Smart contracts are unquestionably one of the most intriguing applications of blockchain technology in the field of law. That is why we from Toshev & Boteva Law Firm launched a series of reading materials on the essence of smart contracts, their part in the evolution of legal services, and their utilization in the practice of lawyers, individuals, and legal entities.
In this part of our journey, we will outline the main differences between traditional contracts and smart contracts explicitly and precisely - so that their potential users can instantly get an idea of their pros and cons.
- The time needed to formulate the contract
The time needed for preparing, drafting, and formulating a traditional contract ranges from one to several days, depending on the quality of the legal services and the readiness of the parties to the contract. For smart contracts, this period can be reduced to a few minutes if when adopting a ready-made contract platform. Such platforms are Ethereum, Hyperledger Fabric, and others.
- The execution and remittance of the contract
In conventional contracts, the parties are obliged to pay the amounts due in time - manually, with additional organizational efforts on their part. In smart contracts, the remittance is automated and is executed automatically upon fulfillment of the conditions agreed and recorded in the code.
- The final cost of the process
Ideally, smart contracts do not require interference from intermediaries and third parties, which makes their price almost equal to zero. For better or worse, this option still belongs to the uncertain future, and the role of lawyers in regulating the compatibility of the contract with current legal regulations is quite significant. With or without their intervention, however, smart contracts are not only faster and more practical, but also a significantly cheaper option for negotiating parties.
- The data security and protection
Unlike a traditional contract, which is merely a piece of paper, a smart contract can offer qualitatively new security and confidentiality level. The cryptographic protection of blockchain technology allows an unprecedented level of confidentiality, especially if the contract is stored on a private rather than a public ledger.
- The need for physical presence
Considering the dynamics of our ever-changing world, conducting remote operations without reducing their reliability becomes increasingly essential. A smart contract is concluded by putting an electronic signature, which eliminates the need for the physical presence of the parties - a disadvantage that traditional agreements do not have the potential to avoid.
- The archiving
Archiving traditional contracts requires time, space, administration, and supervision. With smart contracts, it happens automatically, securely, without wasting time or natural resources.
Compared to traditional contracts, the potential limitations of smart contracts are reduced flexibility of the contract terms, as well as the problematic "readability" of the contract by people without specific background and qualifications. Fortunately, both problems are easily overcome with the mediation of an experienced lawyer familiar with smart contracting's specifics within the current legal regulations.
The partners in Toshev & Boteva Law Firm are always eager to answer your questions and provide personalized advice on the applicability of smart contracts in each particular case. We strive to be a pro-active participant in shaping the technological future - both in the field of law and in all industries served by it.
Georgi Toshev is a lawyer and Managing Partner at Toshev & Boteva Law Office, leading a dedicated team of lawyers who invest time, resources, and efforts in exploring blockchain technology and defining its legal status as a key technology of the future. Because the world does not change all by itself. We are the ones changing it. Have an idea? Brainstorm with us. https://www.toshevboteva.com//contacts
Have an idea! Brainstorm with us.