How can Smart Contracts disrupt the Legal Space?

For most of us Bitcoin is this mysterious and exiting digital currency that we read about in the news every now and then. Some of us see it as a bubble while others believe it is the currency of the future or maybe something in between. But what is actually the technology that drives Bitcoins? Bitcoins are built on a technology called the Blockchain, which can not only be used for financial transactions but has the potential to disrupt the legal space in the form of smart contracts. So lets analyse how smart contracts can disrupt the legal space:

 

What is the Blockchain?

The Blockchain is a publicly verifiable and visible record of transactions or processes which can keep the involved parties anonymous, while the nature of the process is accessible and therefor incorruptible. This ledger is saved on every computer within the blockchain network. It is unaffected by the disappearance of computers and can at the same time be reconstructed by any computer joining the network. (Blockgeeks.com)

 

What are Smart Contracts?

A Smart Contract is basically just like any other contract. It is a set of rules and conditions that if met result in a consequence on which two or more parties decide on. The big difference between a “Smart”- and a regular contract is, that the Smart Contract is written down in code and stored in the Blockchain. If correctly implemented this makes it incorruptible and therefor ideal for legal processes that can just be written in terms of if-else-statements. (BlockchainTechnologies.com)

 

Lets look into 3 interesting use-cases for smart contracts.

1. Conditional Payment: Lets take your daily Uber or Lyft rides as an example. In a Smart contract you could write down in code, that the pick-up and drop-off location are the conditions for the payment to automatically be issued. The location of driver and customer are used as proofs and once the customer arrives in the determined drop-off zone the payment is automatically issued without anyone having to verify it, hence acting as a third independent party. This becomes especially interesting when looking into autonomous driving.
2. Company Stock: This is happening already within blockchain-startups. A so called ICO (Initial Coin Offering) assigns shares to Stockholders. Since the ownership is stored in a blockchain it is publicly verifiable and any buy/sell activity will be recorded and made publicly available automatically. The Ledger is always up-to-date without the need of anyone having to verify it from the outside. (coindesk.com)
3. Voting: Since the blockchain is theoretically incorruptible it makes it a potentially perfect candidate for voting as there is no way to manipulate votes. A blockchain voting system would give everyone who is entitled to vote the correct number of tokens (votes, normally one), which could then be used to add a vote to the blockchain registry. Since the flow of votes is stored in the blockchain and verified by all nodes in the network it makes it perfectly trustable system. The hard party would be to correctly assign the tokens and make sure the the correct person uses the token. Also the outside trust  just exist from the voters side.

 

Lets conclude this quick analysis of smart contracts. The blockchain seems to be a very interesting way of solving corruption but also make business more convenient and cheaper as it removes a middlemen in transactions or contract fulfilment. Given its nature it is going to be extremely interesting for developing countries in the legal space since trust in authorities and organisation is relatively low but also developing countries could benefit a lot. Furthermore smart contracts are a trustworthy and convenient way of welcoming automation and further digitalisation.

 

Sources

1. https://blockgeeks.com/guides/what-is-blockchain-technology/
2. http://www.blockchaintechnologies.com/blockchain-smart-contracts
3. http://www.coindesk.com/the-two-topics-in-law-blockchain/
4. https://bytecoin.org/blog/blockchain-technology-vs-centralized-icann/

 

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