A ‘Smart’ Introduction.
You may all be familiar with ‘Skynet’ — the fictional neural-based conscious group and artificial intelligence system that serves as ‘the Terminator’ film series’ main antagonist. In the movie series, Artificial Intelligence (AI) had reached a stage where it was finally able to consciously decide and execute its plan [albeit rather unilaterally/independently] without any form of human intervention.
We might have chuckled at the very notion of such a powerful interface managing to alter the destiny of the world, but there are signs a ‘Skynet form’ of system might slowly start to permeate our daily lives.
Smart contracts have the potential to revolutionize the way we think, work and enter into agreements. You might recall that we had touched upon these form of innovative ‘digital agreements’ in previous articles. Blockchain technology [the ubiquitous term which will shortly also be regulated via the Maltese Digital Innovation Authority] provides an architecture for a DLT [Distributed Ledger Technology] on which we can automate the execution of ‘processes/commands’ using Smart contracts.
Integrating the Blockchain Technology.
In as much as the abovementioned description can sound a tad complex and technical — a basic appreciation is sometimes all that is needed. Considering the fact that Blockchain technology was specifically designed to handle Bitcoins and Cryptocurrencies, this revolutionary ‘platform’ is now being imported and integrated into Contract Law.…literally!
How Law Governs a Smart Contract.
Imagine the traditional contractual agreement. Two random persons meet up and consenually agree to sell a vehicle. In the Maltese scenario, our Civil Code [built on Roman Law] would serve as the legal basis and principles such as: Caveat Emptor, Lex Loci Contractus and Article 966 of the Civil Code would apply. More often than not, documents are exchanged, signatures are indelibly left on papers, photocopies are needed, permits are issued and several meeting are arranged. The process is certainly tedious and most definitely bureaucratic.
With a smart contract system, codes are created to regulate a digitally-based contractual arrangement. Imagine a digital box with a verification code needed to access a ’smart key’. This ‘key’ would then contain the location of the car including the garage number accordingly. In order to obtain this ‘key’, a successful digital transaction would have to be created [approved by the seller and accepted by the buyer].
Creating ‘code’ for a Smart Contract.
The ‘code’ itself [regulating this purchase] would act as the ‘law’ — monitoring the transaction. The buyer would only be able to complete his transaction once all requirements would be adhered to. In other words, the smart contract itself would govern a ‘legal relationship’ between the parties — a relationship facilitated by electronic means without the need of: paper, photocopies, faxes and more importantly an intermediary [No notaries, lawyers or accountants would be needed to help govern the transaction].
The most obvious pertinent question emanating from the above assertion would simply be: ‘But how does one ascertain that the code created is in fact based on pre-existing laws?’ This is where the ‘Oracle’ comes in — the Oracle [can be any competent & qualified person] acts as a link between the blockchain technology/smart contract and the ‘real world’. Once the Oracle checks the ‘terms and conditions’ of the agreement, these terms are then ‘transported’ and ‘written/coded’ into the smart contract itself [this is where ‘Smart Laws’ also come into play where hypothetically ‘human intervention’ can potentially also help regulate a smart contract]. It is only once all these conditions are honored that the smart key would be accessible to the buyer and a successful purchase would be completed.
The ‘Nature’ of a Smart Contract.
Smart contracts therefore thrive on self-execution and self-governance and by using Blockchain technology/ DLT — the system guarantees that the information is in itself permanent, immutable and secure. To note that Blockchain technology is already being used throughout the world to facilitate the use of Smart Contracts. Countries are already looking into implementing this structure into local Land Registries, Voting Systems, Insurance contracts and Healthcare systems.
Is this truly the ‘dawn of the machines’? Does this spell the end for all Lawyers, Notaries, Mediators and Accountants? Valid questions which are certainly impossible to answer but perhaps the days of AI being simply enjoyed at the theater are vastly fading and the dawn of a new-technology based modus operandi is quickly gaining traction.
Disclaimer: The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information on how to apply Blockchain Technology into your business initiatives, please contact us for an appointment.
- First Experience with Blockchain Law in Malta - 26. February 2019
- Strict Application Process: Why you can trust your VFA Agent - 19. February 2019
- Malta Blockchain Summit proves to be a major success! - 5. November 2018
- The Financial Instrument Test: A brief analysis. - 12. September 2018
- Malta and its role in the Blockchain/Cryptocurrency Revolution - 26. July 2018
- The Role of the VFA Agent (Malta). - 22. June 2018
- Three Bills Published aimed at Regulating the Blockchain and Cryptocurrency Sector. - 31. May 2018
- An Analysis of Virtual Currencies in terms of the Proposed ‘Fifth Money Laundering Directive’. - 17. May 2018
- Smart Contracts — Can Machines Rule the World? - 9. May 2018
- Malta destined to be leading Crypto-exchange island. - 24. April 2018