Hey folks! Do you want to learn about one of the most revolutionary tools for modern commerce: Smart Contracts? Okay, let’s start by picturing a financial transaction or a shipment of supplies completed smoothly without human interference. No humans are needed; just some lines of code get things done (Wowza). This incredible ability has pushed intelligent contracts into the limelight across various industries like finance, supply chain management, and real estate. In this web blog, you will learn about:
- What is a smart contract?
- Legal Enforceability
- Solutions & Best Practices
In Layman’s terms, Smart Contracts execute agreements written in code. They use Blockchain technology to ensure transparency, security, good output, and legal enforceability by automating contract executions. This approach decreases costs, streamlines processes, and minimizes risks associated with traditional contract management.
This sounds cool, but the legal question is: Can code replace traditional framework, or can code truly become enforceable law? The concept of “code is law” questions the centuries-old principle of contract law. This law highlights human interpretation, negotiation, and enforceability through legal institutions. Let’s discuss it further in the web blog.
Self-Executing Agreements in Blockchain
We have learned that Smart Contracts are digital agreements or computer programs stored on a Blockchain. It’s a distributed ledger system that assures security and transparency.
Advantages of Smart Contracts:
So why are Smart Contracts getting a lot of attention? Let’s see some significant points:
i.) Automation & Productivity
Forget about a whole stack of paperwork and time-consuming manual processing. Smart contracts automate these tasks and reduce mistakes. Are you a freelancer? Then, imagine your payments getting released automatically when you complete a task successfully.
ii.) Transparency and Stability
These are transparent, as all the transactions on a Blockchain are publicly viewable. Once you deploy a Smart Contract, its terms and conditions can’t be altered. This stability builds trust between parties.
iii.) No Third-Party Involvement
They eliminate the need for reliance on third-party services in most transactions. This can save a lot of time and money compared to using other intermediaries.
Blockchain Technology & Smart Contracts
How do Smart Contracts acquire this milestone? Well, that’s where Blockchain technology steps in. A Blockchain is a safe and alteration-proof platform for storing & executing smart contracts. All users have access to the same data on the Blockchain, which ensures transparency and prevents manipulation. The Blockchain network’s immutability ensures that the terms of Smart Contracts remain as they are.
Above all, Smart contracts use the power of Blockchain technology to automate agreements as effectively as possible. Although They offer many benefits, they also face some legal challenges, which will be revealed in the next section.
The Legal Enforceability
Despite the promising self-executing approach, there needs to be a fundamental disconnect between the logic of code and the traditional legal system. So, can lines of codes become enforceable laws? There are multiple roadblocks:
1. Vague nature of code: Codes are written with precision, while traditional contracts are left flexible on purpose for potential risks. The ambiguous nature of smart contracts can become tricky when there are unforeseen circumstances. Remember we talked about freelancing work earlier? So, imagine if the smart contract for your freelance work has a permanent clause: “Submit successfully.” What if the other party (your client) wants to make changes? So, the code may not be able to account for such conditions/
2. Uncertain Environment: Smart Contracts work within predefined parameters because of their very essence. So, what happens when something unexpected happens? If there’s a problem that the code has yet to anticipate, intelligent contracts become limited in this situation.
3. Lack of Legal Standards: Legal frameworks constantly upgrade to keep up with changing times. Smart Contracts are relatively the latest developments, and the legal system is still under the weather about handling them. Some believe in the concept of ” code is law” as it can offer a more secure foundation for agreements. Why is that? The logic behind this belief system is that the terms of a Smart Contract are written in code. They are stored on a transparent ledger, so there is less room for data manipulation. The automatic execution based on predefined parameters eliminates the need for human intervention.
However, the “Code is Law” argument disregards the complexities of human interaction. So, while it can work efficiently, it cannot predict human behavior and unexpected troubles. The legal system offers a safety net outside the initial nature of the contract. So, the Traditional system offers a level of fairness that a code struggles to achieve.
The future of Smart Contracts depends on a collaborative approach. Developers, policymakers, and lawyers need to collaborate to create clear language for them.
Solution & Best Practices
Here are some solutions to improve the legal enforceability:
- Codes are the foundation of legally sound Smart Contracts. So, more attention should be given to lawfully using reviewed language. Please take it as a contract term written in simple language but for the world of computers.
- Smart contracts have limited parameters. Oracles can be integrated to deal with real-world events. Oracles work as data feeds by connecting Smart Contracts to external sources of information.
- Just like traditional contracts, Smart Contracts benefit from legal expertise. Lawyers with knowledge of Blockchain technology can help review the code, identifying loopholes to ensure alignment with the relevant regulations.
Wrapping Up!
Smart contracts offer a modern agreement approach, promising efficiency, transparency, and automation. However, legal enforceability remains challenging due to the disconnect between code and traditional legal systems. The road ahead needs a collaboration between developers, lawyers, and policymakers. We can bridge the gap between code and law by writing clear code, integrating oracles for real-world data, and developing robust legal frameworks. This collaborative effort shows the way for a future where smart contracts are fully enforceable legal instruments.
If you have interest in learning how to deploy Smart Contracts and legal or privacy stuff about Blockchain, read our related web blogs:
Securing Digital Wallets in Blockchain
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