What are Smart Contracts?
Blockchain smart contracts, as defined by its inceptor, is ‘a set of promises, specified in the digital form, including protocols within which parties perform on these promises.’ Smart contracts have found a consistent parallel-mention with the blockchain. Smart contracts are immutable and automated. They can either be written in codes that require smart contract development expertise, or in a linked natural-language, also known as a Ricardian contract.
A smart contract can be considered perfect further to the completion of a smart contract audit. The smart contract audit not only gauges the accuracy of the code, but also the quality of the contract in its real world implications and method of execution.
What makes them special?
The presence of the term ‘contract’ raises questions on the validity of smart contracts as legal elements. For anything to be accepted as a legally binding contract, it should satisfy the mandatory requirements to be enforceable at law.
Smart contracts aren’t ‘contracts’, but they were meant to be. With the advent of machine learning and artificial intelligence, the definition of ‘smart’ has drastically changed but smart contracts aren’t capable of machine learning. While the utilities of smart contracts in the blockchain for finance have been proved beyond doubt, the legal acceptability and relevance of smart contracts will be a subject of discussion.
Living Breathing Examples:
Fizzy AXA, a French airline insurer, used Ethereum smart contracts. These blockchain smart contracts ensured that automatic compensation was issued to the customers in the event of a more-than-2-hours delay of flights. When considering the blockchain for finance, we’ve seen R3’s Corda being extensively used by HSBC and ING for executing live financial transactions.
The question of legal enforceability:
Whether or not a smart contract is legally enforceable will depend on the smart contract meeting the requirements. A well-performed smart-contract audit could ensure the contract’s compliance with legal requirements.
Smart contracts in themselves are quite nascent in their applications, leave alone the legal implications. The mainstream-absence of natural language elements makes the transition of smart contracts to the legal realm increasingly complicated.
Smart contract development is now as to what web development was in the late ‘90s. The legal system is yet to catch up with technology, and the legal framework is expected to alter the existing smart contract system to flawlessly integrate flawlessly. Given the opportunities and the growing acceptance of blockchain smart contracts, this change is expected to happen sooner than later!
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