What are smart contracts, and how exactly do they function?
As a pro-active initiator of many educational processes and legal improvements associated with the adoption of blockchain technology, Toshev & Boteva Law Firm recognizes the potential of the so-called smart contracts to support the establishment of an entirely new generation of legal services. Services, the benefits of which would be tangible not merely for the entrepreneurs and the clients of lawyers in the face of the business and the institutions, but also lawyers themselves - because of their technology, their speed, their transparency, and their liability.
That is precisely why Toshev and Boteva decided to provide you with a series of valuable content regarding the nature and application of blockchain-based smart contracts in the legal practice both in our country and around the world.
Logically, today we will start by defining the essential features of smart contracts - what exactly are they, and what is their principle of operation.
What are smart contracts?
A smart contract is a kind of legal arrangement between two parties that is generated in the form of computer code. It is based on blockchain technology, which means that the contract is being stored in separate “blocks” in a public database, which cannot be altered or manipulated in any way.
This type of computer protocol is intended to facilitate, verify, negotiate, or execute a contract, parties to which may be individuals, devices, or organizations. It can be utilized in automating the transfer of crypto-tokens between users, as agreed in the terms and conditions of the contract.
Blockchain is a decentralized system that exists between all parties that are granted access to it. In essence, this means that smart contracts allow quick and reliable transactions without the engagement of intermediaries or any third parties. In addition to being secure and affordable, these transactions are easily traceable and entirely irreversible. The whole process is automated and can either serve as an addition to standard legal contracts or replace them entirely.
How exactly do smart contracts function?
You do not need to be a programmer or IT developer in order to grasp the basic principles underlying the idea of smart contracts. Summed up briefly and explained in a commonly accessible language, these principles would sound like this:
- The terms, conditions, rules, and all other elements of the contract are determined by the parties, “translated” in the form of computer code, and then “attached” to a publicly accessible data chain.
- When the conditions specified in the contract are fulfilled, or an event indicated in the code of the document occurs, the smart contract “self-executes.”
- Once the terms of the contract are met, the amounts or assets provided for as payment are being automatically sent to the recipients agreed beforehand. Transaction data is saved on the blockchain and remains perpetually accessible.
- The contracting parties, as well as the regulatory authorities, can monitor the activities of the smart contract without necessarily having access to sensitive personal data in it.
Even when considering all the possible variables, these principles are fundamental and are valid in the preparation and execution of almost all smart contracts. To this end, a number of applications have been designed that are already successfully operating in the niche.
Toshev & Boteva Law Firm eagerly provides individual guidance on the applicability of smart contracts for your case while also keeps sharing relevant information on the topic for the visitors of our website.
Georgi Toshev is a lawyer and Managing Partner at Toshev & Boteva Law Office, leading a dedicated team of lawyers who invest time, resources, and efforts in exploring blockchain technology and defining its legal status as a key technology of the future. Because the world does not change all by itself. We are the ones changing it. Have an idea? Brainstorm with us. https://www.toshevboteva.