We’ve all seen the movies and read the sci-fi books about machines and robots taking over the world. But how close are we to that becoming a reality? Smart contracts are becoming more and more commonplace in our society. Will they replace lawyers, accountants, and other officials completely or is this still just a fantasy?
How are smart contracts changing the world as we know it?
Smart contracts are beginning to change the way that we work, buy, enter into agreements and even the very way that we think and see the world. In fact, digital agreements are on their way to becoming incorporated into the legal system, specifically contract law. Using blockchain technology, it is possible to automate processes and commands and use these functions to create smart contracts. This is a huge development from blockchain’s origins as a way to handle and record Bitcoins and Cryptocurrencies.
Just how do smart contracts work?
In the past, if someone wanted to sell their car, they would need to physically meet up with the buyer, exchange paperwork, sign the papers, create photocopies etc. They might have to meet several times throughout the process and it would all be governed by the Civil Code. They would have to jump through the correct bureaucratic hoops to make everything above-board and legal.
Smart contracts are revolutionising this kind of transaction. Instead of face-to-face meetings and physical paperwork, everything would take place in the digital domain. Code would be generated to regulate the smart contract. In our above example of buying a car, there would be a digital box that the buyer would access with a verification code once the payment had gone through and been accepted by the seller. Once the transaction payment was processed, the buyer would be able to open the digital box with the verification code to find out the location of the car and all that would remain for them to do would be to pick up their new car.
Read further on how smart contracts work.
Smart contracts and the law
In a smart contract, the code itself becomes the law, which monitors the transaction. Once all the previously agreed requirements were met, the buyer would be able to pick up their new car. No lawyers, accountants, notaries or other officials are necessary for this type of agreement as the smart contract itself regulates the legal side of the transaction. Smart contracts eliminate the need and cost for these intermediaries as well as the necessity of physical paperwork. Of course, this has a benefit for both parties in the transaction – it makes it quicker, easier and cheaper.
But how do all the parties know that the smart contract is following the relevant laws? This is where the ‘Oracle’ comes in. An Oracle can be any knowledgeable, qualified person with the competence to verify the terms and conditions of the agreement. They become the vital link between the digital transaction and the real legal world. The Oracle will go over the contract, and once they have double-checked that everything is in order, the terms and conditions are transported and coded into the contract. So you see, whilst Smart Contracts may be a fantastic new development, cutting back on unnecessary bureaucracy and expenses, the human aspect is still an important one at this stage in the process. Only once all the conditions in the contract are met can the buyer successfully purchase their new car.
The Key Elements of a Successful Smart Contract
The foundations of smart contracts are self-execution, self-governance and blockchain technology, creating permanent, secure transactions. This combination of these elements is making these contracts a viable replacement for the dated legal agreements that have been the norm up until recently.
Are humans being made redundant by machines?
Smart contracts are being already being used across the world with many countries exploring how they can integrate this technology into their Land registries, healthcare and voting systems. Smart contracts are revolutionary developments which are increasing efficiency. However, a human element is still necessary for any smart contract to verify that the contract is indeed abiding by the relevant laws. Humans are not being made completely redundant by smart contracts, but who knows what may happen in the future as the technology continues to evolve?