On 17th January 2023, the industry regulator, the Bar Standards Board decided to hand down an order imposing a ban on a barrister preventing him from continuing to practise after evidence emerged
101 with the Legist: Analysis on Smart Contracts
What just happened?
A hacker stole $31 million from the blockchain company MonoX Finance , by exploiting a bug in software the service uses to draft smart contracts. (1)
What just happened?
So what are smart contracts……………….
Traditional contracts involve a lot of documents, and banks have to invest resources to manage them. The code and the agreements it contains exist through a distributed and decentralized blockchain network. The code monitors execution, and transactions are tracked and irreversible. (2)
This is because the actual execution of the contract is monitored and verified by the platform, not by any server program connected to the platform. Smart contract is a new technology that can automatically negotiate, execute and enforce the terms of the agreement in the blockchain environment.More so, one can further say that a smart contract is a computer program or transaction agreement designed to execute automatically, control or record events and actions of legal significance in accordance with the terms of the contract or agreement. The National Institute of Standards and Technology describes "smart contracts" as "a collection of code and data (sometimes called functions and states) distributed on a blockchain network using cryptographic signature transactions." (3)
Although blockchain technology was primarily considered the backbone of bitcoin, it has gone far beyond supporting a virtual currency. Blockchain 2.0 is the era of smart contracts capable of adapting to more complex application scenarios and more advanced functional requirements, which gives it a wide range of applications in financial and social systems; at the same time, other advanced smart contract-based applications also have great potential for development. (4)
Like other blockchain and distributed ledger projects, private blockchains are expected to remain the stage for companies to prototype their contracts as public networks mature. However, as companies soon realize that much more reliable financial platforms already exist for algorithmic processing in trusted environments, smart contracts on those platforms are likely to be reduced to mere curiosity as the unreliable public settlement environment will fully develop. (5)
How does it impact the legal sector?
Although understanding the current legal framework is important to assess the applicability of smart contracts today, before the development of blockchain technology, people who use smart contracts in the future may not have to rely on the law.
For example, the Primaverade Filippis encrypted registration transaction legal framework uses smart chain contracts to supplement existing legal contracts. These contracts become a combination of smart contract code and traditional legal language; "smart application contracts", Or more precisely, in the blockchain. Deploy distributed applications on the chain based on smart contracts to create new contract forms with commercial value, such as the M2M (machine-to-machine) business model. (6)
The code for these contracts runs in the Ethereum Virtual Machine (EVM). These programs are commonly referred to as "smart contracts," a term that predates public blockchains and does not necessarily imply any contractual obligation in a legal sense when used in today's DLT context.13 This approach is combined with the account registration format for value recording. In Ethereum and many other DLT systems that allow programmatically manipulating account balances. For example, dollar-backed stablecoins running on the Algorand blockchain can be programmed using smart contracts to make payments to company employees at the end of the month. (7)
However, on a more fundamental level, programmable money can build trust, which is incredibly valuable. Business is based on relationships, and relationships are based on trust. This means that trust-building technologies can be of great benefit to companies. Maintaining such a powerful ability for programs to execute transactions exposes the blockchain to risks from economic forces that could jeopardize security. (8)
#Allen & Overy LLP #Clifford Chance LLP #Kirkland & Ellis International LLP #Latham & Watkins #Linklaters LLP #Weil, Gotshal & Manges (London) LLP #Milbank #Simpson Thacher & Bartlett LLP #White & Case LLP
2 https://www.investopedia.com/terms/s/smart-contracts.asp and https://www.businessofapps.com/insights/how-smart-contracts-are-transforming-banks-and-financial-institutions/
3 https://www.hindawi.com/journals/ace/2021/5530755/ and https://en.wikipedia.org/wiki/Smart_contract
4 https://www.investopedia.com/terms/s/smart-contracts.asp and https://scirp.org/journal/paperinformation.aspx?paperid=112810
6 https://corpgov.law.harvard.edu/2018/05/26/an-introduction-to-smart-contracts-and-their-potential-and-inherent-limitations/ and https://scirp.org/journal/paperinformation.aspx?paperid=112810
7 https://www.algorand.com/resources/blog/programmable-money-smart-contracts-make-money-better/, https://www.businessofapps.com/insights/how-smart-contracts-are-transforming-banks-and-financial-institutions/ and https://www.federalreserve.gov/econres/notes/feds-notes/what-is-programmable-money-20210623.htm
8 https://www.americanbanker.com/opinion/smart-contracts-are-the-future-of-blockchain and https://www.algorand.com/resources/blog/programmable-money-smart-contracts-make-money-better/