Cryptographer Nick Szabo coined the term “smart contract” in the early 1990s. A quarter of a century later, the smart contract technology is still in an early development stage but is understood to have the potential to disrupt many industries. From manufacturing to financial services, government services to healthcare, the advent of smart contracts is likely to challenge the traditional understanding, function and scope of contracting. While a standard contract provides the terms of a relationship which has an enforceable character through the legal wording; a smart contract uses a cryptographic code to enforce a relationship. Simply put, smart contracts are programs that execute exactly what they are set up for by their creators. With smart contracts, the execution of the contract takes place as soon as the conditions are met. For example, a smart contract for travel insurance can be automatically prompted once a flight is cancelled. The blockchain technology is a series of transactions where a new block is permanently tied to a previous block and so on. With the blockchain, multiple parties can verify transactions instantaneously, which helps exposing any faults with transactions. Following verification, the transaction is added as a new block on the blockchain. The public scrutiny through the blockchain technology and reliability of the application of the contract terms support the forthcoming boom of the smart contracts.
Gearing up for the smart contract
Pimlegal - 8 April 2021 - 0 comments