MARKNetwork Blockchain: Legal Sector
Is legal sector ready for blockchain adoption?
Short summary of the article:
“Do not get left behind”
»The legal sector has not been very receptive towards the disruption blockchain technology is about to bring in. Despite all the challenges, the technology is brimming with solutions that can transform the way legal sector operates today«
Litigations have a crippling effect on the U.S. economy. Every year the U.S. courtrooms witness 5,800 lawsuits per 100,000 citizens. The number is alarming because courtrooms in countries like Australia and Japan handle only 1,500-1,800 lawsuits.
The American legal system is infested with lawyers (391 lawyer every 100,000 citizens) which inflates the cost of handling routine aspects of living like car insurance, tax advice, and legal advice. An American ends up paying $1,400 for car insurance which is twice the car insurance cost in Japan.
American legal system does not actually need its 1,338,678 litigators.
What is commendable about the US legal system is the contract resolution time where average dispute resolution time is 300 days. The condition in growing economies like Asian countries is no different.
While the Indian judicial system has a massive backlog of 30 Million cases, the country possesses 1.3 million lawyers in 21 high courts as revealed by 2011 RTI (Right To Information). The judicial system is so flawed that the average pendency of cases ranges from 1,128 days in high courts to 2,184 in subordinate courts. Every geography seems to have its own set of legal challenges.
England’s legal landscape is suffering to the disruptive effect of legal aid cuts. The legal aid to public lawyers has shrunk by almost £1bn in the last five years. It is expected by 2019-2020, the Ministry of Justice in England will witness an overall budget cut of 40%. The repercussion is that rising number of defendants are appearing in courtrooms without any legal advice which is battering the legal system.
The global core measures that the legal system requires are:
Blockchain protagonists strongly believe that the technology advantage of this disruption will address the plaguing issues with smart contracts. While there will be no direct implication of the way the legal industry operates today, but the judiciary ecosystem will witness cost-cutting, the speed of settlements and desired transparency.
According to Finra’s (Financial Industry Regulatory Authority) Dispute resolution statistics reports, Jan 2019 received 336 new case filings and 4,982 cases are still open. The turnaround times of these dispute resolutions have been around 12.9 months. The disputes are spread across domains like insurance, banking, and healthcare.
The way the current legal system operates, the count of incoming disputes is more as compared to the outgoing cases on top of that are the issues like loss of employee hours and higher costs of operations and more. The productivity loss in the Indian judicial system comes across as a real shocker.
In a recent survey by India Today (a leading magazine) the loss of productivity due to the multiple facets of operational inefficiencies translates into USD 12.31 per litigant. The yearly yield loss computed throughout the year surpasses 7.1 Billion USD which is a significant equivalent of 0.48% of India.
Around 65% of the legal professional’s state that the time loss is driven by paper-based administrative tasks, therefore, the need for automation of legal contract handling is very high. Blockchain offers smart contracts as a resolution to the productive hours being looted by the inefficiencies of the judiciary system.
These contracts eliminate the paperwork as all the litigation details are stored in the distributed ledger, whenever a judgment is passed, the contract conditions are met and contracts are executed instantly.
Thus Smart contracts can take care of all kinds of administrative burden that actually translates into productivity loss of billions of dollars every year. Blockchain projects like Ethereum blockchain make the legal system capable of automating the contract execution in a trustless environment.
The response time of Public Agencies
The current state of FOIA (Freedom of Information Act) where the case backlogs bucket is getting bigger every day is frustrating the lawmakers. According to FOIA’s declaration, the agency would take 20 days to respond to a request which it hardly is able to keep up with. After paying exuberant fees and suffering the endless wait times, the lawmakers end up with redactions or no information at all.
In 2017, FOIA received almost 800,000 requests but 78% of them were either not answered or received a response that the information requested was censored. As per the stats, the government has been spending almost $500 million per year on FOIA activities where 93% of the costs are involved in request processing and 7% is spent on litigation. Not only are the wait times impractical but the system is missing the desired level of transparency also.
This kind of ecosystem is leading to longer durations of case settlements hence disrupting the entire judiciary system. The introduction of blockchain technology to public departments like FOIA can supplement the speed of the legal system also without any threat of data or information manipulation.
Projects like Empowered law is working on bringing public records to the blockchain so that the transparency in the judicial system can be established to reinstate public trust.
The system of notarization has remained the same for hundreds of year. There is a direct correlation between the economic state of the country and the number of notaries. In 2012 U.S. witnessed a significant drop in the notary population because of the collapse of the real estate bubble but as the market improved, the notary population is on the rise across almost 21 states in the US and maintains its 4.1 million marks that it touched in 1992.
Despite the strengthening of the notary population, the existing system is largely based on paperwork, personal presence, document checking, challenges in verifying signer’s identity, creating journal entries and completing the certificates. In the United States alone hundreds of millions of documents are notarized every year which range from wills to mortgages, citizenship forms to handgun applications which all need to be handled in person. With technology advancement and alteration of laws, the webcam notaries are building their place into this landscape. As essential as the notarization is for the proprietary proof, it is a perfect use case because of the immutable nature of the blockchain. Each notarization event will be stored in the blockchain with time stamps and the data cannot be altered.
Blockchain promises to bring a concept of decentralization to the ecosystem where authentication of documents and signatures can be verified using the blockchain entries.
Due to the corporate filing laws, an average US corporation requires $7,500 per year to just abide by the law. The incorporation cost of any scale of business is around $500, then there is EIN filing, state fees irrespective of your revenues, accounting, tax filing, start-up insurance and more. If you miss any process, you may end up paying heavy fines. The trauma does not end here, there is a need for documentation and proof of documentation.
Blockchain provides a very quick, trusted and low-cost replication of the corporate filing system. The state of Delaware is the hub of incorporations due to its taxation advantages. Recently enough in its effort to provide a good legal and regulatory environment for adoption of blockchain technology, the state awarded $738,000 to IBM to build blockchain prototype for the corporate filing system. The step was taken to increase the corporate franchise business contribution to the state’s revenue which is already soaring at figures more than 25%. The blockchain initiative will further bring down the document filling costs and speed for future incorporations in Delaware.
MARKNetwork, a unified blockchain solution provider recently incorporated the organization in Delaware which is turning into a blockchain friendly place. It comes across as a wonderful opportunity for us to serve enterprises with better solutions without any regulatory challenges.
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