Hunit - Smart Legal Contracts

We’re done digitizing, now we can start digitalizing

Digital signatures have had a great pandemic.  Even if we have still fresh memories of dropping-off signed hardcopies of agreements, applications and forms, its nearly unthinkable today. 

 It’s easy to assume that this represents a leap forward in the digitalization of legal documents – and it is, but not likely for the reason you’re thinking. Legal documents have yet to really begin the transformation that is digitalization. The digital signature revolution isn’t the first step in digitalization, it’s the last step in digitization. 

Digitization and digitalization are often used interchangeably, which is unfortunate as it hides  profound distinction. Digitization is the act of turning analogue information into digital data (i.e. the scanning of a document and its transformation to code, and subsequent reproduction in an altered form, like being displayed on a computer screen) while digitalization is far more powerful – the transformation of entire business processes (or indeed business models) using the power of digital technology. 

Rather than distinct ideas, the path from analogue to digital transformation is a story written in chapters. How, after all, can business processes be digitalized if the underlying data that drives the business aren’t available in a computer readable format? Digitization has long been the necessary precursor to the next step in the transformation of legal documents. 

The final link binding legal documents to the physical world was the requirement that a person use ink and their hand to make them enter into force. In other words, our need to continue ratifying legal documents while holed-up in quarantine freed the legal instrument from its final earthly tether, the wet signature. 

Now that the dematerialization of the legal document is complete, what does the digitalization of law mean? More importantly, if you’re not a lawyer, why should you care? 

Digitalized legal agreements are no longer just a description of an understanding between parties, they become integral parts in the execution of the terms that have been agreed. Instead of gathering dust in a filing cabinet (real or digital), they become stateful  live and alert of where they are in the lifecycle of the agreement, what comes next and who needs to do what in order for it to occur. In Hunit’s vision, they can even contain pre-planned remedies that guide a situation of breach back into compliance or, if incurable, execute upon pre-agreed resolutions without the need to seek a court ruling. In other words, digitalized agreements become self-executing and self-managing. 

Who has the most to gain from digitalization? Sorry for the cliché, but it is all of us. 

Legal professionals have huge new frontier of ways to provide value for their clients or employers. Creating the new generation of legal documents will demonstrate the need for creative, robust, yet flexible thinking. Helpfully, being freed of executorial tasks (like chasing closing paperwork) gives lawyers more time to work on these ideas. With a document that responds dynamically to the needs of parties involved, clients will also be able to see the efforts of their legal teams play out in real time, making real impacts to deals.  

 Presuming that all non-lawyers enter into legal obligations from time to time, the legal sector’s ‘users’ gain new transparency, ease of interaction and the benefit of new types of offers tailored to specific needs. 

Taking automotive finance as an example, the number of consumer options available today is limited because uniform offerings enable scalable contract management costs. But customization is only expensive before digitalization has occurred. When a financing agreement can self-execute and self-manage, the cost premium to customization disappears. 

The final step in a sector’s evolution from analogue is what occurs when you layer digitalization over digitization – digital transformation. While the first step is about information and the second about processes, the third and final step is focussed on people. 

 What kind of change can digital transformation bring about? Ray Kurzweil helps shed light: 

 “Our intuition about the future is linear. But the reality of information technology is exponential, and that makes a profound difference. If I take 30 steps linearly, I get to 30. If I take 30 steps exponentially, I get to a billion” 

The hospitality industry originally digitized via booking systems available first to travel agents and then to everyone. These took the analogue way of booking accommodation and made it more efficient, but the process essentially remained the same. But the subsequent digital transformation of the industry means that the world’s largest hospitality company now consists of millions of apartments, bedrooms, cabins, treehouses and yurts owned and operated by almost as many individuals. 

To understand the power of digital transformation, consider that the revolution in hospitality occurred despite the fact that it is based on people doing the exact things that they were warned not to do by generations of parents, teachers and authorities. Stay in the home of a complete stranger? Trust your apartment to someone you’ve never met? Imagine trying to explain this model to a travel professional from the 1980s. 

In the same vein, think of the looks on the faces of yesterday’s children and parents when told that they will soon think nothing of getting into shabby cars driven by total strangers (another digital transformation). It would almost be too much to include that drivers who offer candy to passengers get extra stars in their reviews.