The Future of Smart Contracts
But can smart contracts be used to enforce non-monetary agreements? Those might be harder to structure, and as a result we’ll see more and more agreements that include a financial element.
Take the case of written, non-financial agreements between two companies, for example regarding swapped services or an understanding that one party will receive preferential service levels. It’s more difficult to craft a smart contract that automatically guarantees satisfaction to the injured party when no financial penalties are on the line.
Disputes stemming from these kinds of contractual arrangements currently might require an attorney or a session in small claims courts. However, in the future these kinds of service contracts will include some type of financial guarantee – a deposit, for example, can easily transform this agreement into one that can be policed, managed and enforced through a smart contract.
Before smart contracts are more widely used, there are two primary concerns and downsides that will have to be addressed.
First, to place a contract onto the blockchain, all of the necessary legalese has to be written into computer code. Lawyers are not typically coders and coders are not typically lawyers. This requires an element of trust and expertise so the parties can be confident that the code within the smart contract truly reflects the legal intent.
Second, a blockchain-based smart contract is “written in stone.” The blockchain is decentralized, and usually that works for the good. But it also means that there’s no central authority or referee who can step in if one party feels aggrieved or even conned.
Those issues will be resolved over time. On the first matter, as more and more smart contracts are drawn up, they’ll serve as templates for similar agreements. And for more complex legal matters, we’ll see the emergence of a new specialty that bridges the gap between traditional and coded legal drafting.
Regarding the issue of fraud, no doubt the legal profession will attempt to try to step in to serve in some capacity as a legal recourse. More likely, though, the IT community will design a decentralized way to adjudicate these cases.
More and more aspects of our lives are being automated – cars, trucks, automated grocery checkouts … and these functions certainly have the potential to make things run faster, cheaper, and safer. But like truck drivers and grocery checkout clerks, you can now add certain legal contract specialists to the list of soon-to-be-displaced workers that will need to reinvent themselves in the future.