Smart Contracts And Blockchain In The Legal Industry
Perhaps one of the most promising real world smart contract use cases is their potential to function as legally binding contracts the kind that inform most of todays business engagements. Technology has been driving innovation in the legal industry, most recently with the advent of e-signatures for binding legal agreements. Smart contracts represent another new development in this space, and may soon be an option for parties to legal agreements, potentially lowering the costs incurred from using lawyers and other intermediaries.
The widespread use of bespoke smart contracts for myriad types of transactions that can lower costs and increase transaction speeds may be closer than you think. Some U.S. states have begun to permit the use of smart contracts and blockchain in the legal industry in certain contexts. For example, Arizona allows enforceable legal agreements to be created via smart contracts, and California allows marriage licenses to be issued via blockchain technology.
And Heres To The Future Of Smart Contracts
Part of the future of smart contracts lies in entangling these issues. In Cornell Tech, for instance, lawyers, who insist that smart contracts will enter our everyday life, have dedicated themselves to researching these concerns.
Actually, when it comes to smart contracts, were stepping into a sci-fi screen. The IT resource center, Search Compliance suggests that smart contracts may impact changes in certain industries, such as law. In that case, lawyers will transfer from writing traditional contracts to producing standardized smart contract templates, similar to the standardized traditional contracts that youll find on LegalZoom. Other industries such as merchant acquirers, credit companies, and accountants may also employ smart contracts for tasks, such as real-time auditing and risk assessments. Actually, the website Blockchain Technologiesseessmart contracts merging into a hybrid of paper and digital content where contracts are verified via blockchain and substantiated by physical copy.
Examples Of Smart Contracts
Smart contracts are useful beyond cryptocurrency trading, including day-to-day tasks in financial services, IoT, and more. To your surprise, they are far more practical than anyone could imagine.
Internet of Things : It is a concept of adding the Internet function to the everyday objects in the house. Smart contracts can help users to achieve distributed and trustworthy access control for IoT systems.
Employment Contracts: Smart contracts can make a contract execution very convenient. When it comes to human resources, by utilizing smart contracts, employee details like salaries, professional roles, and responsibilities can be recorded with ease. At the same time, the transparency and immutable characteristics of a smart contract enhance the trust between an employer and employee. The parties can record only a part of the agreement using smart contract technologies. In this context, the contract can be:
- completely automated, without paper copies
- partially automated, with a paper copy
- partially automated, primarily on the paper
Copyrighted Content: A content owner should receive the royalties, but it is often tough to make sure who is a valid content owner as many parties can be involved in creating a single piece. Smart contracts can make it easy to understand the rights and responsibilities at any creative process stage.
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Top 10 Smart Contract Platforms By Market Cap
Smart contract platforms have grown to become one of the most significant sectors of the crypto economy. Of the top 10 crypto assets by market capitalization , three are smart contract platforms, with oneEthereumsecond only to Bitcoin itself.
Between them, the 10 leading smart contract platforms have a combined market capitalization of over $481 billion as of this writing. They include:
- Ethereum: Ethereum is designed to function as decentralized “world computer,” which can be used as a platform on which dapps can run.
- BNB Chain: A smart contract chain developed by cryptocurrency exchange Binance BNB stands for “Build and Build.”
- Cardano:Cardano is an open-source public blockchain project. It claims to be the world’s first peer-reviewed blockchain, with a network of academics and scientists checking its protocols before they’re released.
- Avalanche: An open-source platform for new financial primitives and decentralized applications developed by Ava Labs.
Challenges With The Widespread Adoption Of Smart Contracts
Given the existing legal frameworks for recognizing electronic contracts, it is quite likely that a court today would recognize the validity of code that executes provisions of a smart contractwhat we have classified as ancillary smart contracts. There is also precedent to suggest that a code-only smart contract might enjoy similar legal protection. The challenge to widespread smart contract adoption may therefore have less to do with the limits of the law than with potential clashes between how smart contract code operates and how parties transact business. We set forth below certain of these challenges:
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What Are Potential Obstacles Should I Know About
Other than the literacy roadblocks that come with a lack of mainstream understanding around the finer points of the blockchain, smart contracts do come with their own risks.
