The Notary in the Third Millennium, from the sharing economy to the blockchain
The Notary in the Third Millennium, from the sharing economy to the blockchain
Notary in Milan
The Notary in the sharing economy
"As should now be clear, the jury in this case will be handed a square peg and asked to choose between two round holes. The test the California courts have developed over the 20th Century for classifying workers isn't very helpful in addressing this 21st Century problem. Some factors point in one direction, some point in the other, and some are ambiguous. Perhaps Lyft drivers who work more than a certain number of hours should be employees while the others should be independent contractors. Or perhaps Lyft drivers should be considered a new category of worker altogether, requiring a different set of protections. But absent legislative intervention, California's outmoded test for classifying workers will apply in cases like this. And because the test provides nothing remotely close to a clear answer, it will often be for juries to decide. That is certainly true here."
These are the words of the District Court, Northern District of California, on 11 March 2015 in the case of Patrick Cotter et al. v. Lyft Inc.
They also represent the point of departure for the paper I am presenting here.
Before seeking to define the notary's role in the third millennium it will be necessary to identify society of the third millennium and above all, the type of economy that will support the European and world socio-economic system.
There is no doubt that we are in the presence of a revolution which is permeating, or rather, has already permeated, all our lives - the technological revolution embodied in the Internet. But the Internet is provoking a second revolution, fed by the continuous flow of information and contacts between strangers, located in different parts of the world. This second revolution is the so-called sharing economy.
The Oxford Dictionary gives it a heading of its own, defining it as "an economic system whose goods and services are shared between participants either without charge or in exchange for money, typically over the Internet".
What is the precise meaning of the sharing economy?
This expression and those analogous to it (collaborative, peer or gig economy, collaborative consumption(1)) are commonly defined as a collection of heterogeneous economic practices characterised by sharing through an online platform of goods and services between peers(2).
There is a multitude of possible examples, ranging from private car transport (Uber(3)), to the search for accommodation or a bedroom for a short period (Airbnb(4)), but it is also used in the case of complex activities such as lawyers (AxiomLaw, Quicklegal, Upcounsel), consultants (Eden McCallum), doctors (Medicast, Heal) and top managers (Talent Group).
There is a common denominator for all these cases: a mobile application software putting service providers and their users in direct contact with each other.
Obviously, this direct contact could not support itself unaided, requiring a mechanism of checking and knowledge of the reliability of the services which is completely different from the trust mechanisms applicable to traditional markets, based on rating and feedback systems by which the users themselves provide the information to the market.
This system of self regulation has been considered sufficient by the literature which has studied this subject, identifying, in the creation of the related p2p platforms, the achievement of those most extreme liberal ideals which saw the free market as the solution to all problems but which, as yet, have always been thwarted by the need to include public limitations and regulations in order to reduce so-called "information asymmetries", the basis of all consumer protection law. It is argued that these supposedly effective information and protective instruments give rise to the digital economy's self-regulating capacity, the solution of juridical problems being to recognise the market's own duty to self-regulate, perhaps delegating this job to category bodies on the lines of medieval guilds(5).
But what are the requirements underlying this new form of market development, this new economic system?
Wikipedia, the new bible of the modern economic system, notes that the benefits of the collaborative consumption are
· The reduction of pollution by sharing transport.
· Economic savings and reduction of waste thanks to the different formulae of lending, shared purchase and product exchange.
· Increase in happiness thanks to the new positive social interaction.
It is obvious that the new trend is that of lightening the relationships between producer (or service provider) and consumer and the rules that govern them. Thus it is that all peer economy internet sites highlight the amateur nature of their service at every step – those renting out property do not do it for their work and those offering car lifts do so to share costs and would have done the journey in any case. The amateur character is not only a marketing strategy aimed at convincing possible customers, it is above all a choice of the field where to operate, a distancing from services exercised professionally and in particular from their suffocating rules(6). All this is pervaded by the conviction that the peer rating system and information on the experiences of users is enough to provide sufficient protection of the interests in play.
Thus it is that in all objections to the sharing economy put forward by professionally organised service providers, the point which is emphasised is that, against this appearance, in reality there are owners or managers of tens of different properties, full-time drivers or in any case people who use such activities to earn a living, as their main working activity. They use the tools of the sharing economy to pay fewer taxes (or even to pay none at all), or to avoid compliance with the rules or limitations contained in the related legal systems.
