To the dismay of many parties, a world without solicitors is probably never going to materialise. However, emerging technology in the form of smart contracts is altering how legal documents are written.
Smart contracts offer unparalleled functionality and the automation of contract conditions, whether it is for regulatory compliance, contractual enforceability, international financial transactions, material provenance, document management, or other uses.
Let’s Refresh our knowledge: What are Smart Contracts?
In our previous blog The Lawyer’s Practical Guide to: Smart Contracts, we introduced the concept of Smart Contracts.
In Sum, a Smart Contract is “a contract that articulates and is capable of self-executing, on a legally-enforceable basis, the terms of an agreement between two or more parties.”
Smart Contracts are executed on a blockchain or distributed ledger, meaning that are codified and automated in computer code, and it was made possible by blockchain. Smart contracts eliminate the need for intermediaries in transactions or agreements so that there are no manually enforcing contracts. Once deployed, smart contracts cannot be changed, leaving little space for error. The code that defines the transactional mechanisms and acts as the final judge of the contract’s terms and conditions may be found in all examples of smart contracts.
Value of Smart Contracts
Numerous applications for smart contracts already exist in sectors including finance, gaming, and healthcare. By enabling parties to safely automate and digitalise the performance of their conventional contracts, several advancements in the legal sector also have the potential to be new and revolutionary.
Smart legal contracts are only partially written in computer code recorded on the blockchain but are entirely available in normal language. The computer code serves to automate portions of the contract, typically those related to performance, while the natural language section serves to memorialise the parties’ agreement.
The benefits of smart legal contracts, which may be applied to almost any agreement, include the following:
Smart contracts use automation to eliminate superfluous layers from the process of carrying out contractual obligations, resulting in increased efficiency. By utilising pre-configured conditions, smart contracts could aid in the quicker execution of trades within a matter of minutes.
Additionally, actual blockchain smart contract instances show how much simpler smart contracts are than regular contracts. Less paperwork, shorter wait times, improved intuitiveness, and fewer steps can all be advantages.
Time and money savings
The streamlined contracting and the elimination of long litigation processes results in significant time savings and cost reductions for lawyers.
Smart Contracts are connected to digital devices, sources, systems, etc. Therefore it automatically interacts with and takes action on information from the data-rich environment, such as getting confirmation of a weather occurrence or a change to applicable legislation.
Smart contracts increase security, data protection and privacy via encryption, etc. In addition, Smart contracts might potentially provide greater accuracy, trust, and transparency at the same time as they offer a single, shareable, and secure copy of the agreement so that all parties are aware of the most recent version.
With so many promised value advantages, it seems sensible to concentrate on real-world instances of smart contracts.
Real-World Examples of Smart Contracts
Let’s go over some practical use scenarios for the use of smart contracts:
1. Property Applications
The real estate industry would undoubtedly be the final entry among real-world instances of smart contracts. The documentation of property ownership information for any establishment might be made easier with the use of smart contracts in the real estate sector. By eliminating the need for brokers or intermediaries, smart contracts can aid in maximising transaction speed. It’s interesting to note that sellers of real estate may decide how a deal would go.
According to thought leaders, smart contracts could provide more transparency and cost-effectiveness than real estate title management. Title issues could make transfers difficult and cost money in the form of legal fees. Smart contracts, on the other hand, might keep track of a property’s history, location, and other important information.
2. Supply Chains
Supply chains could benefit from this ‘smart contract’ model, as delivery of an item can automatically trigger the item to be re-made or re-ordered much higher up the supply chain, even when multiple companies are involved. If an item is incorrectly ordered, then the implications are relatively minimal.
3. Correcting Mistakes in Trade Finance
Some of the most costly errors in trade finance can be decreased via smart contracts. They could simply automate procedures and streamline and make computations simpler. Therefore, using blockchain smart contract examples in trade finance, you can find a potential decrease in labour hours. Fintech companies will depend highly if not completely on Smart Contract to run their business. Santander InnoVentures for instance has identified trade finance as the most prominent application of smart contracts.
The company has demonstrated the advantages and possibilities brought about by the most recent financial technologies. Smart contracts are seen by Santander InnoVentures as an essential tool for bringing about major changes to the financial services industry’s procedures and infrastructure. The company views smart contracts as a crucial tool for effectively handling rising transaction volumes. It’s interesting to note that by 2022, smart contracts may save somewhere between $15 and $20 billion yearly (source).
4. Fraudulent Insurance
Processing claims cost the insurance industry millions of dollars every year. Additionally, the industry is responsible for paying for false claims. Smart contracts may be a useful technical advancement for the insurance industry. Interestingly, smart contracts could facilitate policy administration from businesses or people while assuring consistent mistake cheques to enhance claim processing.
Therefore, the faster processing times in the insurance industry’s real-world smart contract use cases may result in cheaper costs for consumers. According to Lloyd’s of London, insurance providers could address a number of coverage inconsistencies connected to the underwriting procedure. They could thereby increase the effectiveness of mitigating risks from corporate buyers.
5. Protecting Medical Data
The value benefits of automation are being investigated by healthcare facilities combined with dependable and modern security measures. Hospitals have been a target for cybercriminals looking to acquire and compromise a sizable collection of private data. Around 4.5 million patient records have been stolen in data breaches involving well-known healthcare brands like UCLA Health.
In this instance, the smart contract examples point to a safe transfer of patient data between healthcare providers. It might be really important in preserving the level of care. The safe storing of patient data on a blockchain is the most important feature of smart contracts. Smart contracts also make sure that the only method to access patient data is through the patient’s private key. Patients might be confident that health care professionals would only have access to the data they needed. Patients are also guaranteed that their data is secure at the same time.
Implications for Legal Practises
The issues inherent within the ‘smart contract’ model mean that it will probably be implemented in non-legal contract type situations a long time before they are allowed as legal and upheld in courts.
For legal, the implications of a contract being improperly executed and/or impossible to stop are much more significant. It will therefore be years before smart contracts are viable for legal professionals and accepted by governments or in courts. It will probably be even longer before they are adopted widely enough to create a critical mass and affect a lawyer’s workload every day.
However, that doesn’t mean they don’t represent an opportunity for extra revenue for Law Firms. When writing Smart Contracts, Lawyers have the expertise and knowledge to write them. Tech-savvy Lawyers and Law firms can then specialise in the Construction of Smart contracts, and build templates, which then could be bought by the parties concerned with no direct involvement by the lawyer.
Smart contracts work best for repetitive contracts such as housing contracts, where a template is widely followed with few customisations. Work of this nature is often handled by small, local firms who would be significantly impacted if smart contracts took a percentage of their business. Firms working on complex B2B contracts, and on litigation, will probably be affected much later.
The summary of many real-world use cases for smart contracts is simply a partial illustration of their potential. Smart contracts currently have the potential to change a wide range of sectors in the future. Many programmers, academics, and businesses are working to figure out new methods to take advantage of smart contracts, Lawyers and Solicitors should too.
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