Smart Contracting: A Business Enabler?

In-House Counsel

Smart Contracting: A Business Enabler?

Amit Anand | June 2018

With the advent of Blockchain technology, business finds a great space and motivation to build-in a more reliable, automated and trust worthy system. Smart Contract is one such product which is bound to change the traditional ways of the execution and enforcement of the commercial contracts. It will certainly disrupt the way commercial contracts are entered and executed. Being cost efficient and effective is the need of hour and therefore, businesses are committed to digitization of its transactions. This digitization efforts also includes the way contracts are executed and enforced. Smart contract is something, by virtue of which, business can execute and enforce its contracts in a reliable and automated way.

Smart Contract is a set of coded instructions which enables a contract (set of terms and conditions agreed between parties) to ‘self-perform’ and ‘self- execute’ in the way parties mutually desire the contract to be executed. E.g. for anOTS software license agreement, as soon as software is downloaded, license is transferred, the consideration/license fee gets remitted to the licensor and license shall remain valid as per the terms and conditions of the contract. In simple words, licensee would not need to initiate another transaction to either acknowledge the delivery of license or thereafter to make the payment of license fees. Smart contract can be used for both a simple and complex business transaction involving multi-party interests.

OBVIOUSLY, THERE ARE ADVANTAGES OF SMART CONTRACT AND SOME OF THESE ARE

FOLLOWING:

It is cost effective and efficient by ensuring contracts are self-executed
It is capable of allowing parties to amend the terms at any stage with mutual consensus
It creates and records the change of state throughout the life of contract
It makes it easy for auditors and parties to understand the minute level details of transactions
It can be connected to real-time data and hence, can provide adequate communications (or notice) to parties concerned.

Looking at the other side of the coin, it is still a matter of uncertaintyand debate that to what extent smart contract is capable of replacing a traditional contract? While business can rely on technology to provide a trust worthy environment, smart contract has its limitations as well, especially when it comes to a contract which is not prescriptive. The most unique feature of the smart contract is ability to selfexecute and therefore, the instructions provided for the same must be clear, definite, prescriptive and able to be determined for the self-execution.

There are different facets of a contract which may be wide open to interpretations and hence, neither definite nor decisive. E.g. a force majeure clause in a contact is always subject to interpretation of the events and therefore, may not fit into the scheme of things for a smart contract.

To conclude, it would be apt to say that smart contract is a business enabler but certainly it is not something which may comprehensively be a substitute of the traditional contract. In order to achieve the benefit of technology, a contract involving multi-parties and multi-jurisdictional issues must be drafted with clear and definitive terms making it completely prescriptive, definite and decisive and thus a business enabler as it would selfperform in an automated way being truly effective and efficient.

About Author

Amit Anand

Amit Anand is an In-house Counsel with over ten years of experience in Employment law, Privacy law, Technology law, Commercial contracts and Compliance programs. He is a certified lead assessor and privacy professional from Data Security Council of India (DSCI) and is also a Certified Corporate Governance Professional from the Indian Institute of Corporate Affairs (IICA). Amit started his career as a practicing attorney, he is currently a Corporate Counsel Specialist Advisor with NTT DATA. Before this, he was Manager-Legal with Wells Fargo.