Blockchain & AI: Legal Impacts of the Most Hyped Emerging Technologies

Transcription

1 Blockchain & AI: Legal Impacts of the Most Hyped Emerging Technologies Benjamin Tietgen, Partner Josh Covey, Attorney June 20, 2018

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3 2 Common Beliefs Belief #1: AI will replace all human lawyers in the next couple of years. Belief #2: A machine will never be able to do the kind of work that I do. 3

4 What is AI? Spectrum: Westworld/Matrix to ho hum software (NLP) Perform tasks historically limited to humans; simulate human thought in computerized model Umbrella Term Machine learning Algorithms Natural Language Processing Neural Networks Expert Systems "Big Data" Computing power 4

5 Machine Learning Human Computer Programming Machine mechanically implements human made code Bad outcomes are attributable to bad code by human programmer Human programmer can explain why machine did what it did Machine Learning Humans provide data & specify overall goal for machine Machine self learns & adapts its approach to maximize specified goal Limited explanation for why machine did what it did 5

6 Nexus of Technologies (many are old) 6

7 So Why is AI Everywhere Now? Big data + Current Computing Abilities = GAME CHANGER 7

8 Moore s Law # of transistors per square inch of a computer chip will double every 18 months Has generally come true; expected to continue for at least the next 2 decades Now refers generally to computing power doubling every 2 years 8

9 Ray Kurzweil: Exponential Change An analysis of the history of technology shows that technological change is exponential, contrary to the common sense intuitive linear view. So we won t experience 100 years of progress in the 21 st century it will be more like 20,000 years of progress (at today s rate). 9

10 Big Data Era Every 2 days we create as much info. as we did from the dawn of civilization up until Eric Schmidt, CEO Google, from 2010 Every day 2.5 quintillion bytes of data is created 10

11 Internet of Things future of iotpart 2 11

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13 Summing It Up Explosion of digital data + exponentially increasing computing abilities = unprecedented data analytics Those data analytics yield insights to meaningful trends in historical (and increasingly real time) data Those insights "feed" into machine learning Better machine learning accelerates AI s evolution, which speeds up the development of AI s practical applications 13

14 AI's Evolution 1997 Chess AI (Deep Blue) defeats Garry Kasparov 2011 Jeopardy AI (Watson) defeats Ken Jennings & Brad Rutter Atari Games AI (DeepMind) uses same learning algorithm 2016 Go AI (AlphaGo) defeats Lee Sedol 2017 Go AlphaGo Zero, after 3 days, defeats Alpha Go 14

15 Challenging Belief #1: AI Replaces Lawyers Soon AI Limitations: Lack of common sense Bias in algorithms Impact of bad data on AI's outputs Fact: Currently lots of highly touted AI stuff isn't that useful right now Humans are superior in critical thinking Effective client interaction, oral advocacy, negotiation, etc. = beyond scope of current AI 15

16 Gartner Hype Cycle 16

17 Bias Problems with Algorithms 1. Inaccurate bias algorithms may contain inaccurate biases based on historical data reflecting historical bias e.g., historical data suggesting most successful engineers are white males 2. Accurate bias algorithms may contain empirically valid distinctions that we may not want to accept for fairness reasons e.g., young men are a higher car insurance risk than young women Main point = bad data affects AI's outputs 17

18 Algorithmic Bias 18

19 Long term AI Considerations Risks of Predicting Future Technologies "The telephone has too many shortcomings to be seriously considered as a means of communication." Western Union internal memo, 1876 I think there is a world market for maybe five computers. Thomas Watson, IBM Chairman, 1943 "It's tough to make predictions, especially about the future. Yogi Berra 19

20 A Quote to Linger "If you're looking ahead long term, and what you see looks like science fiction, it might be wrong. But if it doesn't look like science fiction, it's definitely wrong." Christine Peterson 20

21 Challenging Belief #2: AI Can't Do Legal Work Simply doesn't align with current facts AI is already impacting the legal practice This trend will continue 21

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24 AI & Legal Practice Artificial intelligence is changing the way lawyers think, the way they do business & the way they interact with clients. Artificial intelligence is more than legal technology. It is the next great hope that will revolutionize the legal profession. What makes artificial intelligence stand out is the potential for a paradigm shift in how legal work is done. 24

25 Why the Trend Will Continue 1. McKinsey 23%, Deloitte 39% = can be automated; we are nowhere near those numbers 2. Economic pressures & increased competition will incentivize legal professionals to become more efficient 3. We've seen this before: once machines can compete, they quickly evolve to become superior in performance, reliability, & associated costs 25

26 AI and Law: Two Main Areas I. Substance of Law What Law Regulates II. Process of Law How Law Is Practiced

27 I. Substance of Law What Law Regulates

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29 Legal Regulation of AI Applications Autonomous Cars Medical Robots Digital Assistants Internet of Things Algorithms Etc... 29

30 If facts are changing, law cannot be static." Felix Frankfurter, The Zeitgeist & the Judiciary, Address at the Harvard Law Review Twenty fifth Anniversary Dinner (Mar. 30, 1912) 30

