• Adam j. Sulkowski

Blockchain, Business, Sustainability & the Role of Law & Governance

A forthcoming article in the Delaware Journal of Corporate Law investigates a generally under-hyped set of implications of blockchain on business and law: namely, to what extent the technology can advance the cause of optimizing supply chains, and how relationships between businesspeople and their attorneys will evolve.

Better record-keeping means greater efficiency because of reduced theft, fraud, loss, and spoilage.

Greater transparency and reliability of data in supply chains has also raised hopes that it will be a boon to sustainability certification – in other words, that we can be more sure of promises that products and services are produced, for example, without the use of child labor or harmful environmental side effects.

The article also touches on shortcomings, such as energy demands of certain kinds of blockchain authentication.

3rd person trust may be a solved problem, but what about 1st and 2nd person trust?

Yet, according to both observers and entrepreneurs, a key set of under-appreciated problems remain to be solved. The article articulates several. Two are highlighted here. They are related to one of the biggest reasons blockchain is considered valuable: that it eliminates the need for large institutions (with attendant costs and inefficiencies) to assure people on either end of a transaction (or value chain) that a record is legitimate. This is referred to as solving the problem of third person trust. So far, so good.

But often ignored in pitches of blockchain certification solutions are questions of (1) how we know the original record (or certification, etc.) is correct (and not a result of a mistake or fraud or threat or bribery), and (2) how do we know that someone notices and cares (and actually acts or otherwise creates repercussions) on the other end? One way to summarize this problem is the phrase “garbage in, garbage out.” Or, to paraphrase the point of one of the entrepreneurs cited in the article: we’ve solved third person trust, but not the problem of 1st person trust [do I trust myself to notice, care, and act upon a given piece of data], nor the problem of 2nd person trust [do I trust you—that person on the other end of a chain of records—have not lied or made a mistake, for whatever reason].

So what?

The article goes on to explain that, as with many other problems, we have the tools to solve them, but not yet the needed mindsets. Also, existing legal and governance frameworks will still be needed—including the concepts and institutions and people that, for example, help us to articulate expectations, resolve unforeseen varieties of disputes, and enforce consequences when laws and agreements are broken.

Rumors of the demise of attorneys and the law are greatly exaggerated

The balance of the article lays out reasons why, as in previous eras when disruptions seemed to produce a novel and ungovernable medium, blockchain remains a regulatable technology, why jurisdictions with regulatory certainty are valued by entrepreneurs, and why and how lawyers can and will continue to be valuable.

Smart contracts, lex cryptographia, and the capacity of law (as expressed in algorithms) to adapt and evolve on its own in the course of operation, are considered.

The specific roles and implications for lawyers are explained. Among other things, the article describes the need for lawyers to caution clients about the consequences and current limitations of blockchain-enabled solutions, such as smart contracts, and their key role in helping to translate the intents and norms of clients into code. Among other implications, this means lawyers should nurture a proactive approach to law, an awareness of the trade-offs of various technologies, and capacity to communicate with a range of internal and external stakeholders and build consensus, shared narratives, and cooperation in increasingly polycentric and transparent governance systems.

References and acknowledgements

The “teaser” summary above and the article would not have been possible without the published writings of—and correspondence and conversations with—a range of academics, other observers, and entrepreneurs in the fray of implementing and facilitating blockchain-enabled solution. My thanks to all those cited in the article.

Adam j. Sulkowski, Babson College

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