Smart contracts – can legal profession be replaced by blockchain technology?
Smart contracts and blockchain technology have been on everyone’s lips for quite some time now. Blockchain technology became one of the hot topics in all kinds of industries, including (but not limited to) the legal profession. Is there any grain of truth in rumours concerning legal profession being replaced by technology?
The concept of smart contracts emerged already in the early 90s, being presented by Nick Szabo as a piece of code that allows for execution of the contract on its very own. The so-called “self-executing” contract was often depicted with the use of a vending machine example. Once the vending machine receives payment, it automatically dispenses the order without the need for a “middleman” operating the machine. In theory smart contracts are just that – agreements that can be carried out without the need for presence of intermediaries, all thanks to a decentralised blockchain technology. In essence, it is a decentralised database which cannot be corrupted. That is due to the fact that all the data is stored simultaneously on hundreds of thousands computers around the world protecting its accuracy from third-party interference.
Smart contracts based on blockchain technology can be stored in a secure decentralized system, minimalizing the risk of attempt to change its provisions. The encrypted code controls the transfer of payment or other assets between the parties until all the conditions under the contract have been met. Not only that, a smart contract can also define certain obligations and penalties under the parties’ agreement and automatically enforce them.
Sounds perfect, right? Well, like many other technology revolutions, smart contracts hog the limelight. However, the fact that they carry considerable advantages does not mean that there are no downsides. Even though the use of certain technology may automate the process, code-written smart contracts are far from perfect and cannot replace the written contracts. More complex agreements covering situations that differ from a simple yes or no questions cannot be constrained by a formula used by blockchain technology. Such may include contracts providing for best efforts rather than obligation of result, which are to provide flexibility under the contract. Smart contracts are not either adjusted to the issues relating to breach of contract, termination, and other complex legal issues arising out of business relations.
There is no doubt that smart contracts will create more room for legal work and may also impact the style of work in legal professions. Technology can shorten some of the mundane tasks but at the same time creates new issues that must be dealt with.
And though there is a grain of truth in every rumour, legal profession will be just fine. At least for now!