31 II. Process of Law

32 #legaltech 32

33 Benchmarking & Comparative Analyses 33

34 Electronic Discovery; Locating ESI Studies have shown that technology assisted review is at least 50 times more efficient than human review, or manual, review. Maura Grossman & Gordon McCormack, Efficient E Discovery, ABA J. (April 2012). TECHNOLOGY-ASSISTED REVIEW (TAR) 34

35 Legal Research Can read over a million legal pages per minute 35

36 Document Drafting 36

37 Case Outcome Prediction 37

38 Jury Screening 38

39 Judicial Sentencing 39

40 Wisconsin v. Loomis Loomis pleaded guilty to two charges for his role in a drive by shooting In sentencing, the trial judge relied (in part) on an AI powered risk assessment tool: COMPAS uses a proprietary algorithm to predict risk of recidivism based on (1) age at first offense, (2) current age, & (3) criminal history Trial court, appellate court, & Wisconsin Supreme Court all rejected Loomis argument that reliance on proprietary algorithm violated due process U.S. Supreme Court denied cert in June

41 Legal Bots 41

42 Online Dispute Resolution 42

43 Civic Resolution Tribunal 43

44 So Who Will Win Humans or Machines?

45 Human Lawyers? X 45

46 Machine Lawyers? X 46

47 Correct Answer + 47

48 The Good & the Bad (hopefully no Ugly) Good News Adoption of AI in legal will be evolutionary, not revolutionary; Most lawyer functions won't be performed by AI in foreseeable future Adoption of AI offers opportunities to lead in efficiency, cost savings & accuracy New legal specialties Bad News Automation Disparate impact on young lawyers? AI will require knowledge/abilities outside the existing skill set of most current practicing attorneys Incorporation of AI into practice will soon be a matter of keeping up rather than being a leader 48

49 Main Takeaways Exponentially evolving technology will significantly change the practice & subject matter of law in the coming years It's important to take a dynamic, forward looking vs. static view of technology & law Lawyers & organizations that anticipate & stay on the leading cusp of changes will be the most successful 49

50 Advice from The Great One I skate to where the puck is going to be, not where it has been. - Wayne Gretzky 50

51 What is Blockchain Technology? And What Will It Do To Us All?

52 A Blockchain Is... a distributed ledger wherein entries are asset transactions and each entry is encrypted to provide a unique address; the transactions are organized into sequenced blocks and the blocks are validated by the ledger nodes, such that a digital asset can be made exhaustible. 52

53 Puis je vous peindre une image? Source: Ask Media,

54 Example Digital Asset (Coin) Transfer Centralized No intermediary! Christine (User A) wants to send a digital coin to Julian (User B) The validated block is added to the chain of sequential blocks of validated ledger entries (transactions) The request is encrypted, preserving anonymity, and then added with others to a block of ledger entries User B directly receives User A s coin The transactions of the block are verified by computation of member systems in the network The operation history is retained in an anonymous, encrypted ledger synced across all member computers Decentralized BANK A BLOCKCHAIN BANK B 54

55 dapps: How To Access a Blockchain Distributed Applications (dapps) Blockchain as a Service DLT Framework Distributed Database 55

56 3 Dimensions for Viewing the Blockchain Technical Distributed database maintaining immutable verified ledger Business Network cooperating to move assets between members Legal Digital transaction tool that validates without intermediary 56

57 Risks Barriers to Adoption Technical Malfeasance Hacking Overriding consensus Fraud Trust / Reputation Privacy on Open Networks Obsolescence Picking wrong platform Underdevelopment Failed partners Ease of Use Scalability / Throughput Losing your keys Regulation Energy Footprint 57

58 Real life, Disruptive Blockchains They Exist! Fraud reduction for luxury goods Probed (and plundered?) by DeBeers Attribution and licensing for artists/creators Bought by Spotify Recordation of land title/real property rights Started by founder of Overstock GDPR compliant consumer privacy platform Partnered with Intel, Microsoft, and BDO 58

59 What is Cryptocurrency? And How Does It dapp Your Blockchain in the Ether?

60 A Cryptocurrency Is... a payment instrument exchangeable, with a (generally) agreed upon value that is: Digital/Virtual exists entirely in computer memory Decentralized "minted" onto a distributed ledger Peer to peer transmitted without an intermediary Secure encrypted PLUS validated by consensus Exhaustible limited in supply, held in a "wallet" 60

61 Coins and Tokens: A User Guide Source: William Mougayar,

62 FinTech's Crypto / DLT Ecosystem 62

63 FinTech Real World Impacts Fiat currencies vs. cryptocurrencies Decentralized instruments know no borders Pros: no conversion, no intermediary, harder to steal, anonymity Cons: uncertain value, uncertain regulatory framework Token based transaction networks Unique units of value to incentivize and track platform usage Trading market cap 1/18: $825B; 4/18: $250B 63

64 Blockchain / Crypto [Potential] Impacts on the Practice of Law The Most Hyped Effects on Your Work and the Legal Industry

65 Practical and Cross Disciplinary Issues Data Security Chain of Title/Custody Data Privacy Blockchain Technology Intellectual Property Digital Exhaustion IoT 65

