Smart-Contracts are improving business efficiency and reducing the need for litigation
Smart-contracts are a disruptive technology and were first developed by Nick Zabo et al. In the 90's. He first defined a smart contract as
''A set of promises specified in digital form, including protocols which the parties perform on those promises.''
Ethereum was one of the first blockchain platforms able to execute a smart-contracts which do not require trust and are immutable. A smart-contract executed over a decentralised platform, does not need the permission of a third party like a bank, lawyer, insurance company to execute the terms. This type of contract is appealing to businesses because trust is digitised and there is a certainty of execution
Before we look at whether a smart-contract can be legally binding or not, we can look at how a contract is defined. There is no exclusive definition of a contract written into English law, but a commonly accepted legal definition of a contract is that an offer and an acceptance constitutes an agreement. It does not have have to be written. However, it must include terms, there must be an intention to create legal relations, and there must be a consideration or incentive, (usually financial)
A smart-contract, on the other hand, has terms written in programming language instead of legalese, which is the language of law, and the contract can be automatically executed; Without the need for human intervention. The Ethereum platform is decentralised and the contract is enforced by the computer code, immutable and verified on a blockchain. Use cases for this technology include real estate transactions, land registration, payment of insurance claims, transfer of assets under certain specified circumstances, provision of licences, management of intellectual property rights, and automatic ordering of goods and services
In the UK, the Law Comission seeks to keep up to date with emerging technology and has published a report responding to recent innovations, stating that
“It is important to ensure that English courts and law remain a competitive choice for business. Therefore, there is a compelling case for a Law Commission scoping study to review the current English legal framework as it applies to smart contracts.”
In the middle east, International Financial Centre (DIFC) Courts have partnered with the 'Smart Dubai’ initiative to start a 'Court of the Blockchain’. Since SOFIA is already a robot citizen in Saudi Arabia, and a 'person' is defined in law as a 'legal entilty', usually a company or natural person; It may soon be possible for a computer to sue a robot. According to a report by Legal Geek, that smart-contract technology is in high demand, reporting that 46% of legal-tech start-ups are innovating to help law firms become more efficient and win new customers. The study reports a 160% increase in new legal-tech businesses launching year on year.
Although there are real business uses for smart-contracts, they are limited to dealing with contractual relations that can be settled using logic in a binary manor, with fixed inputs and outcomes. The problem is that there can be misrepresentations and mistakes in smart contracts that can currently only been settled with human intervention. Though automation is having a pervasive effect on business; It is doubtful we will see smart-contracts take the place of lawyers just yet. While humans will still be needed in the execution on contracts, there will be a growing demand for lawyers who can code smart-contracts. From the plethora of blockchain and crypto currency projects started since 2017, only a few projects have delivered a real product in response to business needs and the cryptocurrency market is still in its infancy. Legal-tech powered by blockchain is certainly going to become more common.