Lawyer: Briefly about the Technology of Smart Contracts

Lawyer Sees Conventional Contracts as a Classic Approach to Business

Lawyers know, that in the dynamic digital world, new technologies are constantly emerging and reshaping the way we conduct business. One of these innovations is the concept of "Smart Contracts." But are Smart Contracts, as they are called, truly as intelligent as they sound? In this article, we will delve into the essence of Smart Contracts and compare them with conventional agreements.

A lawyer might say that traditional contracts, which are familiar to us all, represent the foundational tools in the business realm. These written or verbal contracts establish agreements between parties, defining their rights, obligations, and responsibilities within a legal transaction. Such contracts are typically documented and include details about the fulfillment of agreements, payments, deliveries, deadlines, and potential sanctions for breaches.

Smart Contracts: A Digital Revolution in Legal Agreements

Smart Contracts introduce an innovative and distinct concept rooted in blockchain technology. Blockchain functions as a digital ledger, where data is recorded in blocks that are subsequently linked together, ensuring a reliable method of tracking transactions.

With Smart Contracts, instead of a lawyer drafting a contract, programmers create code that specifies the operational rules of the Smart Contract. This code governs various actions and reactions upon the fulfillment of predetermined conditions. The code is written in a programming language compatible with the blockchain platform, such as Solidity for Ethereum.

Each Smart Contract features an interface through which it receives input data. The code verifies whether this data complies with predefined conditions. Once the conditions are met, the Smart Contract executes the appropriate task. Transactions occur without intermediaries, as participants confirm their roles through cryptographic signatures. In contrast, a traditional contract would be signed by parties physically or digitally.

Once a Smart Contract completes its task, the results are stored in one of the blocks on the chain. This means that all agreements fulfilled by Smart Contracts are permanently recorded and cannot be erased. This crucially connects Smart Contracts with blockchain technology, enabling secure and automated execution of agreements and tasks.

Smart Contracts Compared to Conventional Agreements

With conventional contracts, often facilitated by legal professionals, such as attorneys, parties negotiate terms that are subsequently recorded in the contract's text. In the case of Smart Contracts, conditions are predetermined within the code crafted by a programmer. Parties do not directly negotiate the contract's wording; rather, they adhere to the codes embedded in the Smart Contract.

This process also differs from the norm regarding familiarizing parties with Smart Contract conditions. In conventional contracts, parties read and sign a physical or digital copy of the contract, thereby agreeing to the terms. However, the conditions are already integrated into the code in Smart Contracts. Before transaction execution or fulfillment of conditions, parties typically review the Smart Contract's code to confirm the accurate determination of conditions and to understand the consequences of fulfillment.

Lawyer Concludes: Smart Contracts Propel Digital Business Forward

While conventional contracts demand manual execution, Smart Contracts operate in an automated manner. The foundation of traditional contracts rests on mutual trust, whereas Smart Contracts rely on trust in technology. Classic contracts are more flexible and can be, often supported by lawyers, tailored to each party's needs, encompassing more complex terms, while Smart Contracts are more restricted to specific algorithms.

In summary, we can anticipate that Smart Contracts will continue to reshape the established norms of business in the years to come. However, these transformations also give rise to new legal questions and challenges that must be addressed in the context of this rapidly advancing technology.

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