66 Disruptors of Any Intermediary Business Authenticators Title Insurance Certification/Notarization Data Security Record Keepers Billing / Accounting Legal Docketing CRM Software Transaction Processors Payment Networks Escrow Disambiguators Transactional Law Dispute Resolution "Blockchain can provide a mechanism to combine the act of conveyance and the act of providing notice (recordation) of the conveyance into one event." Cook County Recorder of Deeds, Blockchain Pilot Program Final Report, May 30,

67 Disruption By "Smart Contract" Applications in the Blockchain Smart contract an agreement between parties, written to the ledger as program code that executes in response to a triggering event Finance conditional (If Then) transactions, e.g. derivatives Insurance life insurance policies; parametric insurance Logistics supply chain; employee workflow management Energy smart meters; micro grids Legal immutable contracts self executing validated transactions 67

68 Industry Study: Disruption in Healthcare Master Patient Index Chain naturally contains standardized records for each patient Timestamping, restricted data entry improve accuracy Hash patient data, not identity, to ledger, patient holds keys EHRs Interoperable provider, insurer, patient dapps/apis into ledger Longitudinal complete data (inpatient, specialist, wearables) Secure encrypted, consensus verified, immutable 68

69 Industry Study: Disruption in Healthcare Transactions and Claims Secure, chronological ordering of transactions in ledger Smart contracts (e.g., comparing claims to coverage) Add IoT devices to monitor entire lifecycles Personal Genomics (copyright your DNA) R&D with Ledger Data Non PII, giving clinical trial recruits anonymity Verified, standardized, timestamped, transparent, and persistent Streamlines data sharing, fosters collaboration 69

70 Adoption Challenges 70

71 Adoption Challenges Data Security vs. Data Insights How do we get analytics on encrypted ledger data? Privacy vs. Decentralization Is there a GDPR compliant blockchain? Regulatory Issues Where's the field and what are the rules? Fear and Inertia What about X hack? How do we get everybody else onto our platform? Data Privacy vs. Permissionless Networks Wait, anyone can have a copy of the ledger? Perceived and Actual Fraud WSJ on "Bitcoin Wannabes" What about Bitcoin's rep? 71

72 In Your House: Blockchain for Corporate Activity and Counsel Corporate Records Management and Retention Smart shareholder agreements, tracked transactions Smart employment agreements (e.g. IP assignments) Compliance Internal policies (e.g., record retention) Regulatory compliance, reporting Employee Workflow Management Blockchain analytics Decisions on Legal Matters Smart outside counsel Dispute resolution Docketing Blockchain for Your Products, Services, and Logistics Transaction Records Project Partnerships Data Security Integration with IoT Devices Vendor Agreements Authentication Smart contracts legalese to code Product Provenance, Tracking, and Monitoring Triggering events for smart contracts 72

73 In Your House: Working with Blockchain Builders Internal Development Data Security Permissioned networks Issues with Cryptocurrency Accepting Crypto Payments Making Crypto Payments Paying legal fees with Bitcoin Blockchain Service Providers Data Security Permissionless networks Permissioned networks on open platforms Offering Crypto Products dapps on a network that uses crypto Project partnerships Your own coin/token and network Software for managing/exchanging crypto 73

74 In Your House: Shifting Regulatory Framework U.S. Federal regulators are all over the place on crypto. So far: FinCEN crypto as a currency Know Your Customer & Anti Money Laundering reqs "Money transmitter" issue under Bank Secrecy Act Actual guidelines in 2013/2016 SEC crypto as a security (sometimes, maybe) Howey test for what is an investment security Guidance from "ICO as security" enforcement actions Filing games: SAFT vs. Form D vs. Section A CFTC crypto as a commodity Enabling spot & futures markets Spoofing and wash trading targeted but not resolved IRS crypto as property, not currency Ordinary income for merchants, capital gains for investors Mined coins are gross income with value at time mined International Disparities Cause Jurisdictional Issues, Other Uncertainty Switzerland: utility tokens do not require AML protections and are not securities Bermuda: ICO Act of 2018 formally permits capital raises through digital asset offerings Formal crackdowns in China, Korea, Thailand disrupted exchanges, increasing volatility 74

75 In Your House: Shifting Regulatory Framework State legislative activity examples Arizona Blockchain signatures and smart contracts are legally valid FinTech regulatory sandbox Delaware first state to allow corporate recordkeeping on blockchain New York "bit license" for crypto exchangers that deal in fiat Illinois 2016 blockchain initiative Included test of land title on blockchain successful but not deployed Wyoming five blockchain/crypto bills recently passed Exempting certain token activities from state securities and money transmitter laws Corp records and shareholder verification on blockchain Exempting virtual currencies from state property tax Civil and Criminal Precedents Upcoming decision on investor suit against Ripple may have ripple effect (right of rescission?) Criminal fraud case against founder of ReCoin & DRC may give future developers pause 75

76 2018 Quarles & Brady LLP This document provides information of a general nature. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular circumstances before acting on any of this information because it may not be applicable to you or your situation. Questions?

77 THANK YOU Benjamin Tietgen Partner (602) Joshua Covey Partner (602)