Legal aspects of Smart Contract Deployment

Published : Nov 02, 2018

smart contract deployment

  • As defined by Nick Szabo, the creator of Smart Contract, this technology is basically a protocol for a digital transaction to execute terms of a contract. Technically, a smart contract is a program that can make its own decisions after it complies with certain preconditions. It is the basis of distributed ledger technology, by which, any new block can connect to the network creating a blockchain. Any smart contract deployment requires an adequate background check of its legal aspects.

    Smart contract is a revolution in IT, but it involves certain legal lacunas. Smart-contract deployment is similar to a legal contract between two parties. If both the sides come to an agreement, the new block or the ledger will connect to the network of distributed ledgers. The technology is a replication of the legal system in the digital world. Although the fact opens up unlimited possibilities for potential uses, it has hit the roadblocks of the current legal structures in the physical world. An enigma surrounding the question-- “Can Codes become Law?”, engulfed techno-legal experts.

    Legal Issues in Smart Contract

    The contrasting differences between smart contract and natural language law create the major clashes. There is are differences in smart contracts and the universal idea of relational contracts. An analysis of smart contracts on the light of legality brings forth aspects like consent and consumer protection. Thus, the conventional ideas of fraud and force majeure could emerge in the system.

    Blockchain technology is in contrast to rigid regulatory frameworks. In a smart contract deployment, developers can create terms and conditions for their own private distributed ledger networks, which may or may not comply with existing policies and laws. Precisely, the following aspects comprise the prime legal roadblocks to smart contracts:

    • Identification of parties involved.
    • Legal compliance of the smart contract.
    • If the program includes all aspects of the legal framework.
    • Legality of execution of the contract.
    • Dispute resolution mechanism.


    Apart from these top facets, liability, jurisdiction, lack of audit, as well as limited legal persons withan adequate understanding of the technology, are systematic barriers in smart contract. Despite these issues, the technology is gaining ground almost with no restriction. Smart contract based ledgers for business and commercial purpose have not broken into the dimensions of critical legal infringements so far. Also, the tech community is highly alert to abandon any such attempt and eradicate legal issues while leveraging the technology. In fact, there are several frameworks in the blockchain ecosystem, which are specifically developed to deal with the issue.

    Addressing legal issues in Smart Contract Deployment

    There are always two sides of a coin. Similarly, on its flipside, smart contracts can also address several issues in conventional legal frameworks. On contrary to pessimistic beliefs, smart contracts can bring an overhaul in current legal systems. Since, this technology is immutable, using smart contracts as legal frameworks can bring sheer accountability, predictability, and clarity over natural language contracts. Even critical verticals like Defense and Military are effectively using this technology with positive outcomes.

    Currently, there are several initiatives pursuing the standards of legality in smart contract deployment. Stanford University is active in this initiative working towards a broader paradigm of legal computational laws. Stanford has a legal informatics program named CodeX, working to transform natural language contracts to computable contracts. Another primary initiative is the Accord Protocol, developing a special smart contract template. This template allows transforming natural language laws to smart legal contracts.

    Apart from technological innovations, state legislation has become an active instrument to ensure legal compliances to smart contracts. Every nation has own sets of cyber-security regulations. Acts like ESIGN Act, UETA, which are being discussed in the US, are emerging to secure distributed ledger technology.

    Any technology, on the brink of being a disruption, emerges with both advantages and lackings. Blockchain technology and smart contract are now beginning to impact the IT ecosystem holistically. Smart contract came up as an IT avatar of natural legal agreements. The technology is evolving with new changes and as expected, it will render further advances in the global techno-legal landscape.

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