Magic Money: Bitcoin and other crypto reach the world of legal documents

In the last couple of years my interest in blockchain technology progressed from mere curiosity and spectator attitude to one of careful consideration of the practical benefits of the distributed ledger, DAOs and smart contracts. I am not the only one who thinks in that direction. There are others who are already building code to generate one-click-LLC companies, digital escrow agreements, and automated arbitration resolutions in the form of smart contracts. It is possible that 10 years from now, smart contracts will be ubiquitous in the practice of transactional law. As things stand today, lawyers’ understanding of blockchain technology and its potential uses as a medium of legal services is largely non-existent. I think the reason for this is the fact that blockchain technology has emerged and become popular in the world via its byproduct, which is digital tokens, such as Bitcoin. Tokens have emerged as a tradable asset. Their price continues melting up. They are traded, hoarded, and the profits of that process are fantasized about. The profits of the early adopters are capturing imaginations all over the world.  All manner of financial entertainers, pundits and celebrity crypto experts like Mark Cuban or his anorexic intellectual twin, Jack Dorsey*, like to prognosticate, pontificate and inform us about the movements in the trading prices of digital tokens. Which is all fine if you believe that focusing on the tree and ignoring the forest is the right way of things.

I have a raw comparison to illustrate my point. Being in Texas, I like to compare tokens and blockchain technology to cattle on a pasture. I know, it’s ridiculous, but please bear with me. The nodes in the blockchain are the cows. Each node consumes electric energy, maintains its existence, interacts with other nodes in the herd while retaining functional autonomy, and drops a token at some pre-determined and repetitive intervals. Hash rate, everyone. The nodes need shelter within data centers, they consume water or air cooling, they function on computing power and use lots, and lots, of electric energy. Cattle operates in conceptually similar ways. Each cow needs a lot of space, at least 5 acres of pasture, and consumes lots, and lots, of energy in the form of grass. They graze a lot, trample even more. They sustain themselves and produce droppings a/k/a cow patties. Every Texan has stepped in one. Or two. The droppings are the cow tokens. They are the byproducts of a well-functioning, healthy cow. Same like Bitcoin tokens are the byproducts of a functioning Bitcoin blockchain. The current absurdity of the crypto marketplace is that 99.99% of market participants focus on the droppings and ignore the cow, so to speak. They acquire and collect the tokens, sometimes trade them, some even try to exchange them for goods and services. Smart people try to conceptualize functionality for the tokens by using them as digital currency. I think it is increasingly clear that the currency functionality of tokens is going nowhere, or at least nowhere fast. Due to the coincidental fact that some of the early crypto adopters overlapped with traditional gold bugs, a narrative has formed to compare Bitcoin to digital gold. It is now an asset class and tokens have real-world tradable value. There is no denying that, and it is not the point of this writing to argue otherwise. The point is that while people scramble after the tokens (droppings), everyone mostly ignores the cows on the pasture. These cows have actual functionality beside producing tokens. They have economic value, in and of themselves. They can produce milk, they can reproduce into other cows, they can pull a plough, or they could be “deconstructed” into leather, meat, gelatin and calcium powder. Like the ingredients on a McDonald’s menu.

This is where the concept of “smart” blockchain contracts comes in. Smart contracts are the actual cow on the pasture. A well-written smart contract on Ethereum or Cardano can be enormously more valuable than the grand sum of that particular blockchain tokens. Nobody in their right mind would argue that cow patties represent the primary economic value of cattle. Admittedly, if we hold our collective noses, we could even use cow patties as currency. But we actually sidestep the patties and utilize the cows. I believe that this is the direction in which the world of blockchain and smart contracts is headed. Eventually, people will see beyond the tokens and will focus on exploiting the economic potential of blockchain technology itself. As of today, there is nothing about blockchain more suited to extracting economic value than smart contracts. This is where lawyers are about to come in.

