There are five key elements that you should know before adding smart contracts to your business: contracts are part of your every day, smart contracts are built on blockchains, the benefits of smart contracts, importance of correct coding, and the current status of smart contracts in your industry.
- Contracts are part of every day
We live in a world of contracts. We live in a world of technology. The interlacing of technology and contracts continues to create new options and opportunities. The concert ticket purchased last week is a contract, and you bought it online. Your insurance is a contract, and you’ll use technology, should you ever need to file a claim. Even your checking account is based upon a contract, and you use your phone to manage those monies.
- Built on Blockchain
Blockchains are the future of accountability for executing transactions. The interconnecting blockchain system provides a verifiable, accurate, and reliable ledger of all transactions. The decentralized nature of the blockchain provides a level of security. The more a transaction is validated and recorded on the blockchain, the more verifiable it becomes. There is a comfort in knowing that numerous impartial strangers are all coordinating to verify your transaction. This creates the perfect arena for the execution of direct and concise contracts, where groups of impartial users are ensuring the accuracy of every transaction.
- Benefits: Self-executing/enforcing
Smart contracts are like any other legal contract; however, smart contracts can be coded to be self-executing and self-enforcing, if all elements are included on the blockchain. The terms of such a smart contract will establish the conditions that must be met prior to the contract executing. Once those elements are met, the smart contract will begin the next step in the process automatically, per the code instructions. That next step might be the transfer of a concert ticket to a buyer, a printable insurance card to a client, or confirmation of funds received in a bank or crypto account.
- Code it correctly
Smart contracts are meant to stand alone. Unlike a typical legal contract, where parties can agree with one another on the intention, there is no analysis of the intention of the smart contract, but only the structure of the code. If the code leaves a vulnerability to exploit the delegate call and fallback function, you may be exposing yourself to unnecessary risk. The now infamous DAO hack, or the more recently KotET, are examples of how a flaw in a smart contract can have negative consequences. Smart contract security is still in relatively early stages of development. Any business intending to incorporate smart contracts into their service or process should consult an expert.
- Current status
Many states have followed Arizona’s example in preventing smart contracts from being denied legal effect, validity or enforceability solely because the contract contains a smart contract term. However, even without a state legislating the validity of a smart contract, courts may uphold the validity of the contract terms. Consult a smart contracting and legal expert in your area for specifics about available options for you and your business.
Consult an expert
Successful business deals are built on the experience and acumen of experts, and smart contracting is an integral part of your future deals. Just as modern-day contracts should be constructed and reviewed by licensed attorneys, a smart contract should be created by someone aware of the potential implications, knowledgeable of relevant laws, covered by liability insurance, experienced in coding, engaged with your specific industry, and well-versed in the financial consequences.
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