6.3 Legal Issues: Pros and Cons of Blockchain and Smart
Contracts
6.3.1 Preliminary Thoughts
It is often said, quite rightly so, that whereas technology advances in leaps and
bounds, the law is pathetically slow to catch up if it ever does. This is particularly
true for the field of shipping given that the shipping industry is known to be fairly
conservative when it comes to change. Some are of the view that common law
jurisdictions are better placed to deal with this since the common law is simply a
“process of adapting human systems to technological change”. It is more conducive
to accommodating new technology to replace old ones and “adapt them rapidly and
competently”.
49 That said, it is popular belief that blockchain technology and the
concept of smart contracts are about to revolutionize and redefine business and
commercial practices. While this may well be true, it is recognized that there are
numerous legal issues with which the world shipping community must contend.
In the context of sea carriage of goods and in particular the element of bills of
lading, there are several pros and cons or upsides and downsides associated with the
use of blockchain technology and application of the smart contract concept to bills of
lading. These are outlined below accompanied by a discussion briefly addressing
each of the relevant issues in succession. As regards the pros, the basic premise is
that legal issues and problems can be resolved by the use of blockchain bills of
lading as smart contracts. The cons are mainly to do with incompatibility with
established legal norms in international sea carriage of goods law. One fundamental
con is that there are multiple nodes scattered worldwide in any blockchain. Users can
be anonymous with hidden identities, leading to difficulties with identifying the
liable party.
6.3.2 Documentation Problems
One commentator is of the view that among several advantages that can be gained
from blockchain, there are a number of major areas of importance, all concerning
documentation pertaining to sea carriage of goods. She opines that delays in
discharging of cargo are mainly attributable to lack of proper documentation. This
is particularly relevant to perishable goods where delays can result in partial or even
complete loss of the cargo. Cargo can be released by the carrier pursuant to a letter of
indemnity without the need for any further documentation. Payment-related documents such as letters of credit often suffer from deficiencies caused by human error.
There are numerous incidents of documents being misrepresented or forged. All of
these can be eliminated or at least reduced by the use of blockchain.
50
49 Tapscott and Tapscott (2017), p. 23.
50 Lin (2017).
428
H. Liu
Contracts
6.3.1 Preliminary Thoughts
It is often said, quite rightly so, that whereas technology advances in leaps and
bounds, the law is pathetically slow to catch up if it ever does. This is particularly
true for the field of shipping given that the shipping industry is known to be fairly
conservative when it comes to change. Some are of the view that common law
jurisdictions are better placed to deal with this since the common law is simply a
“process of adapting human systems to technological change”. It is more conducive
to accommodating new technology to replace old ones and “adapt them rapidly and
competently”.
49 That said, it is popular belief that blockchain technology and the
concept of smart contracts are about to revolutionize and redefine business and
commercial practices. While this may well be true, it is recognized that there are
numerous legal issues with which the world shipping community must contend.
In the context of sea carriage of goods and in particular the element of bills of
lading, there are several pros and cons or upsides and downsides associated with the
use of blockchain technology and application of the smart contract concept to bills of
lading. These are outlined below accompanied by a discussion briefly addressing
each of the relevant issues in succession. As regards the pros, the basic premise is
that legal issues and problems can be resolved by the use of blockchain bills of
lading as smart contracts. The cons are mainly to do with incompatibility with
established legal norms in international sea carriage of goods law. One fundamental
con is that there are multiple nodes scattered worldwide in any blockchain. Users can
be anonymous with hidden identities, leading to difficulties with identifying the
liable party.
6.3.2 Documentation Problems
One commentator is of the view that among several advantages that can be gained
from blockchain, there are a number of major areas of importance, all concerning
documentation pertaining to sea carriage of goods. She opines that delays in
discharging of cargo are mainly attributable to lack of proper documentation. This
is particularly relevant to perishable goods where delays can result in partial or even
complete loss of the cargo. Cargo can be released by the carrier pursuant to a letter of
indemnity without the need for any further documentation. Payment-related documents such as letters of credit often suffer from deficiencies caused by human error.
There are numerous incidents of documents being misrepresented or forged. All of
these can be eliminated or at least reduced by the use of blockchain.
50
49 Tapscott and Tapscott (2017), p. 23.
50 Lin (2017).
428
H. Liu