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Smart contract on blockchain technology

Updated: Apr 16


Author: Laura Dirina

Publication date: 14.03.2024


This post may contain affiliate links, which means I may receive a small commission, at no cost to you, if you make a purchase through a link


The rapid development of technology affects practically all industries even law and finance. Blockchain technologies and cryptocurrencies are among the most relevant in the Rechtech and Fintech sectors. Law and contracting have also become smart. Will Al replace lawyers in the future? It may not be so soon, but certain things are already automated.


What is the definition of a Smart contract?


Smart contracts are digital agreements. They are stored and signed on a blockchain network. Smart contracts are automatically executed. There are predetermined terms and conditions written on blockchain that need to be met. These smart contract terms and conditions are written in blockchain-specific programming languages. For example, Solidity.


How Smart contracts are created?


To establish the terms, parties must determine various things of agreement. For example, how transactions and their data are represented on the blockchain. Then parties need to agree on the “if/when...then…” statements. There can be as many stipulations as needed. Parties need to discuss every possible exception of smart contracts. Parties need to write a framework for resolving disputes too.


How Smart contract is written on blockchain technology?


After a smart contract is created, it can be programmed by a developer. There are provided templates, web interfaces, or other online tools to simplify creating smart contracts.


How does a Smart contract work?


A smart contract is a self-executing digital program made of blockchains. It automatically executes the terms of a contract. It is decentralized. That means smart contract works independently without the involvement of third parties. The execution of smart contracts is governed by “if/when…then…” statements are written in code on the blockchain. When predetermined conditions are met and verified the network blockchain executes the actions. After the transaction is completed the blockchain network is also updated. Smart contracts can not be changed, they can be only created new.


When Smart contract is used?


An agreement execution can be automated by using smart contracts. It is decentralized - there is no need for the involvement of third parties to intermediate. It is quick and saves time.  Parties are certain of the outcome immediately.


A smart contract works well for "if/then" situations. For example, an airline insurance policy that executes automatically if a flight is canceled.


Smart contracts and traditional contract


If a smart contract meets all the legal requirements of a contract, it is legally binding. Legal requirements still might vary by jurisdiction.


Future and benefits of Smart contract


Smart contracts offer cost savings and effort efficiencies. There still are barriers to consider before smart contracts become a norm. Businesses have various benefits from smart contracts. Smart contracts offer speed, efficiency and accuracy, trust and transparency, security and savings. They can be used to automate a workflow. That will trigger the next action if predetermined conditions are met.


Important to understand Smart contract


  • “if/when…then…” statements are written in code on the blockchain and automatically execute the terms of a digital contract.

  • Mostly smart contract is used for "if/then" situations.

  • A smart contract is as legally binding as a traditional contract.

  • Smart contracts are cost-saved and effort-effective.


Conclusion


Blockchain technologies offer many new opportunities in law and finance. Smart contracts written in blockchain networks automate the process of contracting. It is cost and time-saving for businesses. Will it be the beginning of automating the law profession? It is possible but there still need a human mind to do all things correctly.


Binance provides access to cryptocurrencies and blockchain-based assets.


 

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