Unlocking the Potential of Smart Contracts in the Legal Industry
The legal industry enters a new era. Blockchain will soon disrupt the entire process of making a legal agreement recognisable in the eyes of the law. The term ‘smart contracts’ is an oxymoron because everything in law is a contract. ‘Smart’ only means that the contract will exist on a blockchain and will contain programming to automatically execute all the terms. Even in cases of failure to fulfil all the intellectual and practical aspects of a contract resulting in a dispute, we can count on the durable security of the blockchain to secure everything. Smart contracts will have a profound economic impact, worldwide, and will represent the most significant transformation the legal industry has yet seen. Although some aspects of smart contracts are still in the realm of speculation, it is clear that this new tool will revolutionise the way we make agreements between businesses and between individuals. Here, we show you how smart contracts will work, what benefits they can bring, and how they will transform legal practices.
What Are Smart Contracts?
Smart contracts are contracts that automatically execute once the terms and conditions of the agreement are written into lines of code on a decentralised blockchain network. Smart contracts allow for trust-free transactions and agreements to occur between otherwise disparate, anonymous parties without a central authority, legal system, or outside arbitrator.
Enhancing Efficiency in Legal Operations
Perhaps the major benefit to smart contracts is how they improve efficiency in the way legal operations are conducted. Creating legal contracts in the traditional method takes many steps, from drafting and execution, and can take a lot of time and money. Smart contracts take advantage of the automation involved in creating and enforcing agreements, making the entire process less time-consuming and expensive.
For example, the execution of a so-called smart contract can be automated, whereby funds are released upon both parties confirming the fulfilment of a task. You no longer need third parties – lawyers, banks and so forth – which means things will happen quicker and be cheaper.
Increasing Transparency and Security
Third, because this information is stored on the blockchain framework, smart contracts are characterised by unparalleled transparency and security. Once you set up a smart contract, it cannot be changed, and any transaction that is made as a part of this contract is documented on the blockchain and can be accessed by all parties and at all times; there is no way to falsify it. The reliability and security of such contracts are very important in the legal world.
Furthermore, it’s decentralised, meaning that no one person or entity will have control over the database. Instead, everyone or company involved can check on it at any time. This means that it would be more difficult to pull off fraud. When we think about this concept in the context of contracts, it means that we will see fewer contract disputes and frauds because every single step of the contract will be clearly visible and auditable.
Challenges and Considerations
But in addition to their promise, smart contracts introduce a host of issues and questions for the legal industry. First is their legal status. Lawmakers and agencies will need to develop standardised regulations to acknowledge and enforce smart contracts as contracts in the eyes of the law.
And there is the issue of complexity and technicality too. Smart contracts require an understanding of blockchain technology, not something that any legal professional currently has in good supply. Training will be a big part of ensuring that law professionals can use this technology.
Looking Ahead: The Future of Smart Contracts in Law
Although smart contracts have not yet been universally adopted in legal circles, their ability to make litigious proceedings simpler and more transparent is only just beginning to be realised. As more legal professionals become aware of the advantages of this innovation, it will eventually be adopted more widely, and the ways that these contracts can be created, represented and relied on will become more and more refined.
Organisations take heed: law firms and legal departments that want to invest in this technology and learn to work with its implications are likely to reap significant rewards in terms of efficiency, cost savings and enhanced cybersecurity. The future of smart contracts in law looks bright – and the path forward is clear.
Overall, smart contracts represent a new frontier in legal innovation that has the potential to revolutionise old practices but also presents many challenges. The opportunities afforded by smart contracts certainly outweigh the obstacles in the long run, and should be strongly considered for the future of the legal industry.
