The Future of Justice
How the Blockchain and Artificial Intelligence will Transform the Legal Industry…
“If a nineteenth-century lawyer used a time machine to come to the 21st century and wanted to work today, he would hardly notice a difference. However, that same lawyer would not understand anything that happens outside the court”.
This quote comes from Javier Carbajo, General Secretary of the Federal Chamber of Criminal Cassation of Argentina, speaking of the future of law. We met at his office in the old courts of Comodoro Py, where the Argentine federal justice system operates. Surrounded by hefty legal volumes, he acknowledged Marc Andreessen’s famous line: software is eating the world.
With the advent of blockchain and artificial intelligence, the legal field is undergoing a revolution that will ensure contract execution, lower costs and speed up judicial decisions. Smart contracts are simplifying everything from mortgages to property deeds, while AI is researching and processing legal information faster than any paralegal could.
While lawyers will not disappear anytime soon, here are some ways the newest technologies are revolutionizing the legal industry around the globe.
Artificial Intelligence: the Chatbot Lawyer
The legal profession has long been defined by thousands of hours of dreary study of legal texts. Those days might be ending soon with the advent of artificial intelligence and high-powered programs like IBM’s ROSS and JP Morgan’s COIN. The latter can read 360,000 hours worth of documents in just a few seconds. This quick and low-cost process is pushing traditional legal firms to reduce their prices or innovate.
The firm Allen & Overy, in collaboration with Deloitte, developed MarginMatrix, which codifies the financial laws of different jurisdictions and automates the drafting of contracts. With this technology, the time required to classify a document dropped immediately from three hours to three minutes.
Similarly, a robot lawyer invented at Stanford was able to process 375,000 traffic tickets in the span of two years. This technology allows firms to take data-driven decisions instead of relying on intuition. Lawyers working in the 21st century will have to adopt this technology quickly to stay relevant, otherwise they risk being replaced by a chatbot that can do rote legal tasks.
Guaranteeing Compliance with Smart Contracts
In his 1996 seminal article, Smart Contracts: Building Blocks for Digital Markets, Nick Szabo predicted that the Internet would change the nature of legal systems and introduced the concept of smart contracts.
A legal contract is a complex document, which can be ambiguous and subject to various interpretations. As philosopher Jeremy Bentham observed more than two centuries ago, contracts often can be evaded by those who can afford the best lawyers. By comparison, a smart contract is written in computer code and is entirely objective. With no star lawyer to hire nor judge to bribe, parties can be assured the agreement will be executed.
Szabo proposed smart contracts in the 1990s, but it took until 2014, with the creation of Ethereum, to see them put to use. Potential for smart contract applications exists in many industries including finance, insurance, e-commerce, travel and the sharing economy among many others.
For example, a customer could receive an automatic payment from a travel insurer if his flight was late or cancelled. Capgemini Consulting estimates that they could help save 12.5% of all insurance processing costs. Smart contracts can also speed up and lower costs in the slow and complicated process of approving mortgage loans.
Smart contracts have great potential for transforming how humans (and machines!) make and enforce agreements. But there are still some obstacles to overcome for this technology to become mainstream.
First, better connections should be made between traditional and blockchain agreements. For example, how to create legal contracts (readable by humans) that have a correlation in smart contracts (readable by computers). Projects such as OpenLaw, Accord Project, Agrello and Mattereum are currently exploring in this area.
Second, a number of new IoT devices need to be developed and deployed to provide the infrastructure for smart contract enforcement in the physical world. In his 1996 seminal article, Szabo illustrated smart contracts with a car that stopped working when the buyer failed to pay back the loan. For this to happen, we need higher adoption of smart locks, electronic locks that respond to orders encoded in smart contracts. Widespread adoption of smart locks will enable a house rented on Airbnb to unlock the door automatically when the payment is done, as well as many more applications in the sharing economy.
Smart contracts self-execute when the predefined conditions are met. However, all contracts are incomplete. No agreement could foresee every possible situation that could arise until the time it is to be enforced. In some situations, strict enforcement may result in a undesirable or unfair consequences.
Sometimes, contracts include subjective clauses where compliance cannot be easily determined by computer code. It is easy for a smart lock to unlock the door of a shared car when the payment is received. This can be objectively determined. But what happens when the contract involves a disagreement over some subjective work such as the quality of a website or some translation service performed by a freelancer?
A decentralized arbitration platform, able to solve this type of disputes, is a critical piece of infrastructure for enabling the massive use of smart contracts in everyday life. This is the problem we seek to solve at Kleros (to learn how, read our white paper).
Law, Reinvented
Communities of all times had to solve the problem of social order. For this, they developed legal systems. As is the case in every human practice, legal systems were based on the technologies and beliefs of the time when they were developed.
Athenians from the Classical period used popular trials. In the Middle Ages, they had ordeal trials for witchcraft cases. Suspects were chained and thrown into a river. If the floated, they were considered guilty and burned at the stake. If they drowned, they were free to go. Current legal systems were born in the 17th and 18th centuries, at the time of consolidation of nation states.
Decades from now, our children may see early 21st century justice systems as we see medieval ordeal trials today: as bizarre proceedings causing extreme and unnecessary pain.
The Internet transformed access to information, e-commerce transformed trade and cryptocurrencies are transforming finance. The next wave of the digital revolution, which includes AI and smart contracts, has the potential to transform law and democratize access to justice. At Kleros, we’re proud to be part of this revolution.
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