Dax Hansen founded Perkins Coie’s blockchain practice group long before the digital transaction and record-keeping platform was heralded as a game-changer.
That was in 2013. Today, blockchain is best known as the network that enables buying and selling of bitcoin. But it’s also beginning to enter the tech and business mainstream, with leading companies investing in its potential and Big Law also starting to take a stake of its own.
“It was not as sexy in 2012 or 2013,” said Hansen, who focuses his practices on IT, payments and international business transactions.
“Lawyers like shiny things, and so there has been a huge spike in interest in blockchain law, especially over the last year,” said Hansen.
Blockchain’s technology is the foundation for so-called smart contracts, which are self-executing. Terms and conditions of money, property or share exchanges are digitally written into the agreement. The technology is open-source and peer-to-peer, meaning records aren’t kept by a third party.
Proponents believe potential blockchain applications go far beyond the cryptocurrency world, and could have an internet-like, transformational effect on the way business will be transacted across sectors, from healthcare to finance.
Corporations are investing, experimenting and integrating. MasterCard in 2017 began offering businesses the ability to send money over a blockchain. This week, IBM and a unit of telecommunications giant Comcast threw their weight behind a blockchain investment start-up fund. Banks are looking at blockchain as are Wall Street investors. Global regulators, too, are training their eyes on the technology.
All this attention on contracts, investment, business application and potential regulation has lawyers at big law firms building or working on blockchain’s legal implications.
Perkins Coie’s blockhain practice has quadrupled to 40 lawyers in five years. Hansen estimates each spends anywhere from a third to all of their time working on blockchain matters.
Morrison & Foerster counsel Joshua Ashley Klayman said she became interested in blockchain after hearing from banks that they were considering smart contracts as a way to reduce legal spend.
She and another attorney launched a blockchain task force in the firm’s finance practice 2016.
“When I started the group here, there was a concern as to whether this was going to be a real thing or whether it was something that was just interesting,” Klayman told Big Law business.
Now, the answer seems clear. Klayman’s task force has since turned into the MoFo blockchain and smart contracts practice group, which currently includes over 70 lawyers.
Like the potential reach of the technology, the legal questions are widespread.
“I feel like everybody is talking about blockchain like an industry that needs to be separately regulated, where in fact blockchain is a technology that gets implemented in different industries,” said Lee Schneider, a partner at McDermott Will & Emery whose practice focuses on FinTech and blockchain technology.
“So if you’re going to use blockchain in healthcare, you need to figure out what health care laws apply, if you’re going to use it in the energy sector, you need to figure out what energy regulations apply,” he said.
For example, lawyers now are needed to help determine which laws apply when it comes to transferring digital tokens, and whether or when those tokens should be considered securities, commodities or currencies.
The Securities and Exchange Commission intervened in an ICO at the end of 2017 and has offered some guidance on the issue, but no bright line test exists.
Lawyers also will be needed to determine rules for trading blockchain assets, to help structure new financial products, and to clarify how consumer protections apply to digital token sales.
Schneider said he spends a “fair amount of unbilled time” speaking with other lawyers across firms, academia and in-house to keep abreast of the changing interpretations.
Many of these relationships are informal, but they’re also structured through several key groups.
Klayman leads the Wall Street Blockchain Alliance’s Legal Working Committee, one of the leading groups tackling legal questions around blockchain technology. Klayman, Schneider and Hansen are all members of the legal industry working group of the Enterprise Ethereum Alliance (EEA), a 501(c)6 non-profit dedicated to helping business understand and implement Ethereum, a blockchain-based computing platform.
She said these collaborative groups have become a critical tool for lawyers navigating the legal implications of the new technology.
“I’ve found it to be tremendously valuable to be able to share our thoughts across firms and to basically be able to come to some general understandings and interpretations of what we think are ‘safe’ positions and more risky ones,” said Klayman. “Having that kind of camaraderie across firms is relatively unique.”
Hansen said the collaborative spirit stems in part from the collaborative, democratic nature of blockchain technology itself.
“As a general principle, blockchain technology, distributed ledger technology, cryptocurrency, has a unifying effect on people,” he said. “It has a community influence.”
The lawyers who work in this emerging practice area tend to self-select because they are drawn to these ideals.
“These are open platforms that anybody can participate in,” said Aaron Wright, a Cardozo Law professor.
Wright heads the EEA’s legal industry working group.
“At least once a day I have a call with some firm and they’re interested in getting involved,” he said.
Wright says the conversations taking place in these working groups are much like those you might expect in a bar committee, “except it’s not occurring in a bar committee.”
“The more people started looking at blockchain technologies, the more it became clear is that what we’re talking about is reimagining the way we do commerce,” said Wright. “A big part of that equation is the legal industry and lawyers.”