Blockchain technology contract and regulatory framework : 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 (Middlemen) 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.
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.
You can use smart contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes, and crowdfunding agreements.
The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts.
Suppose A rent an apartment from B. A can do this through the blockchain by paying in cryptocurrency. A get a receipt which is held in the virtual contract; B gives A the digital entry key which comes to A by a specified date. If the key doesn’t come on time, the blockchain releases a refund. If B sends the key before the rental date, the function holds it releasing both the fee and key to A and B respectively when the date arrives. The system works on the If-Then premise and is witnessed by hundreds of people, so you can expect a faultless delivery. If B gives the key to A, B is sure to be paid. If A sends a certain amount in bitcoins, B receive the key. The document is automatically canceled after the time, and the code cannot be interfered by either of them without the other knowing since all participants are simultaneously alerted.
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.
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. 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.
On the technical level the language of the block chain sets the environment. If the language does not offer the concept of enforcement than you cannot do anything to enforce a smart contract. For example, you have a well coded smart contract that technically states that you receive every month a certain amount of cryptocurrency from the account of your contractual counterpart. But what happens if the account of your counterpart runs out of cryptocurrency. You cannot enforce the account to buy Ether somewhere in order to fulfill its duties. In such case the contract would be not valid.
On the legal level, you could use the contract as evidence in an in court and hope for the best that the judges accept and believe the content of the smart contract (in the case they can read and understand it in the first place).
ISSUE: what happens if your contractual counterpart says that you forced him or her to accept the contract or that you blackmailed her or him to accept that contract? Is the technically correctly coded contract still valid under this condition?
Smart contract in a blockchain is a very nice thing because it describes the will of two or more contractual counterparts in a language that is machine readably and executable. However, the lines of code that make up the contract do not say anything about the broader legal environment and the legal validity of the content of the contract. And as a result it may not be possible to enforce the contract.
As smart contract is just a piece of code, so there are some issue related to their regulation from a legal perspective. If the code of a smartcontract is not covering the different regulations of all the markets from where the people using it come from, it could be considered as illegal or irrelevant.
It must also take into account the upcoming legal modifications, thus it means that the rules can be changed during the period of the smartcontract.
Because, in most cases, the final decision maker is the blockchain, you can’t rely on human judgments. Most of the time, that would be a great positive feature but in particular cases, humen are the only one to solve a matter taking into account not only the rules but also outside of the box.
With automation efforts accelerating across the globe, blockchain and digital ledgers will play a pivotal role across industries. To this end, smart contracts are a helpful innovation accompanying many blockchain activities, helping end-users benefit by lowering fees, hastening transaction speeds, ensuring performance, and increasing protections for associated parties entering into an agreement.