A signed contract cements a business negotiation. For example, you want to supply a milling company with bags of maize. You and the company will come to an agreement and sign a contract. Traditionally such contracts were signed on paper. The world is going paperless and majority of businesses are taking up this campaign. Blockchain technology does not give people the luxury of signing contracts on paper. This makes people skeptical about this technology as the issue of trust arises. This should not bother you as there is a smart contract put in place.
A smart contract is a computerized transaction protocol that executes the terms of a contract and facilitates all steps of contracting process (Szabo, 1994). Computer program enforces a contract between two or more parties. It executes the rules when all conditions are met.
Smart contracts are built on blockchain and inherit blockchain property (i.e., immutable, distributed and decentralized providing digital security). Smart contracts are self-executing. They eliminate the third party by solving issues in a way that does not require trust and remove human judgment. The smart contract facilitates, verifies and enforces negotiations by implementing deterministic rules through a logic in a computer code (Buterin, 2012).
Smart contracts help exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. Smart contracts 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.
We all know that a signed contract means one is legally bound to the terms and conditions put in place. If the third party (a lawyer) is eliminated in this peer-to-peer transaction, how then does the law come in place? Blockchain, money and law interact to create a new phenomenon of freedom of measuring value of information (Gilder, 2016). This means that disputes are resolved directly and efficiently reducing lawyer/client workload.
Smart contract escrow will replace escrow accounts managed my law firms. The escrow in the smart contract will manage the promises of payments, and release money when conditions are met.
Blockchain will also improve the effectiveness of the criminal justice system. Since it works with three processes; open ledger, distributed ledger and miners. Information recorded on open ledger is there for everyone to see, therefore improving the quality of police work who investigate crime and the court system that prosecutes the offenders.
The distributed ledger is immutable and indestructible because it is hosted on millions of nodes in the network. This is unlike the centralized system where evidence can be tampered with and as a result letting criminals walk free. Industries that implement blockchain will find it far easier to enforce standard operating procedures within their organizations. Blockchain in a powerful technology whose power will expand in the coming years. In the legal and business world, it will enhance precision and accountability.
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