There is no doubt that the sharing economy contributes significantly to narrowing the differences between the service provider and the consumer, in this way increasing the difficulties of drawing up rules to govern relations and to counteract differences in bargaining power. The entire system of regulation for consumer protection within the Community is, for example, founded on the distinction between business and consumer. The same notion of consumer, understood as the "natural individual acting for purposes which are non-business or non-professional", is based on this distinction. What happens then if the service is not provided by a professional operator? What protection can be offered to the user of that service? If the rules on the provision of professional services are inadequate to govern the offer of goods and services by private individuals or if consumer protection law is considered not to apply, as seems to be the case, there is a clear problem of protection of users and the recipients of goods and services.
On the other hand, the origin of the whole system for the regulation of service provision is a response to the need to govern a market which, if left unregulated, is unable to provide security in transactions or to guarantee sufficient means of compensation.
While this is one of the many aspects in which the multi-faceted and complex evolution of our society is moving towards the model delineated by the sharing economy, it is still necessary to recognise and analyse the other side of the coin, perhaps representing its origin and motivation.
All ideas of economic success briefly identified above are founded on an awareness, that is, the trend by people in developed countries towards the abandonment of an economic system based on property in, and entitlement to, goods in favour of an irreversible economic model based on the possibility of using the goods, whether these be cars, houses or consumer goods, without owning them.
A striking example of the above is leasing, generally used for moveable goods but also often used for immoveable property, particularly of a commercial nature.
Recently in Italy, legislation has been introduced to regulate the leasing of living accommodation, that is, a contract under which the assignor undertakes to purchase the real estate or have it constructed in accordance with the user's instructions, the former assuming all risks including of destruction, making it available for a given period of time in consideration for a specific payment which takes account of the purchase or construction price and the contract duration. On the expiry of the contract the user has the power to purchase ownership of the property at a pre-set price.
Leasing contracts were already common in practice but only in relation to production premises. With the Stability Law it is now possible to extend it to dwellings.
In other words, the assignor, who is only required to be an authorised professional, a bank or financial broker registered on the related register, will undertake to purchase the property indicated by the user who must be a natural individual, identifying it as his or her main residence.
The user is then free to decide, on the expiry of the agreed term, whether or not to proceed to the purchase (without prejudice moreover, to the assignor's continuing obligation to effect the assignment in the event that the user decides to exercise the power described above).
The legislation includes a series of tax benefits designed to provide incentives for the use of this kind of operational instrument.
It is clear that leasing moves the focus of importance from ownership to the use of the asset not only for instrumental goods used in the running of the business but also for assets which are by their nature destined as the embodiment of ownership and property rights such as the home, including from the perspective of a future transfer on succession to heirs.
The question that has to be put in this context is thus what is, or rather what could be, the role of the notary in this new economic system?
The answer seems crazy but it must of necessity sought in the traditional figure of the notary and the role attributed to the notary in civil law systems or in any case the notarial practice with origins in Roman law.
The notary can, and indeed must, continue to fulfil the role of providing assistance to the parties, particularly the "weaker" one, that is, the less capable and skilled of the two and hence with lesser bargaining power, functioning as a means to even up the imbalance between them. In particular, the notary must be active in the drafting of those clauses which govern the use of the property over time and receptive to the parties' wishes, translating them into contractual provisions which will remain firm and capable of withstanding the pressures even in the event of dispute between the parties. This is because the reason for a notary includes that of ensuring that any dispute does not lead automatically to court proceedings simply because the contract has been written correctly and any information asymmetries have been rectified by the authoritative intervention of the notary as third party. The notary must preserve this role, if possible accentuating it, even in sharing economy contracts.
The blockchain system
The risk is that one might imagine that the system is able to devise mathematical formulae capable of regulating the transfer of assets without the need for input from notaries and the like.
This is obviously a reference to the blockchain system, the basis for the success of bitcoin.