Lawyers stepping into the world of blockchain have the same motivations as other crypto market participants. Which is … to make money. For lawyers to use blockchain to that purpose, we would need a way to cut transaction costs dramatically and keep some of the financial difference. We are already seeing signs of this happening, although at this point, I would say we are in the warm up stages of the game, and not even in the first innings. The main reason for the lack of adoption of smart contracts is the lack of understanding of the technology as I tried to illustrate above. Another major roadblock to development of smart contracts is the lack of critical mass of coders and engineers who are sufficiently proficient in the crypto space. Thirdly, the technology itself is still somewhat rudimentary. A lot of questions persist around the crypto ecosystem and below I will list some of them. As is typical, I would start with the negatives and work my way up. I would also use Bitcoin as a universal reference to all the blockchains out there.**

When my interest in blockchain technology emerged, I started taking notes. Whenever I would read an online publication on the topic which described something new or captured my interest, I would write down the main points on a notepad. Over time, repetitive notes began to show a pattern:

1. Crypto token ownership is concentrated. Data center (mining) operators are concentrated.
2. There is limited supply of tokens. Some of it is by design. Some of it is a function of the concentration in ownership. Some of it is due to technological constraints or the fact that the available supply has already been “minted”.
3. In the current Bitcoin ecosystem, there is almost no incentive for the minted Bitcoin to move.
4. Most crypto tokens, and Bitcoin in particular, represents no claim on any blockchain “rights”. It only represents past investment of computing power and electric energy to maintain the blockchain.
5. Did Bitcoin really start as a hobby for crypto nerds and gold nuts? Or is there some deeper purpose? Is the digital currency functionality real or an after-market rationalization? ***
6. There is a mass misconception that the price of crypto tokens is always up, never down in the long run.
7. The technology is still emergent and misunderstood. Many early adopters have fashioned themselves into HODLers and speculators. Behind them, masses of amateur imitators push themselves into the crypto market space, often to experience quick financial gratification or humbling blows. Speculative frenzy, frauds, and bubbles ensue all over the board. That’s just the natural way of things. Eventually, the useful functionality of the technology will emerge and begin to develop in earnest. I think we are at the cusp of this happening now.

Here are some of the positives:

1. Blockchain technology is new, exciting, trendy. It is part of internet culture. It is largely the domain of younger people.
2. It gives an entire generation of younger and technically-savvy people a real chance at substantial capital accumulation, speculative or not.
3. Blockchain has brought to the front certain matters of cyber security, data privacy, hacking techniques and money-laundering concepts. It will make society stronger as we work to resolve these challenges.
4. The need to store and protect crypto tokens creates an ecosystem of its own, with its own problems and even its own catchphrases and language tweaks. Phrases like “not your storage, not your content” or “not your encryption key, not your privacy” will be part of first-graders vocabulary a generation from now. I would even venture that just like the smart generations of today allow Big Tech mastodons like Google, Facebook, Amazon to gobble up and privatize our personal data, the generations of tomorrow are already showing refreshing signs of data privacy awareness and skills to tackle the challenge. These skills are often inextricably linked to crypto tokens and blockchain. I am amazed to read the thoughts and comments of the upcoming generation of coders in places like Discord and other corners of the internet. The youthful ingenuity is truly refreshing. Big Tech has it coming. It’s just not obvious yet. I secretly cheer on these kids to stop our collective digital privacy from riding out into the sunset.

Why did I write all this? Well … this is a sort of professional rant and announcement at the same time. I am developing a new type of smart contract. It is something which has the potential to turn certain traditional paper corporate contracts on their head. I think they call it disruption. I have been writing corporate contracts for what seems, to me, forever. I think a lot of what I do can be automated, simplified, expedited and improved with the help of blockchain technology. The technology is there and it exists today. The next step is seeing its potential and making the first moves toward adoption. It is happening and we should aspire to become a meaningful part of the process. I hope that I have made you at least curious. If you are interested and feel that you could collaborate on the technology side or contribute in another capacity, please get in touch.

Disclaimers:

* I am only saying this for rhetorical and entertainment value. I do not know and have no actual opinion on these two individuals and their public personas. I only know that whenever I see their faces in the media, my inner voice tells me that I should use less of that particular media. In all honesty, crypto technology came to be despite the media pundits and not because of them.

** I am aware that each blockchain is different. Sometimes dramatically so. I do know some are cheaper, faster, have different security protocols and functionality, proof-of-work vs. proof-of-stake, and so forth. I am using Bitcoin only for its value as the best known example of blockchain technology and nothing else.

*** These are rhetorical questions which do not necessarily seek an answer. Why so? Because each such answer would be a mere opinion, informed by personal bias. And teenage Tiktokers have long since established about opinions that “it’s your opinion, you can keep it, I really don’t need it, I’m undefeated…” Well, that’s just some catchy cow dropping right there, isn’t it? Personal opinions matter. Collective opinions matter even more. But that is a whole different topic, which may end up being an article to be named “Bitcoin and Politics”.