Law Firms Hitch a Ride on the Blockchain Wagon

By Debra Bruno

April 3, 2018

The advent of blockchain — the digital ledger that is the foundation of such cryptocurrency forms of exchange as Bitcoin — has meant a new legal opportunity for lawyers.

That is, if they actually know what it is.

And can describe it to clients.

And to their colleagues, for that matter.

That’s where a few D.C. law firms have taken early leads in the business of understanding and advising on blockchain issues.

Jason Weinstein“There are a lot of lawyers who use it as a buzzword without really having a grasp [of]... why it’s important to clients,” says Jason Weinstein, Steptoe & Johnson’s in-house blockchain expert.

A few D.C. firms, including Steptoe, Covington & Burling, and Anderson Kill, have made a special point of identifying and naming blockchain as a practice area in the last year or so. Other firms slip a nod to blockchain into a range of other practices: fintech, financing, cybersecurity, data protection, banking, regulation, insurance, privacy, and intellectual property, for starters. A number of them have issued white papers explaining some of the issues, such as the global challenges of emerging blockchain technologies, while others might have hosted a conference seminar or a webcast.

The fact is, Weinstein says, it’s hard to pinpoint just one practice area where an understanding of blockchain will stand out. “Everyone is going to be affected,” he says. “It’s like the second coming of the Internet, only this time you can see it coming.”

Blockchain Basics

For those readers who are not blockchain aficionados, here’s a layman’s definition: Blockchain is a secure digital ledger that can manage anything from cryptocurrency to electricity through a software system that runs peer to peer without a central authority. What that means, say experts, is that the information cannot be copied or tampered with easily, and is continually being updated. Currently, blockchain is most commonly associated with cryptocurrencies such as Bitcoin or Ethereum, but the possibilities are endless, from smart contracts to voting.

Mike NonakaWhile some lawyers might eventually become blockchain-specialty attorneys, blockchain is looking “more like a technology you have to know about if you’re in certain industries,” says Michael Nonaka, cochair of Covington’s financial institutions group. For instance, highly regulated industries such as energy and financial services, “where there’s a tremendous exchange of assets,” will require lawyers who can understand and explain the technology.

In fact, a number of firms are finding at this point that they’re spending more time on client development, seminars, and white papers offering an overview of blockchain and its possibilities than in actual billable hours. For instance, a client might want to set up a cryptocurrency investment fund, Nonaka says.

And some firms are involved in helping to set up separate organizations, such as the Blockchain Alliance, the Global Blockchain Business Council, and the Government Blockchain Association.

In the meantime, attorneys need to be brought up to date. Weinstein notes that some of his Steptoe colleagues initially associated blockchain with Silk Road, the online black market used for selling illegal drugs that was shut down by the FBI in 2013. Then again, Weinstein says, some of the earliest adopters of the Internet were also criminals — those engaged in drug dealing and child pornography. In his former work as deputy assistant attorney general in the Criminal Division at the U.S. Department of Justice, Weinstein worked on cybercrime.

One of the reasons Weinstein says he helped to create the Blockchain Alliance was to assist companies and government enforcement agencies understand what blockchain meant.

“When I started talking to people about blockchain, I knew I would have a better chance to explain it to my parents,” says Weinstein.

At Covington, Nonaka says the key to explaining blockchain to colleagues is “you have to explain it a couple of times, and you have to explain it in different ways.” Some lawyers like to hear a concrete example of how blockchain is being used. “That internal marketing — being able to make sure colleagues understand — is as important as the external,” he says.

One good example might be how blockchain could work in the gaming industry. Instead of a group of card players reporting their wins and losses to some central administrator, blockchain could track the wins and losses, which then automatically legitimizes the winners.

Covington offers its lawyers a number of internal presentations to go over the nature of the technology and look at some of its potential uses in, for example, financial services, telecommunications, or manufacturing.

Opportunities and Downsides

Not every attorney with a thriving blockchain practice got into it by way of his or herStephen Palley original practice area. Stephen Palley, a partner at Anderson Kill, for instance, is mainly an insurance and trial attorney, but he had an entrepreneurial idea about creating a company that automated dispute resolution.

As he was setting up the company, his chief technology officer left the firm, and Palley says he was forced to learn code himself to build the company’s platform. In the same way, he stumbled upon blockchain when he was trying to help a client set up a trustless escrow, which is a way for money to be transferred without a third party holding on to the funds.

“I Googled and I thought, there must be other lawyers out there trying to automate legal practices,” he says. He stumbled on Casey Kuhlman, founder of the blockchain company Monax, who then introduced him to the concepts of blockchain and the cryptocurrency Ethereum.

Recently, though, Palley has been seeing some of the downsides of getting involved in this world. While representing a client who was a whistleblower in a company that handles crypto exchanges, he was targeted. “Within 12 hours of my sending a letter to their general counsel about having a problem, I started receiving ultimately thousands of [email] subscriptions,” Palley says.

Palley is a litigator, so he’s familiar with aggressive tactics. “Look, stuff like that comes with the territory of being a lawyer,” he says. “If you’re going to defend someone, sometimes people will come after you, too.”

He adds, “I don’t like having my email account under attack, and now I have to check spam filter more often, but because it is a little bit of the Wild West, things like this are going to happen.”

At the same time, the opportunities for lawyers in blockchain are ample. “One of the things we are looking at in particular now is cleaning up messes because people didn’t take the time to do things right,” Palley says. “There’s an opportunity for lawyers in that space to do some good.”

Debra Bruno is a freelance journalist who writes for The Wall Street Journal, The Washington Post, and Washingtonian Magazine. She lived in China for three years and has worked at Legal Times, Roll Call, and other publications.