The latest and wonderful book by Jonathan Franzen, Purity, runs through sixty years of recent history and presents us with a sad reality: those responsible for the breaking of the world into pieces are now shouting the most terrible things and our present world is paradoxically under closer surveillance than under the DDR, in the continual search of a utopian and impossible purity, with many talking ceaselessly of impossible worlds actually hiding disturbing truths.
The blockchain is the protocol underlying Bitcoin(7), the famous cryptocurrency which makes it possible to carry out economic transactions without the use of banking intermediaries. While bitcoin has been the subject of discussion for some time now as a new virtual currency, the blockchain has only been the focus of attention recently. In reality the two things are not so different. Many indeed, use the two terms as synonymous with each other.
What has been discovered recently however, is that the blockchain has an almost infinite number of applications, doing what bitcoin does for the payment for goods and services. In other words it can be inserted in a relationship, an exchange, guaranteeing its reliability without the need to refer to a third party authority to confirm its validity.
Because of this, the internet immediately argued that the blockchain can be used to replace notaries, institutions and specific experts able to guarantee intellectual property and political elections.
But how does the blockchain work?
The first fundamental element is that the blockchain can be controlled by anyone in the full application of the ideologies underlying the idea that the Internet has the answer to everything, including democratic principles.
This is also because no-one can own the blockchain or, at least, as we will see, there is no advantage to be gained from owning it, this being too onerous.
The reason is because every transfer has to be approved by 50% plus one of the blockchain links.
Today bitcoin is accessible to everyone. About 4 million people throughout the world use it (by comparison, Facebook is used by 1.5 billion people). To obtain them and to begin buying things with this cryptocurrency, it is possible to apply to trading companies which will convert your money into bitcoin, creating a virtual wallet for you.
In the final analysis bitcoin is nothing other than a file with an economic value permitting the owner to buy goods and services within the network.
The number of coins will increase up to 2140 when they will have reached 21 million. They will then run out and that is why the price will tend to increase. The ability to use them up to the eighth decimal place (0.00000001) ensures that they can be used for smaller transactions. Once bitcoins have run out it would be possible to increase the number of decimal places to guarantee lower value transactions. It is thus an asset like gold, finite in amount but infinitely divisible.
Those calculating the codes to protect new bitcoins are called miners . The first miners had a relatively easy task since the bitcoin protective code was fairly simple. Things have become more complicated over time and now it's necessary to use enormous computers with incredible calculating power to resolve the protective codes.
Unblocking a blockchain now liberates 25 Bitcoins.
Perhaps this is the mechanism which will give rise to the stroke of genius, some having suggested that it could be the first concrete application of the concept of artificial intelligence. The greater the number of players and their calculating power, the more complex it becomes. And it is autonomous. It is able, on its own, to guarantee the internal equilibrium of the system.
The correctness of the transactions is, or rather should be, guaranteed by the nodes, recording all transactions involving the transfer of money from one end of the Internet to the other, where the money arrives and where it goes.
The nodes have to guarantee that everything adds up to zero. Currently there are about 6 thousand. Anyone can become a "node by downloading a programme and the entire accounting ledger of all bitcoin transactions occurring over the world and check their authenticity.
Bitcoin has shown that it has become a secure payment network able to guarantee on the one hand, correct and verified transactions thanks to the nodes and, on the other, protection of data anonymity.
But the bitcoin security system is based on the fact that it suits both miners and controllers that everything should remain perfect and unchallengeable to ensure that their work and source of earnings continue to increase. The correctness of bitcoin is something that all players in the payment network want since every step they control and verify gives them a small percentage of a bitcoin for the work carried out. Every transaction must be accepted as right by 51% of the network nodes. The owners of the ledgers control everything.
Who guarantees the security of the blockchain? The answer is simple, no-one. This is because it is in no-one's interests to invest sufficient money to be able to purchase enough nodes to control an exchange volume over the Internet which is less than the investment itself. And once this becomes known nobody would use bitcoin any more.
This then is the true crux. The system, again, is not neutral and could be bought up and hence manipulated.
The whole system stands on the fact that it is not worth anyone's while to buy the nodes required to control the exchange volumes on the net. It is impossible to say that it couldn't happen but it could only be done by someone with enormous resources.
They are telling us that we have to trust in the ineffable algorithmic ability and honesty of neo-liberal man to make an assessment of his own selfish interests rationally and infallibly and that should be enough for us.
