By Manzar Mammadova & Daria Sorochynska
what are they and how do they function
A smart contract is an agreement between people or
organizations, which is in a form of a program code that
runs automatically and receives all the necessary data
through so-called "oracles" - programs that provide
communication between the real and the digital world.
Rather, smart contracts should be referred to as a blockchain because today,
such contracts are implemented through blockchain, and if you go into detail,
perhaps 99% of smart contracts should be called ethereum contracts, since they
are created on the air (ether- cryptocurrency).
The dynamics of Ukraine's relations with the EU is growing, which
in turn necessitates the optimization of regulation of business
entities. The development of technologies, compatible with modern
law, will increase the quality of control over business activities. One
of the areas of such optimization is the development and
consolidation in the legislation of smart contracts, since these
contracts are indirect, non-counterfeit and accessible to all
How to make a smart contract?
■ It is important to note that a smart contract requires several
■ 1. The digital identification and digital presence of all parties to the
■ 2. Smart contracting requires a decentralized private environment into
which smart contracts will be recorded;
■ 3. The subject matter of the contract and the availability of the
necessary instruments for its implementation. For example, if any
calculations are provided, then these are cryptocurrency accounts.
■ 4. It should specifically describe the conditions for its implementation,
which participants confirm at the same time.
History of development of smart
In 1996, when the first round of global Internet development began, American
programmer and cryptographer Nick Szabo first introduced the concept of "smart
contracts", which is hard to imagine today without being tied to Blockchain. Szabo
described the smart contract as a computer protocol that, on the basis of
mathematical algorithms, independently performs operations with complete control
over their execution.The prototype of smart contracts is the ordinary paper contracts
used by any modern organization.
1. Autonomy. You make all the agreements yourself - you no longer need to contact
brokers, banks, notaries, attorneys and other intermediaries to confirm or certify
■ 2. Trust and preservation. Cryptography, data encryption, and blockchain storage
are responsible for keeping your documents secure.There are hundreds of
duplicates, and no one will be able to say that your documents have been lost.
Blockchain and its decentralization also make it virtually impossible to hack and
swap your smart code.
■ 3. Speed. It usually takes a lot of time to work with paper documents and their
support. Smart contract software automates these tasks, thus freeing you
from personal involvement in many of the business processes that are
typically done manually.
■ 4. Saving. Smart contracts save your money as they eliminate intermediaries'
business processes. The cost of servicing ordinary contracts, such as
notarized assurances of transactions, can reach hundreds of thousands of
dollars, because sometimes not only the contract itself, but every transaction
on it, is required to certify a notary.
■ 5. Accuracy. Not only are automated contracts faster and cheaper than usual,
they also help to avoid mistakes that occur when manually filling out forms
and eliminating the human factor in contracting transactions.
1. Lack of infrastructure and lack of information. Speaking
of smart contracts, there is actually one convenient base for
their creation today, the airbase, in other cryptocurrencies
there is no convenient service for creating smart contracts. In
addition, there is usually not all necessary the information to
make smart deals.
2. Openness of information. In smart contracts, all
information is accessible to everyone.
3. Lack of legislation regulating smart contacts. Legislators
are simply not keeping up with technology, and today there is
no specific base for regulating smart contracts.
4. The permanence of smart contracts. On the one hand,
this increases the security of smart deals, and on the other,
contracts should be able to make changes.
An example of possible use of smart
If you want to buy a car you need to come to the car
dealership, choose a car, go to the bank to pay everything,
by the way, if you exceed a certain amount, you need to
explain where the money came from, after the payment
come to the car dealer and pick up the car. And this is
probably a simplified version, which will take the whole
dayHowever if you choose to buy a car with smart
contracts, you just need to select the model and confirm
the purchase, then come and pick up the car, all the
property status, who owns it automatically updated online,
which increases security.
Conclusions and suggestions
■ Therefore, the highlight of a smart contract is its automatic execution, if
it concerns the contractual relationship, as well as the possibility of a
certain legal fact. However, it should be borne in mind that at present, a
smart contract is not an ideal instrument for contractual relations and
cannot completely replace the classic paper contract scheme as it does
not have clear legislative regulation. In addition, a mistake made when
writing it can cause unwanted results for the parties and even the loss of
■ The use of smart contracts, of course, will allow optimizing the
economic activity of legal entities. However, it will take some time to
significantly expand the use of such a tool, which can make the use of a
smart contract more flexible and allow errors to be corrected by
"modifying" a smart contract without losing its security level.