Today, generally accepted international legal principles for the operation of smart contracts have not yet been settled. This aspect leads, in turn, to different approaches to the definition of this term. So, in scientific articles of Harvard University it is noted that smart contract (hereinafter SC) is a computer code that automatically executes part or all of the transactions. It is presented on a platform made according to Blockchain technology.
However, taking into account the nature of Blockchain – confirmation of any actions (transactions, fixing of property rights, etc.), their placement in a distributed register, the openness of the terms of smart contracts, we understand that without the participation of a blockchain lawyer, it is impossible to prescribe the conditions of the needs of a specific project. This is especially important for legal technologies and fintech startups.
CONCEPT OF SMART CONTRACT
According to the legislation of most countries, the SC is not a contract, but it is a matter of time. In fact, it has all the attributes that allow it to replace conventional contracts. Smart contract – program code, or rather its special description, which determines the procedure for processing information and transactions in Blockchain technology. A way to exchange values without involving a third party. At the same time, it is better to involve lawyers who understand Blockchain to prepare the conditions for SC.
Legal smart contract is a legally binding smart contract. In essence, this EULA has the same legal force as the license agreement you sign when you install any software product. Or any contract concluded between the parties in accordance with the legislation of a certain state and certified by a notary public.
LEGAL TERMS OF THE SMART CONTRACT AND ITS CREATION
When drawing up and signing a smart contract, the parties prescribe the terms of the agreement taking into account the tasks of the online platform. Example:
- Obligations of the parties;
- Consolidation of copyright on NFT;
- Payment of royalties;
- Penalties for non-compliance;
- Deadlines, other points.
If necessary, you can put electronic signatures. A smart agreement is able to detect to what extent the specified conditions are fulfilled and decide whether to terminate the agreement, impose sanctions or close access.
Since a smart contract is a computer algorithm, the conditions for it are prescribed by knowledgeable lawyers, and programmers program. The lawyers themselves are unable to translate complex legal formulations into the form of a reasonable contract. Close collaboration of both categories of specialists will be required for the creation of SC. Before preparing the agreement, the parties will need to develop a legal strategy for the automation of the legal process, establish what exactly the SC will regulate.
WHY DOES BLOCKCHAIN NEED IN SMART CONTRACTS?
A blockchain is a transactional database that includes a sequentially created chain of digital blocks. Each of them stores data about the previous and next blocks. The main advantage of Blockchain is that it is completely transparent. Anyone can see the internal data, but nothing can be changed or deleted.
The technology is used in various areas, including smart contracts. Thanks to SC Blockchain, it is able to track the entire list of supplies and verify, for example, the authenticity of tea leaves: where they were grown and by whom, when they were brought to the store. This makes it possible to completely exclude counterfeit tea, learn about its freshness, and even check whether the production meets the moral and ethical values of the end consumer.
WHY NEED A SMART CONTRACT IN NFT?
NFT – non-fungible token – digital intellectual property. It is used for:
- Real estate;
- Collectables;
- Arts and music;
- Transport and others.
Tokens are created using a smart contract located on the Ethereum Blockchain. NFT has a unique code and metadata that differentiates one token from another. This is the difference between its work and cryptocurrency.
The NFT smart contract is a piece of application code that enables the network to store data transparently and without modification. Ultimately, it is this code that controls the digital asset, in the case of NFTs. Allows you to own, sell, buy, exchange a digital NFT asset on online platforms where it is provided.
WHAT IS ETHEREUM AND SMART CONTRACTS IN IT?
Ethereum is a blockchain platform, one of the first to implement Turing-complete smart contracts. Turing completeness in smart contracts allows performing mathematical functions. Ethereum has gained wide popularity among users because it is possible to issue tokens and create decentralized applications.
The possibilities of creating smart contracts are flexible, the scope of their use is very wide. The platform provides both those functions that the developer invested in it, and those that were needed later. Various logically presented ideas are realized with the help of this network. Ethereum is currently one of the most used cryptocurrencies among developers and the most famous for the number of decentralized applications. Ethereum is a platform designed with Blockchain in mind. Here, the parties, using cryptocurrency, can acquire a programmed relationship.
As a rule, smart contracts are formed precisely on the basis of Ethereum, since it is one of the most reliable crypto-platforms today. The specificity of the local smart agreement is that there are already ready-made samples here. It is not necessary to completely write the program code. It is only necessary to enter the data of the agreement in the fields provided for this and confirm the execution.
EXAMPLES OF USING A SMART CONTRACT BASED ON ETHEREUM:
- Issue of NFT;
- Insurance (optimization of the review process);
- Voting (SCs ensure automaticity and transparency);
- Supply (an advantage of SC, such as speed, is of paramount importance here);
- Record keeping (secure encryption and archive storage);
- Registration of ownership.
SMART CONTRACTS FOR CRYPTOCURRENCY
Smart contracts, including those used for transactions related to the purchase and sale of cryptocurrency. In these cases, the parties to the smart contract open accounts on the Blockchain platform or on the same exchange. The concept of Blockchain, which is used in cryptocurrency, involves saving in each transaction a chain of data about all previously conducted operations.
Such a registry is not on the main server, but on each network participant, which is called a “node”. Smart contract in cryptocurrency – security, safety and transaction speed. With the help of a smart contract, it will be possible to purchase almost anything: from cars to furniture sets and from food delivery to rare antiques.
WHAT IS GITHUB AND WHAT IS IT FOR?
GitHub is a project and code version management system. Plus, it’s a social media platform made for developers. Online code storage and synchronization service for programmers. GitHub’s main purpose is to support collaborative project development and version control.
Taking into account the fact that any smart contract is considered a joint project of two or more participants, the SC can be placed on platforms originally intended for coworking, such as GitHub. Having recorded the fact of the first publication of his work.
DEVELOPMENT OF THE TERMS OF THE SMART CONTRACT FOR THE PURPOSE OF THE CUSTOMER
Currently, several important features and conditions that are characteristic of smart contracts are defined. Yes, we are talking about the presence of a decentralized system. The conditions in it, originally laid down, are fulfilled automatically, without the intervention of the human factor. In such a situation, any condition of such an agreement must be realistic to perform within the system without the risk of anyone obstructing the performance of the given conditions.
As already mentioned, today smart contracts are used in various segments. Programs fulfill the terms of contracts by debiting or freezing funds on accounts. In addition, they decide whether to grant credit or not, confirm the occurrence of a certain situation.
Typically, smart contracts are developed entirely as code. Contracts are placed in a system where neither party controls the fulfillment of the terms independently. Both parties (or all, if there are more) are participants only. They can count on Blockchain and computer algorithm. During the preparation of such contracts, the standards of current state legislation are taken into account, the laws of which the parties who enter into this contract want to be guided by. By the way, there is an opportunity to reinforce the smart agreement with a paper counterpart, but in the future there will most likely be no need for this.
