Short Comings of Smart Contracts

Introduction:

In the age of digitalization, various technologies are being invented and every possible thing is trying to do through technology or digital mode. It is good that the digital mode is easy, efficient, and cheap. In the legal world, the use of technology is increasing day by day and it’s been found useful and efficient. Contracts are also made and perform through a digital mode called smart contracts. Smart contracts are computer programmes that encode the agreements between the parties with the pre-defined rules written into codes. Smart contracts are made and executed on the blockchain system. Blockchain is a system or programme recording information and makes it impossible to change or hack.

The smart contract is propose by American computer scientist Nick Szabo in 1994. The purpose of the smart contracts is to facilitate digitally, perform contracts without third-party or intermediaries, to save the cost, avoid frauds and malicious intentions of parties.[1] The rules in smart contracts are predefine, once the rules and terms and conditions are fulfill. The agreement gets enforce automatically and this information cannot be change or update once fix.

Smart contracts consist of contract storage, a balance and programme code. Smart contract codes are fix, they cannot be change once they are upload to blockchain and store in a public database. In recent times, smart contracts are being popular as it saves time, money and a lot of paperwork. One of the most important features is that it does not require trusted third party like lawyer, broker etc. to perform a contract.

Enforceability of Smart Contracts

To make smart contracts enforceable, the essential elements of conventional contracts must be satisfied. In the year 1999, the Uniform Electronic Transactions Act (UETA) was implement in around 47 states in the US. It regulates electronic contracts[2], records[3] and signature[4] and stated that e-contracts would be legal and signatures would be considered as consent.

The United Kingdom is strong on assimilating smart contracts into their legislation, the UK Law Commission has commenced a research project on reforms that would make the use of blockchain-based smart contracts legally clear.[5]

In the Indian context, in the Indian Contract Act, 1872, essential elements are without which contract cannot be form or enforce in the court of law. To complete a contract, there must be valid offer and acceptance, consideration, intention to create legal relations etc. are require.[6] Smart contracts meet all the requirements of the contract stated in the Indian Contract Act but in the digital form. Under Section 10(A) of the Indian Information Technology Act, 2000, electronic contracts are valid and enforceable in the court of law. So smart contracts are legal and enforceable in the courts in India.

Benefits of Smart Contracts

With the rise of technology and digital appliances, in this fast-moving world to bring out contracts speedily and efficiently, a smart contract is a way to do so. Smarts contracts do not need any third person or intermediaries (like broker, lawyer etc.) to carry out the contract. It’s self-regulating and executes automatically once the terms and conditions are satisfied.

The conventional contracts are made by human and there is a high possibility of manual errors. The smart contract reduces the possibility of blunders as it is a computer programme, based on codes built on the blockchain. The only need is that the rules, terms and conditions should be made properly in the form of codes.

It is very speedy as once rules of a contract are qualify, it gets execute automatically and the money, assets or property, digital currency etc. transfers efficiently to the proper party in the contract. It is very secure and trustworthy. Blockchain technology decentralize and share database run by many computers and it’s not control by one party like a bank, broker etc. so it can be trust and very difficult to hack.[7]

It’s completely computer-base programme and saves papers. Smart contracts are store and has strong backup so can get documents of contracts easily.

Drawbacks of Smart Contracts

The smart contract has some drawbacks. First, the government does not use smart contracts right now. It may happen in the future that the government will use it. People are not that much aware of smart contracts, so hesitate to use it.

The terms in the smart contracts do not change. We Often see the terms of conventional contracts changes with change in circumstances e.g. Force Majeure.

Smart contracts are highly reliable on computer programmes and many people lose jobs because of this technology.

Though smart contracts have some drawbacks, these can be removed with time and when people get to know about this technology it will become popular in masses. If the government started using smart contracts, then people will not hesitate to use it.

Conclusion

With the increase in technology and globalization, everyone seeks rapid growth and development. The smart contracts are much beneficial in this world as compared to the traditional one. It saves time and money. It’ll take time to be acquainte among people but afterwards, it will do its job without any disruptions. Smart contracts would bring flexibility to the contracts in the world. If governments take certain actions to implement and use of smart contracts, then its sure that smart contracts will be the next step of carrying contracts and doing business.

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References:

[1] Nick Szabo, Formalizaing and securing Relationships on public network, First Monday, https://firstmonday.org/article/view/548/469

[2] Section (4) & (5), Uniform Electronic Transactions Act, 1999

[3] Section (7), Uniform Electronic Transactions Act, 1999

[4] See, Section (8), Uniform Electronic Transaction Act, 1999

[5] STA Law firm, The enforceability of smart contr

acts in India, mondaq (Dec. 13, 2019), https://www.mondaq.com/india/contracts-and-commercial-law/874892/the-enforceability-of-smart-contracts-in-india#:~:text=Smart%20contracts%20may%20be%20enforceable,place%20to%20regulate%20smart%20contracts.

[6] Section (10), Indian Contract Act, 1872.

[7] BitDegree, What is smart contract how it works?, BitDegree Tutorials (Jan 21, 2020), https://www.bitdegree.org/tutorials/what-is-a-smart-contract/