Smart Contracts: The Blockchain Technology That Will Replace Lawyers.
One of the best things about the blockchain is that, because it is a decentralized system that exists between all permitted parties, there’s no need to pay intermediaries (Middle men) and it saves you time and conflict.
Blockchains have their problems, but they are rated, undeniably, faster, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them.
In 1994, Nick Szabo, a legal scholar, and cryptographer, realized that the decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts.
In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service.
What are Smart Contracts?
Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way, while avoiding the services of a middleman.
The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document.
With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account.
More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.
A Smart Contract Example
Here is the code for a basic smart contract that was written on the Ethereum blockchain. Contracts can be encoded on any blockchain, but Ethereum is mostly used since it gives unlimited processing capability.
An example smart contract on Ethereum. Source: www.ethereum.org/token
The contract stipulates that the creator of the contract be given 10,000 BTCS (i.e. bitcoins); it allows anyone with enough balance to distribute these BTCs to others.
[optin-monster-shortcode id=”kzvnolsiafjpwmac”]
Smart Contracts are Awesome!
Here’s what smart contracts gives you:
Autonomy – You’re the one making the agreement; there’s no need to rely on a broker, lawyer or other intermediaries to confirm. Incidentally, this also knocks out the danger of manipulation by a third party, since execution is managed automatically by the network, rather than by one or more, possibly biased, individuals who may err.
Trust – Your documents are encrypted on a shared ledger. There’s no way that someone can say they lost it.
Backup – Imagine if your bank lost your savings account. On the blockchain, each and every one of your friends has your back. Your documents are duplicated many times over.
Safety – Cryptography, the encryption of websites, keeps your documents safe. There is no hacking. In fact, it would take an abnormally smart hacker to crack the code and infiltrate.
Speed – You’d ordinarily have to spend chunks of time and paperwork to manually process documents. Smart contracts use software code to automate tasks, thereby shaving hours off a range of business processes.
Savings – Smart contracts save you money since they knock out the presence of an intermediary. You would, for instance, have to pay a notary to witness your transaction.
Accuracy – Automated contracts are not only faster and cheaper but also avoid the errors that come from manually filling out heaps of forms.
Now for Problems
Smart contracts are far from perfect. What if bugs get in the code? Or how should governments regulate such contracts? Or, how would governments tax these smart contract transactions? As a case in point, remember my rental situation?
What happens if I send the wrong code, or, as lawyer Bill Marino points out, I send the right code, but my apartment is condemned (i.e., taken for public use without my consent) before the rental date arrives? If this were the traditional contract, I could rescind it in court, but the blockchain is a different situation. The contract performs, no matter what.
The list of challenges goes on and on. Experts are trying to unravel them, but these critical issues do dissuade potential adopters from signing on.
And here’s 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, we’re 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 you’ll 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 Technologies sees smart contracts merging into a hybrid of paper and digital content where contracts are verified via blockchain and substantiated by physical copy.
Blockchains Where You Can Process Smart Contracts
Bitcoin: Bitcoin is great for processing bitcoin transactions, but has limited ability for processing documents.
Side Chains: This is another name for blockchains that run adjacent to Bitcoin and offer more scope for processing contracts.
NXT: NXT is a public blockchain platform that contain a limited selection of templates for smart contracts. You have to use what is given; you’re 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 compute power with “ETH” tokens.
As to the potential of smart contracts itself, there’s no end to the range of industries it can impact, from healthcare to automobile to real estate and law. The list goes on and on. Says,. Ethereum CTO, Gavin Wood
https://blockgeeks.com/guides/smart-contracts/