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By:
www.ProfitableInvestingTips.com
Smart contracts are an important feature of
decentralized finance. These bits of code
define the conditions of blockchain
mediated crypto business arrangements.
They make it possible to do business with
people anywhere in the world without
relying on middlemen.
Or do they? What happens when someone
reneges on a crypto blockchain business
deal? How can such problems be resolved
or mediated? What rules could or should
apply when problems arise? A question at
the bottom of this issue is this. Are smart
contracts legal?
What Is a Smart Contract?
IBM says that smart contracts are digital
contracts. They are kept on blockchains
and automatically executed as preset
conditions and terms are met. They speed
up the process by which all parties know
how a business deal will work. And they
may be used to automate necessary parts
of the workflow as terms of an agreement
are met.
For example, when one step is satisfied it
may trigger the next phase of a smart
contract. Such steps may include releasing
funds or carrying out a step such as
notifying all parties involved or doing
something mundane like registering a
vehicle. All relevant data is stored on a
blockchain with access given only to
parties involved.
Why Do We Need Contracts?
Contracts are used in business to formalize
agreements. They set specific terms,
conditions, and responsibilities. Contracts
define payment conditions including when,
by whom, and specific conditions such as
payment in Bitcoin, Ether, dollars, or euro.
They also set out rules for what happens
when payments are not made, services
are not rendered, or tangible assets are
not delivered. Such conditions are
especially important when business is
being done by people in different legal
jurisdictions where different laws will apply.
Under whose rules and in which
jurisdiction will problems be settled?
Legality of Smart Contracts
Just like traditional contracts, a smart
contract is meant to include all of the terms
of an agreement and rules for dealing with
any problems that may arise. In order to be
legal and binding in a given jurisdiction, a
contract needs to fulfill various legal
requirements like proof of intent to form a
contract.
Because a contract lays out the terms of an
agreement in the jurisdiction where it is
made, it reduces risk and helps avoid
conflicts. This can be difficult when a
contract needs to abide by the governing
laws of two very different legal
jurisdictions.
Problems With Smart Contract
Enforcement
As a rule the better-written a smart contract
is, the less likely it is that there will be
problems. When the person or persons
who write the contract anticipate any
differences in contract requirements or
interpretations across jurisdictions
problems will be less likely.
Very commonly in international contracts,
where differences will be settled and
whose laws will apply is specified up front.
Nevertheless, problems can arise because
of the fact that smart contracts and
decentralized finance cut out the
middleman.
The Occasional Necessity of a Trusted
Third Party
Consider this example. A company makes
equipment for oil drilling and maintenance
of existing oil wells. They want to sell to an
oil rich but politically unstable nation in the
Middle East. Their concern is that they will
deliver the equipment, the current
government will be overthrown, and they
will not be paid.
The folks in the Middle East are concerned that
if they pay up front the United States
government might impose sanctions on them
and they will never get the equipment. The
way this sort of situation is handled in the
world of international traditional finance is
with a third party. The money being paid is
held in escrow by an international bank or
other trusted third party. Funds are only
released upon proof of delivery of any
purchased assets.
No matter how smart a contract is and no
matter how elegant its programming, there
are times when real money or real tangible
assets need to be held by a third party and
released when the smart contract allows it.
This includes when problems arise and
differences need to be ironed out between
parties and across legal jurisdictions.
For more insights and useful information
about investments and investing, visit
www.ProfitableInvestingTips.com.

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Are Smart Contracts Legal?

  • 2. Smart contracts are an important feature of decentralized finance. These bits of code define the conditions of blockchain mediated crypto business arrangements. They make it possible to do business with people anywhere in the world without relying on middlemen.
  • 3. Or do they? What happens when someone reneges on a crypto blockchain business deal? How can such problems be resolved or mediated? What rules could or should apply when problems arise? A question at the bottom of this issue is this. Are smart contracts legal?
  • 4. What Is a Smart Contract?
  • 5. IBM says that smart contracts are digital contracts. They are kept on blockchains and automatically executed as preset conditions and terms are met. They speed up the process by which all parties know how a business deal will work. And they may be used to automate necessary parts of the workflow as terms of an agreement are met.
  • 6. For example, when one step is satisfied it may trigger the next phase of a smart contract. Such steps may include releasing funds or carrying out a step such as notifying all parties involved or doing something mundane like registering a vehicle. All relevant data is stored on a blockchain with access given only to parties involved.
  • 7.
  • 8. Why Do We Need Contracts?
  • 9. Contracts are used in business to formalize agreements. They set specific terms, conditions, and responsibilities. Contracts define payment conditions including when, by whom, and specific conditions such as payment in Bitcoin, Ether, dollars, or euro.
  • 10. They also set out rules for what happens when payments are not made, services are not rendered, or tangible assets are not delivered. Such conditions are especially important when business is being done by people in different legal jurisdictions where different laws will apply. Under whose rules and in which jurisdiction will problems be settled?
  • 11. Legality of Smart Contracts
  • 12. Just like traditional contracts, a smart contract is meant to include all of the terms of an agreement and rules for dealing with any problems that may arise. In order to be legal and binding in a given jurisdiction, a contract needs to fulfill various legal requirements like proof of intent to form a contract.
  • 13. Because a contract lays out the terms of an agreement in the jurisdiction where it is made, it reduces risk and helps avoid conflicts. This can be difficult when a contract needs to abide by the governing laws of two very different legal jurisdictions.
  • 14. Problems With Smart Contract Enforcement
  • 15. As a rule the better-written a smart contract is, the less likely it is that there will be problems. When the person or persons who write the contract anticipate any differences in contract requirements or interpretations across jurisdictions problems will be less likely.
  • 16. Very commonly in international contracts, where differences will be settled and whose laws will apply is specified up front. Nevertheless, problems can arise because of the fact that smart contracts and decentralized finance cut out the middleman.
  • 17. The Occasional Necessity of a Trusted Third Party
  • 18. Consider this example. A company makes equipment for oil drilling and maintenance of existing oil wells. They want to sell to an oil rich but politically unstable nation in the Middle East. Their concern is that they will deliver the equipment, the current government will be overthrown, and they will not be paid.
  • 19. The folks in the Middle East are concerned that if they pay up front the United States government might impose sanctions on them and they will never get the equipment. The way this sort of situation is handled in the world of international traditional finance is with a third party. The money being paid is held in escrow by an international bank or other trusted third party. Funds are only released upon proof of delivery of any purchased assets.
  • 20. No matter how smart a contract is and no matter how elegant its programming, there are times when real money or real tangible assets need to be held by a third party and released when the smart contract allows it. This includes when problems arise and differences need to be ironed out between parties and across legal jurisdictions.
  • 21. For more insights and useful information about investments and investing, visit www.ProfitableInvestingTips.com.