The legal world has landed an uncertainty that does not consist in the appearance of a new regulation. The projection comes with intelligent contracts or ‘smart contracts’.
They are contracts that use the blockchain technology -the same one that cryptocurrencies use- to be enforced, without any type of intermediaries. They have the ability to define rules, actions and process measures.
According to BBVA Research, the blockchain guarantees that everyone sees the same, without one party having to trust that the other party is honoured, since nothing of what is included can be falsified. However, “standardization and a more generalized adoption of the blockchain will be necessary to turn this potential into reality”.
In specific matter of intelligent contracts, we will demand, first that we have a deeper knowledge of how these technologies work, understand what an algorithm is, not for us to program, but to understand how an intelligent contract is translated from a language purely legal to a technical programming.
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In this sense, he argues that this is a challenge for lawyers because they will have to work multidisciplinary because the intelligent contract is incorporated into a code and programming in mathematical algorithms.
For example, A sells B a house at X price, that must be translated into a computer language. “That translation is a challenge for the lawyer. There are very famous cases in the United States, where some programming errors in financial robots have caused falls in the stock market, “he adds.
In the same way, an analysis by BBVA Research indicates that smart contracts will not replace lawyers but will be an evolution of the legal system and the role of lawyers could change, from awarding or litigating individual contracts, to produce templates for these contracts.
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The trust generated by this type of agreement is due to a contractual management, which through mathematical algorithms and encryption allows to guarantee the integrity of the information that is in that database and that allows the contracts that are in that platform to be execute automatically with the fulfillment of some conditions that are in the algorithms that are used to create the contract.
Microsoft’s legal affairs leader points out that in the country there are two stages to this trend, the first is the implementation that is being experienced, with ventures from various sectors that are executing smart contracts. The second is the overcrowding, which will take more time because companies can take an approximate time between two or three years to understand technology, internal processes and adapt their technological tools.
What are the advantages of this type of contracts for companies?
They bring several advantages, on the one hand, it speeds up the information management mechanisms that a company has. For example, a company can manage its chain of suppliers in a more efficient, cheaper way, than with a traditional information system where they have to make very high investments in infrastructure issues such as servers and other providers.
What blockchain allows is to take advantage of the internet and storage in the cloud to achieve the same results at a lower cost. The first big benefit is lower cost, more efficiency. You have to make a lower investment of resources, to manage the information systems in general.
The second benefit is security, both technical and legal. An intelligent contract is characterized by being self-executing. Traditionally when making a contract, the parties undertake to comply with the established. At the time of carrying out a traditional contract, there is no 100% certainty that the other party will comply with the agreement and for this reason, a system of guarantees such as mortgages, promissory notes, among others, are generated.
How viable is it that smart contracts reach the corporate world in the near future?
All the conditions are given at this moment so that any businessmen can use blockchain, like everything else, it is a matter of learning or understanding their possibilities, which are many, and making the adaptations or incorporating blockchain into the digital transformation process of the companies.
Also published on Medium.