As the role of technology within the legal industry increases, the question of how it can best be utilized in the legal practice is of major concern. When talking about what technologies will boost innovation in legal services, there is one term apart from ‘AI’ that appears to be frequently mentioned — blockchain.
So what is Blockchain?
Despite its complexity, the core concept of blockchain is really quite simple; a blockchain is a type of database. In this article, we’ve defined a database as a structured collection of data stored electronically in a computer system, typically structured in table format to allow for easier searching and information filtering. Blockchain is no different in the way that it is also a digital and structured collection of data, but its structure is what makes it different and unique.
In Blockchain, data is organized in so called ‘blocks’ which have limited storage capacities. Once one block is filled, it is added onto a previously filled block forming a chain of such blocks, hence the name blockchain. Each of these blocks is encrypted and has a set place within the chain with irreversible properties. A hash, as seen below, is a function that converts an input of letters and numbers into an encrypted output of a fixed length.
Data is stored in blocks… and chains, but where are the chains stored?
As the fundamental idea behind data storage in blockchain is decentralization, there is no central place for data to be stored in. Unlike regular databases, which are usually owned and managed by a single entity, blockchain data is stored in computers or systems all across the network. For example in the Bitcoin network, every involved party manages its own independent ledger that tracks all transactions and works off everyone else’s ledger to verify transactions and form a consensus. These records can’t be manipulated as long as the majority of those involved are working for the good of the group. Therefore, although the risk of data manipulation exists, it is considerably lower than is the case with single financial institution.