Smart Contracts:
from Magic to Disbelief and Back to Reality

1. What is Actually a Smart Contract

First of all, what is a smart contract?

2. True Value

Smart contracts suffered a lot from marketing. The promises were to get rid of lawyers and judges, “the middleman” and every legal inefficiency. Obviously, when the promises were tested against the real cases, the results turned out to be disappointing. But still, there’s a huge value that that is already available.

3. Use Cases

What does the value translate to?

3.1. Payments

The most obvious function of smart contracts is automating payments. As soon as it becomes possible to get digital data about a certain event, the related payment can be launched by a smart contract.

3.2. Tracking

There are endless scenarios where parties need to know about the other party’s performance. This information can be valuable on its own or as data for a smart contract algorithm.

3.3. Autofeedback

With technologies becoming cheaper the offline world is shrinking. Things can not only provide information about themselves but also actively accept external commands.

3.4. Records

Another important function that can be automated with smart contracts is making legally significant records and sending legal notices. As these may influence other obligations such as payments, delivery and so on, their timeliness may be critical. Records can be made into private systems like ERP (about a delivery for example). Potentially public registers may also become open for external updates (e.g. about the change of ownership), which can be carried out by smart contracts.

3.5. Corporate Law

Smart contracts can become a solid foundation for internal corporate automation. Shareholders agreements with self-fulfilling options, deadlock resolution mechanisms and permanent monitoring of measurable obligations; internal regulations that are approved in the form of structured data mixed with snippets of code; automated articles of association and corporate resolutions — that all may become an integrated smart legal system for a company.

4. Going Off-chain

Most of the world is not yet absorbed by the blockchain matrix. It is not completely tokenized under a single standard. Neither cryptocurrencies are ready and needed to become the unified settlement tool. So how do we utilize legal automation?

5. Legal Implications

When it comes to implementing smart contracts in anything more than a test project, a question arises: is it legal?

5.1. Smart Contracts and the Law

There are a few approaches to smart contracts on the legislative level. Most of the countries don’t make much fuss of the technology. As long as the parties understand what they’re doing, they can agree to automate their contract. After all, margin calls and paid online services are examples of smart-contract-type legal automation. No amendments to laws are required.

5.2. Legal Integration of Smart Contracts

There are a few legal models of using smart contracts.

6. Smart contracts and Lawyers

Legal automation will surely upgrade business efficiency and change the work of lawyers. But how well-grounded are those chills about lawyers who will lose their jobs or have to learn to programme? Let’s see.

7. Conclusion

To sum up, a smart contract went from hyper hype of exterminating lawyers — to disappointment from useless artificial crypto-only transactions and scam ICOs — to healthy optimism of real business needs for which smart contracts are a great tool.

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Anton Vashkevich

Anton Vashkevich

Law Automation, Legal Tech and Legal Design