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What are Smart Contracts

• Posted by InfinityLegal Solutions May 20, 2022 Filed in Other #Legal Services  #smart contracts  #law firm in amsterdam  #lawyer in amsterdam  #legal advice  #legal help  #business contracts  285 views
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  Smart legal contracts are self-executing contracts written by computer code that are most commonly seen in the form of applications created on blockchain platforms like Ethereum cheval.

  Traditional contracts vs. smart contracts: Smart contracts offer the advantage of being both immutable and trustless when compared to regular contracts. It is a strong tool with various possible uses that saves resources, money, and time.

  Smart contract limitations: The inability to account for subjectivity, a high threshold for improvement based on community opinion, and the lack of a direct means to incorporate real-world data in a trustless manner are all drawbacks of smart contracts.

  What is a smart contract and how does it work?

  Smart Legal Contracts is a self-executing contract that is defined by a computer program and recorded on a blockchain.

  A contract is traditionally an agreement between two or more people to exchange promises and/or services, and it often has numerous sections. A promise, such as a monetary payment, can, for example, be exchanged for another promise or a service, or a service might be exchanged for another service.

  Furthermore, various contract parameters can influence the exchange, such as the date of the exchange — is it immediate? Is there a time limit on it? – as well as the conditions under which the contract becomes void. These particulars are why some of the most typical contracts, such as those establishing loan and employment terms, are so lengthy.

  The term "smart contract" simply refers to a contract that is carried out by computer programming code rather than on paper or in another format.

  Nick Szabo, a lawyer and computer scientist who was one of the early proponents of cryptocurrencies, created the term "smart contract" in the 1990s, which is now widely used in the 2020s. Szabo defined a smart contract as "a series of promises, expressed in digital form, including the protocols within which the parties fulfill on the other promises" in a paper published in 1996.

  Smart legal contract promises are constructed using "if-then" semantics, which are prevalent in computer programming. The vending machine, which Nick Szabo first used to demonstrate smart contract processes, is the best real-world illustration of if-then functionality. If you put $1 into the machine, it will give you a snack. Without any outside effects, the entire transaction is pre-determined by the machine's code (human or institutional). Smart contracts are similarly designed to execute functions independently.

  What is the purpose of smart contract?

  Consider the last time you signed a standard contract. Apart from the piece of paper and the signatures of the two parties, what else was required?

  Lawyers are frequently required, first to draft the contract's text and secondly to ensure that it is carried out correctly. When a contract is broken, a judge, a courtroom, and other expensive resources are frequently required. Escrow, which is a third party who holds funds until both parties complete the agreed-upon requirements, is commonly used in significant financial transactions like buying a house.

  All of the mediators and resources needed to form legally enforceable agreements are costly, not to mention the faith you must have in these organizations to carry out their responsibilities properly. Furthermore, because every resource used in these circumstances consumes time, contracts can take days or weeks to complete.

  Because of these qualities, smart legal contracts do not rely on many of the same assumptions and needs as traditional contracts.

  Immutability — A smart contract cannot be modified after it has been written and performed, making it permanent. Because nodes, or computers that run the blockchain, each store an identical copy of the contract, any changes to the contract require network consensus.

  Trustlessness — Each smart contract is also self-sufficient, which means it doesn't rely on third parties to carry out its functions, such as lawyers and financial institutions. Without the need for external trust, removing external influence means that the same result can be expected every time. As a result, even the most sophisticated transactions can be completed in seconds or minutes instead of hours or days.

  Smart contracts also eliminate the need to pay, trust, or wait for third parties to execute them, making them a more appealing alternative to regular contracts for some.

  What are examples of smart contracts?

  The heart and soul of blockchain technology is smart contracts.

  Bitcoin smart contracts are designed to work on the Bitcoin blockchain, defining transaction rules and publishing them in the public ledger.

  Ethereum smart contracts are designed to work with other smart contracts (also known as programs or decentralized applications) that run on the Ethereum blockchain. These programs are created in Solidity and Vyper, two programming languages designed exclusively for contract authoring.

  Let's look at an Ethereum smart contract using Golem (GNT), a platform that allows you to buy and sell computing power. Anyone can request computing power from the community for a price using Golem's smart contract. The conditions are met and the contract executes once the network confirms the funds from the requester and the completion of the tasks from the provider: the requester receives computing power from those offering their resources, and GNT is automatically transferred from them to the accounts that offered their services. The contract does not execute if all of the preset criteria are not met.

  Smart legal contract limitations:

  Subjectivity - Smart contracts' functionality is restricted by the code they contain. It becomes difficult to incorporate subjectivity or the requirement for flexibility into the design of a contract.

  Change takes a lot of effort - If the code has defects or loopholes, altering the contract takes a lot of effort from the community and consensus consent from the network's nodes.

  Smart contracts frequently require the usage of real-world data to execute, such as knowing the worth of the US dollar, a stock price, or the position of a product being sent around the world. While third parties frequently give this information, oracle technology (such as Chainlink or Band Protocol) uses off-chain data to bring this information onto the blockchain.

  What about the legal side of things?

  Smart legal contracts and their various applications will have far-reaching implications in a variety of legal fields, including contract law (particularly with regard to general terms, consumer protection, and dealing with void contracts), license management, liability for damage caused by incorrect or incomplete code, corporate law (particularly with regard to decentralised autonomous organizations and similar constructs), regulatory concerns, and data privacy concerns.

  Dealing with invalid contracts could be difficult because smart contracts cannot be legally reversed once they have been performed. The parties might agree on additional transactions to reverse the results of the void transactions, but the void transaction would remain on the blockchain of the smart contract.

  The most important challenge for business contract lawyers will be to match the legal layer, which is the parties' agreement, with the technical layer, which is the computer code that breaks down certain elements of the agreement into logic if-then statements. If these two levels are not correctly aligned, a smart contract may cause more legal concerns than it solves.

  Do I Really Need a Contract Lawyer Amsterdam?

  Contracts can be difficult to understand. During the contract drafting process and if any conflicts develop, it is critical to speak with an expert contract lawyer. The preparation and review process will be assisted by an experienced business contract lawyers.

  A contract attorney can also ensure that the contract is protected from problems, inaccuracies, and/or misunderstandings. A contract lawyer can also help you avoid legal problems that emerge from a badly structured contract and, if necessary, represent you in court.

  Smart legal contracts are intended to be self-executing business agreements, therefore it's crucial to know whether they're legally enforceable. If your company is considering integrating blockchain smart contracts, you should seek legal guidance from contract lawyers Amsterdam, to guarantee that they are trustworthy. Contact our staff at Infinity Legal Soliutions via the contact form or by calling (0031) 611423719 if you require any support or have any questions regarding blockchain smart contracts.