Five Elements to Review Before Adding Smart Contracts to Your Business
There are five key elements that you should be aware of before adding smart contracts to your business. Contracts are part of your everyday business life. Smart contracts are built on blockchains, specified benefits, the importance of correct coding, and the current status of these contracts within particular industries.
Contracts Are Part of Every Day
We live in a world of contracts. We live in a world of technology. The interlacing of technology and contracts continues to create new options, opportunities and obligations. The concert ticket purchased last week is a contract, and you bought it online. Your insurance is a contract, and you’ll use technology should you ever need to file a claim. Even your checking account is based upon a contract, and you use your phone to manage those monies.
Built on Blockchain
Blockchains are the future of accountability for executing transactions. The interconnecting blockchain system provides a verifiable, accurate and reliable ledger of all transactions. The decentralized nature of the blockchain provides a level of security. The more a transaction is validated and recorded on the blockchain, the more verifiable it becomes. There is a comfort in knowing that numerous impartial strangers are all coordinating to verify your transaction. This creates the perfect arena for the execution of direct and concise contracts, in which groups of impartial users are ensuring the accuracy of every transaction.
Smart contracts are like any other legal contract; however, these contracts can be coded to be self-executing and self-enforcing, if all elements are included on the blockchain. The terms of such a smart contract will establish the conditions that must be met prior to the contract execution. Once those elements are met, the smart contract will begin the next step in the process automatically, per the code instructions. That next step might be the transfer of a concert ticket to a buyer, a printable insurance card for a client, or confirmation of funds received in a bank or crypto account.
Code It Correctly
Smart contracts are meant to stand alone. Unlike a typical legal contract, in which parties can agree with one another on the intention behind it, there is no analysis of the intention of the smart contract. This agreement exists only in the structure of the code. If the code creates a vulnerability to exploit the delegate call and fallback function, users may be exposing themselves to unnecessary risk. The now infamous DAO hack and the more recent KotET situation are examples of how a flaw in a smart contract can have negative consequences. Smart contract security is still in the relatively early stages of its development. Any business intending to incorporate smart contracts into their services or processes should consult an expert.
Many states have followed Arizona’s example in preventing smart contracts from being denied legal effect, validity or enforceability solely because the contract contains a smart contract term. However, even without a state legislating the validity of a smart contract, courts may uphold the validity of the contract terms.
Consult an Expert
Consult a smart contracting and legal expert in your area for specifics about available options for you and your business. Successful business deals are built on the experience and acumen of experts, and smart contracting is an integral part of your future (and probably some current) deals. Just as modern-day contracts should be constructed and reviewed by licensed attorneys, a smart contract should be created by someone aware of the potential implications, knowledgeable of relevant laws, covered by liability insurance, experienced in coding, engaged with your specific industry, and well-versed in the potential financial and other legal consequences.