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Smart contracts: advantages and disadvantages

Volodymyr Morozov, KNEU

In modern days, a great number of lawyers dispute about Self-Executing Contracts implementation. Despite of unlimited potential, which will serve as an optimization of government management and economical and judicial branches, many lawyers push back against this idea.
To begin with, we will find out what is the smart contract. Smart Contract is self-executing contract between the buyer and seller, which is written into lines of code. The code and the agreements exist in blockchain network. The code oversees all transactions execution. Applied in accounting, fiscal policy, electoral system, judicial system, notary and all registration processes.

On the one hand, smart contracts are significantly better than traditional ones judging by criteria namely autonomy, safety, accuracy and credibility. Autonomy enables to conclude contracts without any assistance of intermediaries (lawyer, broker). Smart contracts safety also plays a great role in data protection. Accuracy and credibility cannot but be considerable factors. Smart contract help to avoid making any inaccuracies by auto-input of data. All created documents are encrypted and situated in a single ledger. By following this method of data safekeeping, all losses and documents authenticity are excluded. What is more, all information is well protected by implementation of cryptographic tools and encryption. According to Joey Dewey, partner at “Holland & Knight” smart contract services have already hit the market of accounting and evolved since their debut. He says: “Todays focus is aimed at automation, that is why all services are geared towards blockchain.”
On the other hand, Self-Executing contracts enforcement also remains questionable due to several reasons. Negative lawyers glimpse was brightly shown at the session at Legalweek 2020 named “Getting into the Block-Tech Games” in New York. Lawyers pushed back against idea of “innovative contracts”, claiming that such level of independence is not happening today, and will not happen in the nearest future. Despite of Smart Contract advantages, Moshe Malina, associate general counsel at Citigroup said that “grandiosity of smart contracts” lies in their entire autonomy, but he has never seen it implemented at judicial system. In addition, Moshe also mentioned that traditional natural language contract sits on top, which illustrates rawness of Self-Executing contracts. For instance, it is not really suitable for any courts. Some practical problems can appear while enforcing legal ones, because judges and juries simply can not read the code. More over, there are no remedies available. Lawyers wonder what to do in a case if smart contract will be created with an error. Having a traditional one, a victim can challenge it at court, but this is a blockchain, under the management of which the transaction will be executed according to the obligations already registered, despite subsequent disagreements. Another great issue is taxation. Taxation is not well thought because of such documentation and its regulation by the Law, checking and eliminating errors when creating program code.
In conclusion, I would like to stress that innovative contract is a great and potential framework in the future, but now it requires elaboration in technical and judicial aspects.


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