The gap in the electronic signature market that blockchain and cryptographic technology might be able to fill

Last year DocuSign IPO’d for over six Billion. They make a great product that provides a high level of convenience and a degree of certainty for the people that use it. At a recent conference I caught a session about digital signatures by Mark Henderson from Adelaide Law firm Kelledy Jones. It highlighted where electronic and digital signatures work well, and places where there are problems that make them uncertain. There is also one area in which they are currently unusable, and which I think provides a legitimate opportunity for the most over-hyped technology in the market to do something useful.

The requirements for a valid contract to be formed are well understood, and the legislation and legal precedents for entering into contracts legally via electronic means exist. In essence, there is not generally anything stopping an electronic contract in most situations. The quotation from one relevant case by Justice Harrison reads “Mr Stuart typed his name on the foot of the email. He signed it by doing so. It would be an almost lethal assault on common sense to take any other view”. There are however a number of areas in which electronic means of signing cannot currently be used.

These areas generally require one or both of two things – a witness, or the physical fixing of some form of stamp or seal. I am not qualified to go into the nuances of which instruments these are, but what intrigues me is that these seem like logical areas for a technology like Blockchain.

Witnesses and seals raise the volume and quality of information required to reduce the chance that a contract can be repudiated. As an example, a contract with a single signature on it could be repudiated by a company on the basis that the signature was forged. A contract signed by the chairman and CEO of the company, with the corporate seal affixed and witnessed by a non-interested third party on the other hand is far harder to repudiate. Each step adds information that reduces the chance that an apparently valid contract can be repudiated – and this is why blockchain might provide a technical solution in the presence of enabling legislation.

The centre piece of blockchain is non-repudiation. This means that it has technology that proves a transaction has not been tampered with. It does this by using cryptographic measures that verify the position of an item in the chain based on the information from the items in the chain prior to it. This means that once an item is entered in the chain, it cannot be changed unless every other item after it is then altered as well. Obviously this could be accomplished, but a blockchain is also required to be distributed among many peers and kept synchronised to make tampering more difficult – so someone trying to change one transaction would also have to get every other peer to change their chain too.

This all means that a blockchain could provide a publicly available repository of contract data – kept in public and distributed so that it could not be tampered with, and cryptographically signed by both sides of the transaction. Witnessing of the transaction could take the form of a future transaction by a neutral third party that references the original transaction. This witnessing could include cryptographic information that replaces the current function of a corporate seal using Public Key cryptography.

The simplicity of this idea is that it could scale to encompass scenarios requiring multiple signatures and witnesses, and also the affixing of a corporate seal. It could also include amendments and variations to contracts through self-referencing. Given the flexibility of blockchain, it would also be trivially easy to use a digital identity provider to verify identity and sign the transaction – and include information about liveness tests.

Personally, I’ve used DocuSign and formal digital signatures for many transactions and entered into contracts by email and other digital methods. The legal framework makes doing this simple and the actual technology largely irrelevant. In the case of transactions requiring additional information to verify their validity though, we have both a legal and technical challenge, I think that blockchain provides a useful way to solve the technical side of the issue – which would enable a common law test and might lead us to a world that no longer requires the signing ceremony.

Author: Karl Melrose

Thinker about how to think about economics, security, risk, technology and incentives. Out to solve every optimising problem, out to make sure my thinking gets better, every day.

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