But are we sure that it couldn't happen? You only have to think of the colossal fines that the great world banks decided to sustain for the systematic manipulation of Libor and Euribor, Volkswagen which falsified the tests on its cars and many other examples where the representatives of political and economic power have knowingly decided to break the rules, being prepared to risk the imposition of penalties because, as stated by the CEO of JPMorgan "This is just the cost of doing business for these mega banks. As long as JPM's income exceeds its legal fees they have no economic incentive to stop pushing the law at every opportunity. There's so much money in breaking the rules and only a moral incentive to not cheat. The single greatest innovation of the banking sector has been to convince the Justice Department and Treasury that if you prosecute us for our crimes we'll send the economy back into the abyss. The banks are making enough money to pay off the regulators and satisfy shareholders. It's a good business."
In other words, the much-flaunted security of the blockchain system can be forced too, like all human endeavours, even though with unimaginable technical difficulties and, it just happens to be only by those with economic resources which are so vast that they could afford it(8).
A recent experience would appear to prove this argument. It refers to DAOs, Decentralised Autonomous Organisation, that is a contract codified within Ethereum in which the parties involved are granted a series of powers and rights deriving from ownership of shareholdings represented by a token. Ethereum, just as Bitcoin, was set up and developed as a decentralised system which requires no authority to be able to work. The most famous and richest DAO is called The DAO and raised something like $117 million in Ethers (eth) during its subscription process.
In effect The DAO is an investment trust which allows the owners of The DAO Tokens to propose, discuss and, in the end, vote on, what the Ethers raised should be invested in.
The rules governing the functioning of The DAO are based on its programme code which in turn is centred on Ethereum's blockchain.
It was discovered however, that The DAO's programme has a serious security problem. It allows an action which had not been foreseen (or at least, ought not to have been foreseen) by its creators. In practice it's possible to make the system give back the invested Ethers without the destruction of the corresponding tokens if the right procedures are followed.
One night someone exploited this lapse and started to empty out The DAO, removing about 3,641,694.24 ethers, that is about 72,833 bitcoin, that is $53 million at current exchange rates.
The market obviously punished The DAO (its token is listed) and has punished, and is still punishing Ethereum as well. Unfortunately, there are good fundamental reasons for the market's loss of trust in Ethereum in this case.
The affair involving The DAO also brought to light another large gap, in particular that there is a gigantic problem of conflict of interest which is much more frequent than might be thought. One of those responsible for setting up The DAO is Vitalik Buterin, that is, a key figure in the Ethereum project. He has suggested an Ethereum Hard Fork to cancel the transactions which lead to the emptying out of The DAO. In other words, one of the protagonists of the blockchain platform has suggested the immutability of the blockchain (belonging to Ethereum) to remedy an error in the code of an external service using Ethereum's functionality, in this way importing Moral Hazard into the blockchain itself.
To defend a single project, by now in any case irreversibly compromised, it is suggested that the authority and inviolability of the blockchain should be undermined.
This is precisely because the much vaunted inviolability of the blockchain is an assumption which cannot be demonstrated and is probably untrue.
And then it is a point of fundamental importance at which the alleged capacity of the blockchain to install a decentralised checking system capable of guaranteeing transactions involving goods and property gives way before the simplest of questions: Who issues the data which the algorithm is to guarantee? Who guarantees the correctness of the data which have been so issued? This is the aspect of fundamental importance characterising the activities of humans and of notaries in particular which no algorithm will ever be able to replace. Any professional carries out activities of fundamental importance: understanding what the party wants and drawing up the legal instruments capable of satisfying the requirements of the client. It is the adaptive function which characterises notarial activities and which no technology can replace.
It is obvious that notaries worldwide cannot in any way undervalue the potentialities and capacities of new technologies to remove parts of their areas of competence but it is important above all, that they are aware of their own strong points.
Indeed, the great challenge for notaries throughout the world will be precisely that of participating in the changes under way, ensuring that the new technologies do not mean the end of the profession but simply its adaptation to the society of tomorrow.
What then is the added value that the notary is able to offer in this economic context? Help, security and guarantee.
