If it keeps up, man will atrophy all his limbs but the push-button finger.
Frank Lloyd Wright
New ways of formalising relationships between stakeholders and parties have been made possible by the ongoing digital revolution. The inefficiencies of inanimate paper based contracts well with the time-log as well as real-time presence requirement may spell the need for faster, more accurate and efficient alternatives. Smart contracts essentially work on block-chain or other distributed ledger technology which forms a decentralised system involving only the permitted parties hence eliminating the middleman. Banks, governments and other institutions are noticeably turning towards blockchain technology as it offers an undeniably faster, cheaper and relatively more secure performance.
To simplify, all parts of an agreement would be stored on a blockchain based platform and relevant computer code would ensure that all parts of the agreement are automatically executed.
Some Case History:
With current developments, smart contracts are best suited to execute contracts which (i) involve ensuring payment of funds upon certain triggering events and (ii) imposing financial penalties if certain objective conditions are not satisfied (2). Additionally, reservations about smart contracts exist due to the inability of contracting parties to comprehend the necessary code for a smart contract and to that extent, debate arises as to wether the programmer should be versed with the law in order to accurate capture the legal aspects of what the parties intend to formalise. A non-lawyer may still be able to understand the basics of most agreements, contracts and legal provisions but a non-programmer would be at a significant disadvantage to understand the code behind even the most basic smart contract. (3)
Smart contracts have the potential of revolutionising the transactional sphere of the corporate world as well as performance of civil agreements between individuals. To a large extent, it creates more autonomy for the parties to make the agreement and ensures execution as it is managed automatically by a network instead of potentially biased individuals. The possibility of converting paper-text based contracts into blockchain based executable code makes Smart Contracts a viable tool which could be adopted globally. Although, smart contracts would inevitably require to evolve before they are adopted in commercial relationships, if adopted globally parties may be using them across far more jurisdictions than might exist in the case of text-based contracts. (4)
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