For one, the technology often relies on additional, separate technologies for contracts to be executed properly. With this in mind, things can get messy. Heres what we mean by this: Often, smart contracts depend on oracles third-party programs that can aggregate and upload data to determine when terms of the contract are met. So, what happens if theres an error within the oracle? We could be talking about a simple human data entry error or a more widespread file corruption.
Improper data being coded into the blockchain can be difficult to correct due to the decentralized, distributed nature of the technology. By the time an error is even first identified, the relevant contract could have already executed something both incorrect and irreversible, like a massive payment.
Theres alsothe potential for a nefarious actor to manipulate data to his or her advantage. Smart contracts are more book-smart than street-smart, so they may not be able to tell something is amiss the way a human could, say, identify a scam artist calling to tell you your car warranty expired.
Features Of Smart Contracts
Limitless applications: We can write anything in traditional contracts that can come to mutual agreements between two or more parties. So do smart contracts we can write detailed instructions in the form of code to maneuver what it can do. Therefore, smart contracts are capable of creating limitless applications, similar way to how coding has changed the world.
Running without middleman needed: Smart contracts make use of blockchain technology to verify each code execution. There is no third party needed in the process to execute the code. The smart contracts-enabled blockchain will handle the verifying work.
Transparency of smart contracts: We, crypto enthusiasts, can look into each line of codes of smart contracts executed on the blockchain with complete transparency. However, the code might be obscure for the majority of non-technical users. Therefore, there are security companies that focus on auditing the smart contract codes for crypto projects.
Truthless and autonomous: Once deployed, smart contracts can autonomously run accordingly as programmed. Users can interact with the smart contracts of the protocol via the user interface. In addition, two users can trust each other while using smart contracts. This creates an unprecedented and seamless experience with high reliability.
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What Are Smart Contracts In Blockchain & How Do They Work
Smart contracts are automated and self-explanatory based on the predetermined conditions set on the contract. Since the blockchain is a distributed ledger technology that allows data to be stored globally across different servers, it relies heavily on these databases to confirm a transaction. Hence, smart contracts are appealing to eradicate administrative overhead.
A smart contract represents the terms and conditions written in codes that automatically transfer funds from one party to another once the contracts predefined requirements are met. For example, when both parties agree on exchanging a cryptocurrency, the transaction will move forward with the blockchain ledger via the protocol bound on the smart contract.
Today, smart contracts remain popular in the crypto industry, primarily for exchanging cryptocurrencies. But its not restricted only to crypto, and in fact, many insurance and property companies are adopting this standard protocol for better scalability at a cheaper rate. In a nutshell, smart contracts are an essential component for many platforms. That is precisely why it is vital to clearly understand what smart contract is about and how they work.
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What Are Smart Contracts Used For
Smart contracts are used to securely ensure that terms are met based on particular conditions. The potential uses, particularly in finance, are endless.
Heres a simple example: Lets say an athlete will get a bonus from a local store when that store sells a specific number of their jerseys. Each jersey sale is rung up and recorded on a blockchain, and once that desired number is hit, the contract automatically triggers a payout of that bonus to the athlete. Theres no need for the store manager to sit there crunching the numbers. Theres no need for the athlete to wait for a check or for the stores bank to issue a direct deposit. Instead, once that final sale is rung up, the deposit is automatically triggered.
Now that our oracle brings game-stats on chain, smart contracts can distribute traits based upon Melo’s performance, powering our stat-based rewards. The first batch of traits are
But because this is all managed on the blockchain, you know there must be additional practical applications for smart contracts that are, lets say, of the non-fungible variety.
At their most basic level, all NFTs rely on smart contracts. When a user purchases one think of it as putting a dollar into the vending machine, which can be our stand-in for a blockchain that purchase is recorded and authenticated. Once this is settled, an NFT is dispensed.
But things can go even further than that.
Blockchains Where You Can Process Smart Contracts
NXT: NXT is a public blockchain platform that contains a limited selection of templates for smart contracts. You have to use what is given youre unable to code your own.
