Blockchain

What role could blockchain play in the future of lawmaking?

Last month, the National Conference of State Legislatures (NCSL) published an update on those states that have introduced blockchain legislation. According to the 2022 update, 28 states addressed legislation regarding blockchain, smart contracts and verifiable credentials. In 2021, the number of states that had introduced legislation related to blockchain was 17.

Blockchain, a distributed ledger technology (DLT), is perhaps best known for its role in the world of cryptocurrencies in maintaining a highly secure, decentralized record of debit/credit transactions. However, a blockchain can record data of any kind, including assets that are tangible (e.g. property, cash, land) or intangible (e.g. intellectual property). For example, most NFTs exist on the Ethereum blockchain.

Blockchain is associated with controversy and there are evangelists who claim that it will revolutionize everything from voting to inventory systems. More moderate views still expect blockchain to trigger changes in the world of business and transaction management but predicting the exact direction this will take is difficult.

With increasing interconnectedness and the growth of big data, the limitations of traditional databases related to global scalability and mathematically provable tamper evidence have driven interest in DLT.

A potted history of ledgers

Although blockchain and DLT are recent concepts, humans have been developing methods of tracking transactions for thousands of years, all the way back to when the ancient Mesopotamians started to record quantities on clay tablets.

Over 600 years ago, a new ledger paradigm emerged known as double-entry bookkeeping in which every entry of a value into one account has an equal and opposite removal of value from another account. As I wrote in Digital Law: What Can Lawyers Learn From Accountants?, Luca Pacioli’s “Particularis de Computis et Scripturis” published in 1494, is widely regarded as the first written treatise on this concept.

Since then, paper-based ledgers have been replaced by electronic databases. However, with increasing interconnectedness and the growth of big data, the limitations of traditional databases related to global scalability and mathematically provable tamper evidence have driven interest in DLT.

In 2008, the anonymous person or persons known as Satoshi Nakamoto published Bitcoin: A Peer-to-Peer Electronic Cash System which introduced blockchain as part of a proposal for bitcoin, a virtual currency system.

Since its first application a year later, the potential of blockchain outside of cryptocurrencies has been expanding and there has been a lot of hype. Harvard professors, Marco Iansiti and Karim R. Lakhani wrote in the Harvard Business Review that blockchain is a foundational rather than disruptive technology which has the potential to create new foundations for our economic and social systems. They believe that it will take a long time to evolve, and the technology challenges remain daunting.

One advantageous trait of blockchain that is often highlighted is its immutability. In other words, data that is already in the blockchain cannot be manipulated or changed after it has been recorded.

Parallels between lawmaking and accounting ledgers

As my previously published article illustrates, the world of legal corpus management in a legislature is closer to the world of financial accounting than it seems. At a high level, while certainly the law cannot be boxed into a neat set of debits/credits, in accounting terms, current law at the start of a legislative session can be thought of as an ‘opening balance’ and each bill can be thought of as a proposed set of transactions which, if passed into law, will then be ‘rolled forward’ to create a new ‘opening balance’ for the next bill.

One advantageous trait of blockchain that is often highlighted is its immutability. In other words, data that is already in the blockchain cannot be manipulated or changed after it has been recorded. If a change is made by mistake and then needs to be reversed, this change is itself another transaction which becomes part of the ledger, creating a highly detailed audit trail of the changes.

The value of this concept in creating the transparency required for democratic lawmaking is significant and becoming ever more significant as the old paper-based paradigms for recording audit trails and achieving tamper evidence continue to fade away.

Even if an internet-scale ledger technology such as blockchain does not emerge as a standard platform component of the 21st-century internet, there is no doubt that the ledger concepts underlying blockchain are here to stay.

The value of the immutable ledger

Do DLT and blockchain represent the next great leap forward for ledger technology? While blockchain may impact lawmaking and the work of legislatures, the true effect remains to be seen. At Propylon, we believe that the fundamental concept of blockchain – an internet-scale immutable ledger – is a great idea if it can be achieved.

Indeed, the core of our LWB 360® platform is, at its fundamental storage level, an immutable ledger for documents. Edits to documents are carried out similarly to transactions in a ledger. Linkages are made so that the source of each change to the law can be traced all the way back to the Act, and the bill or bills that lead to that Act, and the drafts that lead to those bills, etc.

Importantly, nothing is simply erased. Instead, there is a ledger of transactions creating a full audit trail, allowing the provenance of law to be traced with a level of detail simply impossible in paper-based approaches. In addition, Propylon patented technology makes it possible to navigate to any previous point in time and see the complete state of the law and the legislative process as it was at that point in time.

In conclusion

Even if an internet-scale ledger technology such as blockchain does not emerge as a standard platform component of the 21st-century internet, there is no doubt that the ledger concepts underlying blockchain are here to stay and their use in legal and regulatory environments is set to grow significantly in the years ahead.