Smart Contracts: Where Law and Computer Science Meet
New technology is not good or evil in and of itself.
It's all about how people choose to use it.
After addressing blockchain and NFTs in previous articles, it is important not to leave smart contracts out of the discussion, since the concept is an important technological innovation in the blockchain world. So, what are smart contracts, why are they referred to as smart contracts, and are they really that smart?
The concept of smart contracts isn’t new, but with the explosion of blockchain technology and Bitcoin, smart contracts have gained more prominence and are now being taken more seriously.
Simply put, smart contracts are computer programs -pieces of code- that host specific automatic and self-executable information and run in a blockchain, which is their underlying technology. Smart contracts are based on scripts -computer coding- that cannot be changed, and they can be created by a person or a computer.
Although they are referred to as contracts, they neither look like the classic long paper contracts that we are used to nor can they spontaneously make decisions. Smart contracts execute what they have been programmed to do according to the coding instructions. The analogy with conventional contracts stems from the fact that the creator of a smart contract can introduce in its coding instructions, terms, and conditions that are usually reflected in traditional contracts as well: what can be done, how it can be done, and what happens if certain conditions are met and vice versa. Smart contracts obey certain instructions reflected in their code, but they neither have spontaneous decision-making abilities outside their roadmap code (at least not yet) nor can they re-adjust if unexpected events occur. As Shermin Voshmgir, Tech Author and speaker of the TED Talk "Web3, Blockchain, cryptocurrency: a threat or an opportunity" puts it: “[Smart contracts] are pieces of code that codify business logic. […] They store rules, they verify rules, they self-execute rules.”
Since smart contracts run with blockchain technology, they are immutable, trustworthy, transparent, and fast. Accordingly, they can speed up the logistical, operational, and transactional steps of many industrial processes. Also, they dispense with intermediaries (middlemen) such as monitoring, auditing, or supervising institutions. Finally, there is no centralized authority that they depend on or that controls their enforceability. It looks like all sectors can benefit from smart contracts but, for now, they have mostly been utilized in the supply chain, finance, insurance, and banking sectors with promising results. Smart contracts are often used to automate the execution of an agreement, a workflow or to release payments when the conditions are met.