Now, it is important to understand what smart contracts are. Smart contracts are programs stored in a blockchain or data network that are automatically executed when predetermined conditions are met. Their design guarantees the transparency, immutability and security of the agreement, since the rules and actions are codified and recorded in a decentralized system that guarantees the execution of the contract so that all participants can be sure of the result, without the participation of any intermediary.
Beyond their obvious advantages related to their efficiency and self-execution, they may present limitations related to their own strengths, in relation to their autonomy and innovation. An example of this would be the fact that making changes or correcting errors in the code can be complex and expensive, advanced developers are required, lack of parameters or precondition controls, programming errors and distrust on the part of users, among others. Despite this, they are promising tools in development that will become an effective method to establish new dynamics of contractual regulation in the future, aimed at dynamizing clients’ businesses.
From a legal point of view, contracts are traditionally understood as agreements between two parties that create, modify or extinguish a legal relationship, as long as certain essential elements are met such as consent, object, cause, and form. In the event that any of these requirements is missing, it will be considered void. Therefore, every smart contract in its structure must comply with these same requirements to be legally valid.
An example could be found in escrow contracts, where the depositary acts as a third party in charge of settling a guarantee depending on whether or not the condition requiring the execution of the guarantee in favor of the creditor has been met. Through the smart contract, immediate settlement can be configured when the condition set forth in its configuration occurs. The entire process is transparent, secure, and does not require anyone else to intervene, because the contract ensures that the rules are followed as agreed.
This generates an impact on commerce by facilitating relations between debtors and creditors by automating processes related to the execution of guarantees, as well as in smaller-scale transactions, which generates opportunities to expand its application to transactions of greater significance in a broader scope, with possibilities of exploring various areas of law in its practical application.
In short, they have the potential to transform the way in which legal professionals perform their work, creating efficient mechanisms for conflict resolution, based on the autonomy of the parties’ will.
The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, nor does it constitute, an attorney-client relationship. Readers should not act upon this information without seeking the advice of legal professionals.
