their peers. In doing so, many within the legal industry have started to take a proactive stance on innovations like blockchain and metaverse, with not only technologists but leading attorneys themselves jumping on board. Here’s what the ILTA conference revealed about how today’s legal industry is taking a practical approach to next-gen technology.
Blockchain by blockchain
Blockchain has received a lot of attention for being the underlying technology behind digital assets such as cryptocurrency and non-fungible tokens (NFTs). Some innovators in legal have envisioned blockchain as a way to explore more business-oriented applications of distributed ledger technology.
Law firm Hogan Lovells, for instance, sees blockchain technology as an opportunity to reform its real estate processes. The firm has developed DriveChain, a collaboration between the firm, banking company BNP Paribas and blockchain technology provider Integra Ledger, to automate parts of the real estate process. DriveChain looks to eliminate manual data entry or multiple layers of approvals by automatically coding deal details such as parties, sale price or amount for rent, and more into the document, which generates a unique deal ID. The data is then given a unique code called a hash, through which all parties are notified if any details of the deal are changed, with an automatically generated ledger of all changes and approvals for the document living on the blockchain.
“What we are doing with blockchain is validat[ing] that the document they received, that the metadata within the document, is still validated,” said Bob Shaeffer, senior manager of architecture and integrations at Hogan Lovells, during a panel on the use of blockchain in professional services firms.
Shaeffer was quick to add that DriveChain is not a piece of blockchain technology itself, but rather the name for the new real estate-centric workflow. Blockchain technology simply functions as a piece of the overall puzzle, and only the hash and the unique ID for the data actually sit within the blockchain architecture. This way, the firm still holds crucial deal details inside its own walls for the protection of clients, but still utilizes the new technology to cut time out of the process for approvals.
“The primary focus on DriveChain is not the blockchain, but the blockchain is an integral part of what we’re doing,” Shaeffer explained.
It’s this type of practical application that more and more firms are exploring on the blockchain, added Joseph Raczynski, a technologist and futurist with Thomson Reuters and author of the website JoeTechnologist.com. At a separate ILTACON session, Raczynski explored a number of business use cases for blockchain technology, from “smart” contracts that are automatically executed once specifically coded parameters are hit, to decentralized finance (DeFi) marketplaces that are increasingly becoming a hub for business transactions. He even pointed to one firm, Rose Law Group, that executed a legal wedding online, with both a prenuptial agreement and a marriage license coded as a legally binding NFT.
“They moved down the road of taking documents that are unique and making them an NFT, which is what we’re going to see in the not too distant future,” Raczynski explained.
Into the Metaverse
However, it’s not just business applications that have those in the legal industry excited about future technologies. Some see tech innovations, such as the metaverse and blockchain, as the platforms around which daily life will soon be centered – and thus, around which legal practices will also be centered.
Alejandro Vallellanes, knowledge services manager at law firm Baker McKenzie, has seen a lot of confusion about what the metaverse actually is, leading some to discount it entirely. Vallellanes, who spoke on a panel about the use of the metaverse in legal, said not to think of the metaverse as a place, but instead as a concept, a moment in time where things are beginning to change. “It’s a tipping point where our digital self is more valuable than our physical life,” he explained.
Attorneys are now beginning to sort through the natural issues – who owns digital assets; what rights do human representations have in a digital world; does attorney-client privilege carry over; who owns digital likenesses; how to preserve, collect and analyze metaverse data; and more.
That tipping point may already be approaching. Indeed, between explosive cryptocurrency holdings, the value of social media advertising and an increasing emphasis on digital holdings like NFTs or virtual real estate, that point already may be here. “For some people, that asset class is more valuable than their physical assets,” Vallellanes added. “When that happens across the board, we can already consider ourselves living in some sort of metaverse.”
For legal and professional services organizations, then, the metaverse is quickly becoming not the realm of first movers, but simply where clients hold their own valuable assets. Cat Casey, chief growth officer at legal technology company Reveal, who spoke on the same metaverse panel, likens the current shift to the advent of the Internet and email – a curiosity at first, but one that quickly transformed into a daily necessity. “After a while, it became so ubiquitous that you couldn’t opt out,” she said.
Naturally, there is skepticism about whether the metaverse could truly become that pervasive. Are people really going to be holding all of their assets online? Yet, almost half (48%) of consumer respondents said they would be very interested or somewhat interested in shopping within the metaverse within the next five years, according to a McKinsey & Co. survey from February. More than 40% of respondents said they would be interested in using the metaverse to attend a telehealth appointment, attend a live learning course or even meet with friends and family, the survey showed.
Plus, where people are, money follows. Jerry Bui, a managing director at FTI Consulting who spoke on the metaverse panel as well, notes that Goldman Sachs has estimated the metaverse’s ultimate market size to be somewhere between a $2 trillion and $12 trillion opportunity. Even now, Bui added, virtual gaming has become a $200 billion business, dwarfing many other forms of media. “If you don’t think there’s momentum towards that end, just look at the money that’s flowing into this space,” Bui explained.
With any big business opportunity, legal problems will follow, and the panelists noted many attorneys are now beginning to sort through the natural issues – who owns digital assets; what rights do human representations have in a digital world; does attorney-client privilege carry over; who owns digital likenesses; how to preserve, collect and analyze metaverse data; and more.
However, for attorneys and their organizations, these open questions present a golden opportunity to drive the technology’s development with an eye toward risk management and proper legal reasoning, Bui said.