Many people in the US already use online services that let them avoid the cost of hiring a lawyer to create a legal agreement and make sure it gets enforced. Such firms have made it far easier for people, especially independent contractors and small businesses, to access legal services and get paid what they’re owed.
Now the two biggest players in the market—Rocket Lawyer and LegalZoom—are experimenting with blockchain smart contracts. In theory, they could help automate real contracts and make some legal services easier and cheaper to use for everyone.
Rocket Lawyer’s mission is to use technology to expand “access to justice,” says CEO Charley Moore.
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Smart contracts are computer programs that can run on blockchain networks and can be used to automate payments, often the cornerstones of legal agreements. In theory, blockchains could be used to track all the rights and obligations of a given contract and automatically trigger payments as the contract progresses, avoiding the cost and complexity of making and receiving payments offline.
Rocket Lawyer’s service lets users create and sign contracts, but the act of doing what is legally required by a contract is typically managed offline. For example, a business might agree to pay a freelance worker for doing a specified job or delivering a particular work product by a certain time. Using smart contracts, it should be possible to simplify this part of the agreement, known as the “performance,” says Moore. If it works, it could be a powerful tool for contractors, small businesses, and others who sometimes struggle to get employers to submit payment on time and otherwise hold up their end of a relatively simple bargain.
Rocket Lawyer isn’t revealing many details yet, but it has launched a private beta phase for a program called Rocket Wallet, which it describes as a platform for “legal contract execution and payment on the Ethereum blockchain.” To pull it off, it has also partnered with a blockchain startup called OpenLaw and the Ethereum-focused investment firm ConsenSys. It expects to have a product available to use later this year.
Meanwhile, LegalZoom, Rocket Lawyer’s biggest competitor, has begun working on smart contract technology in collaboration with a startup called Clause. Another startup, called Monax, is testing a smart contract platform based on a private blockchain network and aimed at entrepreneurs and creative freelancers.
The common goal of these projects could be described as the creation of a “legal protocol” for blockchains, says Aaron Wright, a cofounder of OpenLaw. Blockchains give us unprecedented power to move assets around the globe securely and instantaneously, but they won’t play much of a role in the real world without legal agreements to govern all these new kinds of transactions, he says.
They may make sense in theory, but blockchain-based legal contracts still face a range of practical issues. To begin with, businesses often want to keep their contracts private, but blockchains are designed to be transparent. Wright says OpenLaw gets around this by storing evidence of an agreement inside what’s called a “secure execution environment,” a piece of software that is separate from the public Ethereum blockchain.
Parties can digitally sign that execution environment, and the system can record proof that it was signed on the blockchain without revealing the underlying information. This system can also be used to terminate a smart contract, he says.
Blockchains won’t be useful in every legal situation. The things that are “objectively verifiable and provable on a blockchain” include account balances, proof that you own a certain token, or information from the real world introduced by a third-party source called an oracle, says Wright. Also, smart contracts are difficult to create without introducing bugs; researchers are still developing methods for detecting vulnerabilities before hackers do. Finally, cryptocurrencies themselves are difficult to use for most people, and volatile in price.
But users of Rocket Lawyer’s new crypto product won’t even need to interact with the blockchain or use cryptocurrency, says Moore. That will all happen in the background. “We are not releasing any sort of a product that would require our users to be knowledgeable about cryptocurrency,” he says. “That’s just not the kind of user we serve.”