Smart contracts as an innovative legal tool

Manzar Mammadova, 111i, KNEU

Presentation

A smart contract is an agreement between people or organizations, which is in a form of a program code that runs automatically and receives all the necessary data through so-called “oracles” – programs that provide communication between the real and the digital world.

Rather, smart contracts should be referred to as a blockchain because today, such contracts are implemented through blockchain, and if you go into detail, perhaps 99% of smart contracts should be called ethereum contracts, since they are created on the air (ether- cryptocurrency).

The dynamics of Ukraine’s relations with the EU is growing, which in turn necessitates the optimization of regulation of business entities. The development of technologies, compatible with modern law, will increase the quality of control over business activities. One of the areas of such optimization is the development and consolidation in the legislation of smart contracts, since these contracts are indirect, non-counterfeit and accessible to all blockchain participants.

There are certain advantages and disadvantages of smart contracts, here are some advantages

  • 1. Autonomy. You make all the agreements yourself – you no longer need to contact brokers, banks, notaries, attorneys and other intermediaries to confirm or certify the agreement.
  • 2. Trust and preservation. Cryptography, data encryption, and blockchain storage are responsible for keeping your documents secure. There are hundreds of duplicates, and no one will be able to say that your documents have been lost. Blockchain and its decentralization also make it virtually impossible to hack and swap your smart code.
  • 3. Speed. It usually takes a lot of time to work with paper documents and their support. Smart contract software automates these tasks, thus freeing you from personal involvement in many of the business processes that are typically done manually.

And the following are a few disadvantages

  1. Lack of infrastructure and lack of information. Speaking of smart contracts, there is actually one convenient base for their creation today, the airbase, in other cryptocurrencies there is no convenient service for creating smart contracts. In addition, there is usually not all necessary the information to make smart deals.
  2. Openness of information. In smart contracts, all information is accessible to everyone.
  3. Lack of legislation regulating smart contacts. Legislators are simply not keeping up with technology, and today there is no specific base for regulating smart contracts.

To sum up, the highlight of a smart contract is its automatic execution, if it concerns the contractual relationship, as well as the possibility of a certain legal fact. However, it should be borne in mind that at present, a smart contract is not an ideal instrument for contractual relations and cannot completely replace the classic paper contract scheme as it does not have clear legislative regulation. In addition, a mistake made when writing it can cause unwanted results for the parties and even the loss of cryptocurrency assets.

The use of smart contracts, of course, will allow optimizing the economic activity of legal entities. However, it will take some time to significantly expand the use of such a tool, which can make the use of a smart contract more flexible and allow errors to be corrected by “modifying” a smart contract without losing its security level.

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