The notary will have to continue assisting the parties, particularly the "weaker" participant with lesser capacity and skills and hence with weaker bargaining power, carrying out its adaptive function, seeking to do what no machine or technology is able to do: to interpret the parties' wishes and translate them into stable and long-lasting clauses, capable of standing firm and resist the pressures of disputes between the parties.
Notaries in the world must be aware of their strong points, looking at the new technologies and the new contractual forms as an opportunity to exploit in order to highlight their utility. The degree of security that the notary is able to offer, or rather the overall system of which the notary is the main element, is undoubtedly very high. In all cases in which there has been a deregulation of transactions, perhaps by eliminating the involvement of the notary, consumers have had no economic benefit and fraud and fraudulent operations have increased. But what has suffered the greatest damage is precisely the whole economic system because security in commercial traffic, guaranteed by the notary of Roman origin, is a precious asset in economic terms too, saving judicial costs and tending to counteract information and contractual asymmetries.
(1) A term used for the first time in 1978 by Marcus Felson and Jo and L. Spaeth in their article "Community Structure and Collaborative Consumption: A routine activity approach" published in American Behavioral Scientist.
(2) As per G. Smorto, Verso la disciplina giuridica della sharing economy, in Federnotizie, www.federnotizie.it
(3) This is what one can read on Uber's site: "Uber is driving the evolution of the way the world moves. Using our apps to connect drivers with customers we make towns more accessible, creating new opportunities for customers and work opportunities for drivers. From our foundation in 2009 to our current presence in more than 70 towns, Uber's rapid expansion globally continues to bring people closer to their towns and cities".
(4) "Set up in August 2008 and with its main headquarters in San Francisco in California, Airbnb is a reliable portal where people can publish, discover and book unique accommodation throughout the world, both from their own computer and from their mobile or tablet. Whether one is talking about a flat for a night, a castle for a week or a villa for a month, Airbnb puts people in contact through authentic travel experiences at any price in more than 34,000 towns and 190 countries. What is more, thanks to our fantastic customer assistance service and an ever growing user community, Airbnb is the easiest way to obtain profit from any extra space you may have, advertising it to a public of millions of people."
(5) G. Smorto, Verso la disciplina giuridica della sharing economy, in Federnotizie, www.federnotizie.it
(6) G. Smorto, ibidem.
(7) Appropriately for something that has become a kind of dogma or religious creed, the creation of bitcoin (and the Blockchain) was wrapped in mystery for a long time (see http:/historyofbitcoin.org for a useful timeline on the history of bitcoin). At first the only thing was known was the date of its creation on 16 August 2008, and the name circulating at the time was that of Satoshi Nakamoto, the programmer who was supposed to have come up with the idea. In reality, behind Satoshi Nakamoto is the Australian businessman Craig Wright, as he himself finally reveal to the BBC in April 2016, Economist and GQ, providing the technical proofs of his invention, that is the encoding keys that make the payment system work and are unique to the system's creator. It was also confirmed by important members, including managers and developers, of the bitcoin community. Bitcoin was set up at the heart of the information era and yet, obtaining information on its paternity is impossible. Its origin today is even more of a legend than before.
(8) As proof of this there are many examples of agreements between positions which ought to be incompatible with each other but which are clearly not in practice. This "pact between enemies" was initiated in Canada, where the Bitcoin Embassy of Montreal has been set up. But it is not the only model. There are others which are described as a kind of pact with the devil, "system operations" with on the one side consortia of financial institutions and on the other, exponents of the Bitcoin community paid for their consultancy. One of the best known is Digital Asset Holding, lead by Blythe Masters, pioneer of credit default swaps and ex enfant prodige of JP Morgan Chase which he left in 2014 after 27 years, following accusations of embezzlement. Digital Asset Holding investors include JP Morgan, Goldman Sachs, Bnp Paribas, Abn Ambro, Accenture, Santander Innoventures and Citi. R3Cev, is even better known, bringing together 42 of the world's most important banks including Goldman Sachs, JP Morgan and Credit Suisse, which "are developing common standards for blockchain technology in an attempt to increase its use in financial services". Other initiatives are more independent such as Blockstream, which has obtained financing from companies like PwC but which has as its chairman Adam Back, a proponent of crypto-anarchy in the 1990s.