The increasing use of smart contracts is saving users time and money, however there is a minefield of legal implications to consider when using them.
Smart contracts are essentially self-executing contracts that have the terms of the agreement directly written into code. They represent a paradigm shift in how agreements are made and executed in the digital age.
By automating processes, enhancing security, and fostering trust, they have the potential to revolutionise various industries and streamline complex transactions. However, realising the full potential of smart contracts requires addressing technical, regulatory, and scalability challenges while ensuring robust security and privacy measures.
Our specialist Web3 experts James Cochrane and Mat Martin have delved deep into the world of smart contracts in their paper Smart Contracts: Addressing Risks and Practical Strategies.
They outline how, as blockchain technology continues to evolve, smart contracts are poised to become an integral part of the global digital economy, reshaping the landscape of commerce, governance, and beyond. They also explore some of the risks and outline practical strategies to mitigate them.
What is a smart contract?
Smart contracts are comprised of code written into a blockchain that executes the terms of an arrangement or agreement.
Their function is based on the “if-then” principle, meaning they automatically execute actions when predefined conditions are met. These conditions and actions are encoded into the contract, ensuring trust and eliminating the potential for manipulation or dispute.
Benefits of smart contracts
Overall, smart contracts offer increased efficiency, transparency, security, and cost savings compared to traditional contracts. The cost saving is likely to be a key driver of their attractiveness and further adoption moving forward.
Specific benefits include:
- operating without the need for intermediaries, reducing the risk of manipulation or fraud, streamlining processes and saving costs
- being transparent and tamper-proof – enhancing trust among the parties involved
- automating contract execution – saving time and resources
- offering robust security against unauthorised access or alteration.
Embracing smart contracts reflects a commitment to innovation and technological advancement. Lawyers who understand them will be better placed to serve clients operating in sectors where blockchain technology and smart contracts are becoming increasingly relevant, such as finance, supply chain management, and intellectual property.