Ethereum: ethereum is a public blockchain platform and the most advanced for coding and processing smart contracts. You can code whatever you wish but would have to pay for computing power with ETH tokens.
As to the potential of smart contracts itself, theres no end to the range of industries it can impact, from healthcare to automobiles to real estate and law. The list goes on and on. Says,ethereum CTO, Gavin Wood
The potential for to alter aspects of society is of significant magnitude. This is something that would provide a technical basis for all sorts of social changes, and I find that exciting.
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Who Created Smart Contracts
The idea of smart contracts was originally introduced by Nick Szabo, a well-known American cryptographer. In 1996, his article about smart contracts was published in the magazine Extropy where he prognosticated the benefits and features of the blockchain contract applications. He then developed this concept in several articles in the following years.
Ian Grigg and Gary Howland were the other contributors to the idea of smart contracts. They published their work about the Ricardian Contracts as a part of the Ricardo payment system in 1996.
The implementation of smart contracts became possible after Bitcoin and its blockchain had come into existence, having created appropriate conditions. This innovation finally broadcasted several years later on the Ethereum blockchain. Today, many alternative platforms allow users to take advantage of this function, though Ethereum remains the pioneer.
What Are The Benefits Of Smart Contracts
The benefits of smart contracts are very similar to that of a blockchain.
- Speed: Smart contracts are digital and automated. It saves time as compared to manual documentation and the scope of errors is also less.
- Trust: They operate on pre-determined rules which are encrypted and shared among all the participants. This reduces any probabilities of malpractices and tampering.
- Security: Blockchain transactions work on the principles of cryptocurrency and they are encrypted. This makes it exceedingly difficult to hack into the network.
- Savings: Smart contracts eliminate the need for intermediaries as the transactions are transparent and do not require any third-party interference.
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Applications Of Smart Contracts
The applications of smart contracts are endless, and we see use cases emerging in dozens of industries. Two simple but powerful examples include:
To better understand the power of smart contracts when it comes to the Ethereum blockchain, we have to discuss the topic of ERC-20 tokens and the ERC-20 token standard.
Platforms For Smart Contracts
Smart contracts can be developed and deployed in different blockchain platforms . Several platforms offer distinctive features for developing smart contracts including contract programming languages, contract code execution, and security levels. Some platforms support high-level programming languages to develop smart contracts.
These blockchain-based development platforms are used in the existing studies that we detail in the following sections.
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Smart Contracts As Smart Legal Contracts
Among those who work in finance or law, the term smart contract is often read quite differently than the definition above.
Smart contract here refers to a specific use case of smart-contract code a way of using blockchain technology to complement, or replace, existing legal contracts. This is the definition of the term I considered in my last piece: the use of code to articulate, verify, and enforce an agreement between parties. A smart legal contract.
These smart legal contracts would most likely be a combination of smart contract code and more traditional legal language. For instance, imagine a supplier of goods enters into a smart legal contract with a retailer. The payment terms could be defined in code and executed automatically when delivery is made. But the retailer would likely insist the contract include an indemnity clause, whereby the supplier agrees to indemnify the retailer against claims flowing from a defective product. There would be no point representing this clause in code, since it is not something that can self-execute it exists to be interpreted and enforced by a court in the case of litigation.
Commercial agreements are full of boilerplate clauses that protect parties from various edge-case liabilities, and these are not always suitable for representation and execution through code, meaning that smart legal contracts will require a blend between code and natural language.
The Definition Of Smart Contracts
A smart contract is a digital analog for traditional agreements. Even though its quite different from written paperwork, it does follow the same concept. To be more precise, it includes a set of rules that should be satisfied to trigger execution.
Unlike traditional agreements, smart contracts are computer programs that operate using code. They are fully automated and eliminate the need to have intermediaries. The contract will be triggered on its own when the determined conditions are met.
Traditionally, you would need to contact your bank to approve a cross-border transaction or to transfer a large amount of money. Thanks to smart contracts, you can execute any payments on the blockchain without third-party involvement. This means that you can send digital money from the UK to New Zealand in seconds. You can also pay salaries or distribute funds without external approval.
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