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Publication date: 19.09.2024
I am studying in the third year of the State University of Economics and Technology.I specialize in contractual, economic and corporate law, in particular, I provide consultations and write articles.
Smart contracts
A smart contract is a computer program that automates the execution of agreements embedded in its code. They are becoming increasingly popular due to their advantages:
- Smart contracts fulfill the terms of the agreement without the need for third-party intervention. This reduces the risk of errors and misuse.
- Thanks to blockchain technology, smart contract data is immutable and tamper-proof, which increases the level of trust between parties.
- Automating processes allows you to execute deals faster, reducing the time it takes to complete transactions.
- Smart contracts eliminate the need for intermediaries, which can significantly reduce transaction costs.
Smart contracts represent an innovative approach to concluding agreements that provides automation, security and cost savings. Choosing the right platform for their implementation is an important step in the process that allows you to use their advantages as efficiently as possible.
Question
Should smart contracts be preferred over regular contracts?
Answer
Smart contracts are automatically executed when certain conditions are met. This makes it possible to reduce the need for intermediaries and speed up the process of execution of agreements. All participants have access to the same data. This ensures the openness of the process, as neither party can change the information without the consent of the others. Smart contracts are stored and executed by a network of computers that are not subject to control by a single entity. This reduces the risk of manipulation and increases trust between the parties to the agreement. Therefore, for some industries that are connected with particularly large arrays of information and function in electronic form, smart contracts are an indispensable regulatory tool.
Content of the smart contract
The content of a smart contract can vary depending on its purpose, but it usually contains the following key elements:
- Description of the parties to the contract participating in the transaction, their identification data (for example, addresses of wallets in the blockchain).
- Specific conditions under which the contract is considered fulfilled. These can be financial transactions, dates, quantities of goods, etc.
- Defining actions that should be performed automatically when certain conditions are met. This can be the transfer of funds, generation of tokens, provision of access to information, etc.
- Mechanisms that confirm the fulfillment of the terms of the contract, for example, information from oracles (systems that provide external data).
- A description of the rights and obligations of each of the parties, including possible sanctions for non-fulfillment of the terms.
- Defining the process by which the smart contract can be modified or terminated, if necessary.
- Information about commissions related to the performance of the contract and the procedure for their payment.
- Jurisdiction, Applicable Law and Dispute Resolution Guidelines, if applicable.
These elements provide the structure of a smart contract, allowing to automate processes and ensure trust between parties.
The procedure for concluding a smart contract
The procedure for concluding a smart contract usually consists of several stages:
- Determining the terms of the agreement: The parties discuss and agree on the terms of the contract, including rights and obligations, terms of performance, and possible sanctions for non-performance.
- Smart contract development: Based on the agreed terms, a programmer or development team creates the smart contract code. This includes writing logic, functions, and conditions.
- Smart contract testing: Before deployment, the contract is tested on the test network to detect possible errors and check whether it meets the stated conditions.
- Blockchain deployment: After testing, the smart contract is uploaded to the chosen blockchain network. This may incur transaction fees.
- Signing the contract: The parties sign the smart contract using their cryptographic keys. This confirms their agreement to the terms of the agreement.
- Fulfillment of conditions: The smart contract automatically fulfills its conditions according to defined algorithms, without the need for third-party intervention. Fulfillment of conditions is recorded in the blockchain.
- Monitoring and management: The parties can monitor the performance of the contract and its terms, if necessary, make changes (through new versions of the contract).
- Contract closure: When all conditions are met, the smart contract is closed and its results are recorded in the blockchain.
Question
What are the disadvantages of smart contracts?
Answer
Smart contracts are complex to implement and manage. Once deployed to the blockchain, they cannot be changed, even if minor adjustments to the code are required. All data in the smart contract is available to all network participants. Smart contracts can contain bugs, just like any software. It is almost impossible to fix errors after deployment, which can lead to significant losses. Smart contracts can become a target for cyber attacks. The legal status of smart contracts remains uncertain in many countries. This can make it difficult to enforce agreements or challenge them in court. The lack of clear rules for accounting and taxation of smart contracts complicates their integration into business processes.
Lawyer services when concluding smart contracts:
Here are the main types of legal services:
Lawyer consultation and legal analysis of the situation: A lawyer can provide information on the legal status of smart contracts in your jurisdiction and help understand what laws and regulations may affect their execution. Lawyers online can help in formulating the terms of a smart contract to ensure its legal validity and compliance with legal requirements. Although lawyers are not programmers, they can work with technical experts to review the terms of a smart contract for legal risks.
Legal services for conflict resolution: A lawyer can develop mechanisms for resolving disputes that may arise in case of non-fulfillment of the terms of the smart contract. A lawyer services online will help identify potential legal risks associated with smart contracts and suggest ways to minimize them.
Legal document preparation services: A lawyer help can prepare related documents, such as confidentiality agreements, supplementary agreements or other documents necessary for entering into a smart contract. Legal assistance to ensure that your smart contracts meet all necessary requirements and standards, particularly in the areas of finance and data protection.
Smart contracts are an innovative solution that offers automation of transactions through the use of blockchain technology. Due to their properties, such as self-enforcement, transparency, immutability and decentralization, they ensure a high level of security and trust between the parties to the transaction. However, there are also limitations such as management complexity, privacy issues and legal regulation. The lawyer advice at the stage of concluding a smart contract will help reduce risks and ensure the legal security of your transactions.
