Smart contracts, in theory, help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.
One way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer, pay them, and wait while you get the document you want. With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow contract, driver’s license, or whatever drops into your account. Smart contracts will have the ability to not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.
Blockgeeks.com, an online information and education resource, does a good job of explaining smart contracts In an article titled (ambitiously) Smart Contracts: The Blockchain Technology That Will Replace Lawyers.
"One of the best things about the blockchain is that, because it is a decentralized system that exists between all permitted parties, there’s no need to pay intermediaries (Middlemen) and it saves you time and conflict. Blockchains have their problems, but they are rated, undeniably, faster, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them.
In 1994, Nick Szabo, a legal scholar, and cryptographer, realized that the decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service."
A group of law firms and tech companies have teamed up to develop the Agreements Network, a platform that will aid in the creation, use and sale of smart contracts for lawyers. This means that, within the next few months, lawyers may have more options for creating automated contracts for payments, billing, signatures and registrations. These codeless contracts work via blockchain.
The planned platform will assist in the creation of automated payments and billing, signatures and registrations. It also allows for collaborative storage of documents and assets, as opposed to a contract being on a single firm’s network.
“If launched safely and properly, the Agreements Network could provide a foundational piece of technology for a range of innovative solutions in the legal marketplace,” Robert Craig, CIO of BakerHosteltler, a partner organization in Agreements Network, told Forbes.
While smart contracts have been around for some time, the growing interest in blockchain has accelerated development and investment in the technology. The Agreements Network seems to be leveraging this growth with the downward trend of client demand and lawyer productivity.
“As decentralized network commerce proliferates, customers globally will require a new set of legal products to manage contract operation and regulatory compliance,” according to the organization’s white paper. “Lawyers who learn how to offer focused high-value work in conjunction with reliable legal products at scale will be able to serve larger numbers of clients while spending fewer resources.”
“There’s a very real financial incentive for the law firm to become more efficient and provide more value,” Dean Sonderegger, general manager of the legal markets group at Wolters Kluwer, told Forbes. “Whereas it has traditionally been difficult to get attorneys to use different tools and apps, you’re seeing the market pull them in a way where they have to do that.”
The organization’s website names numerous use cases for smart contracts, including leasing issues on devices like drones, tracking remuneration and protecting intellectual property rights for digital content creators, and creating a record of incorporation documents to assist the creation of smart contract associated with that entity.
“As the world moves ever further down the path of digitization the legal functions of most businesses are being forced to migrate and update their systems,” Casey Kuhlman, CEO of Monax, a smart contract company in the United Kingdom, said in the release. “This is, fundamentally, a good thing. It will eventually reduce errors, increase certainty, decrease risk, and streamline operations at a core level.”
The network is currently being tested and will launch in October, Forbes reports.
NOTE: At Almquist Law, we are always on the lookout for innovative technology; however, for our current practice focus, we don't anticipate the imminent adoption of smart contracts. We have given some consideration to incorporating blockchain into our electronic signature procedure with a system that creates a certificate containing the signatures and other information, such as dates, times, and email addresses of signatories. The signature certificate is then "notarized" in a public blockchain, which generates publicly verifiable proof of its origin, date, authenticity, and integrity. However, for our current purposes and those of our clients, we feel that this is "overkill" and that any marginal benefit is outweighed by the system is more cumbersome, time-consuming, and would result in unwarranted additional cost and inconvenience. Our current system for electronic signatures is more than adequate and obtains legally binding signatures using the strongest commercial SSL encryption protocols. These protocols keeps documents safe on a state-of-the-art SSAE-16 and ISO 27001 certified data center with a robust disaster recovery plan. Tamper-evident technology makes it easy to see if a signed document has been altered and we are able to access detailed logs including senders email address, timestamps, and IP addresses, which are appended to each signature request/response to substantiate trace-ability. This tamper-proof technology makes it impossible to make alterations.