With all the buzz about Smart Contracts and Distributed Ledger technology, are they legit?
Yes, smart contracts are legal and enforceable!
Two laws paved the way for e-commerce and ensure smart contracts are legal and enforceable:
- In 1999, 47 states adopted the Uniform Electronic Transactions Act (UETA), while NY, IL and WA enacted separate laws recognizing electronic signatures and agreements. UETA ensures that electronic transactions and consequently smart contracts are equally enforceable as written contracts. The law did NOT change existing contract law. Rather, UETA validates contracts formed by electronic agents – computer programs used to conduct business electronically. If you use an electronic agent (software, etc.) to form a contract you are legally bound by that contract. Therefore, smart contracts are enforceable under UETA.
- The US Electronic Signatures in Global and National Commerce (ESIGN) Act (2000) confirmed that electronic signatures were legally binding. Again, IL, NY and WA opted out but enacted similar laws. There are a few exceptions related to family law, court documents, termination of utilities, insurance, and foreclosures and evictions.
What makes a contract smart?
Benefits of smart contracts:
- Reduced costs by dealing directly with customers
- Remove need for intermediaries “middlemen”
- Reduce/eliminate bank fees and charges
- Distributed ledger ensures no data loss or transaction delays in the event of computer failure, natural or man made disaster.
How can I start using smart contracts?
Transactions most suitable to smart contracts
If the agreement is based on an if – then scenario, then a smart contract is more efficient.
- Most consumer and commercial transactions
- Selling shares of stock
- Paying dividends
- Insurance contracts (loss payouts)
- Supply chain and distribution
Smart contracts don’t work (at least for now) for:
- Transactions where manual signatures or specific written notice legally required
- Unilateral transactions
- Divorce & family law
- Court documents
- Termination of utilities, insurance
A hybrid smart contract may be address some parts of these transactions.
Blockchain, distributed ledgers and smart contracts will significantly change commerce. This is a big, if not bigger than the internet. And, it already has cats! (hint: Cyberkitties)
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Until then, Keep it Legit!