While a world free of lawyers will most likely never come to fruition (to many parties’ chagrin), new technology in the form of smart contracts is changing how legal matters are drafted.
Evidenced by increased adoption for major industrial applications with the OOC Oil & Gas Blockchain Consortium, a powerful network of 10 major oil and gas players; alongside the Construction Industry Institute at The University of Texas’ recent Operating System 2.0 (OS2) initiative, a collaborative research and development project focused on capital projects, smart contracts backed by distributed ledger technology are giving shape to contracts of the future.
Whether regulatory compliance, contractual enforceability, cross-border financial transactions, material provenance, document management or other applications, smart contracts lend unprecedented functionality and the automation of contract terms. However, the ‘if-then-else’ style logic that smart contracts and their coding operate on does not innately function in lockstep with the natural language of legal contracts. Since legal and contracts organizations are usually far removed from business and operational systems, they can draft contractual terms and conditions that execution teams are unable to follow or administer.
Smart contracts integrate with two other technologies, Industrial Internet of Things (IIoT) and Distributed Ledger Technology (DLT) to verify, validate, capture, and enforce agreed-upon terms between multiple parties. A smart contract takes real-world, legally governed events and collects IIoT data for performance measurements including information from sensors, meters, and other business processes. This data then informs the automated terms of a contract by posting results and accompanying proof to the blocks.
A smart contract is a software program that automates the execution of contract terms. It applies to only the performance of executable terms of a contract. Smart contracts do not replace natural language contracts but instead function as a program that connects to a natural language contract through an addendum that establishes an inviolable link between the program and a natural language contract.
In theory, the process sounds great. But in application, there are a few obstacles to overcome. Here are several early lessons learned from navigating the emergent process of aligning legal language with terms and data necessary for smart contract codeability.
Read more: https://www.lawtechnologytoday.org/2020/12/how-smart-contracts-are-changing-legal-contracts/