Surely you’ve heard of them — mentioned with a mix of awe…and fear.
Smart contracts. Ooooooh…
The technical wonder, powered by pure code, invented and popularized by the geniuses from Ethereum, Vitalik Buterin, Joe Lubin, Gavin Wood and company.
The raw potential of Ethereum smart contracts has been demonstrated over the last year as they powered the ICO craze, and startups all around the globe have explored how to use them for everything from travel insurance to rental deposits.
And yet….
Hidden behind all the hype and wonderment, there is a sinking suspicion of smart contracts:
“Is this going to put me out of a job?” says the accountant.
“Are they really legal?” says the lawyer.
“Surely you can’t trust a piece of code like that!” says the insurance executive.
Yes — smart contracts sound dangerous — on many levels. For many people they seem like the big, bad wolf — ready to devour their business, their money and their livelihood.
[Hint: There is someone working to make smart contracts a lot less scary — and a lot more useful. More about Contract Vault below…]
But that isn’t true — and neither you (nor anyone else) has to be afraid of them.
Here’s why…
The legal thing
Let’s start with the legal side of things.
Smart contracts (by themselves) are not legally binding.
In other words — code is NOT law.
Period.
For a contract to be legally binding, it has to be readable and accessible to humans — lawyers, judges and the parties that agree to it.
So — lawyers can breathe a sigh of relief, right?
Sort of.
The other thing
While lawyers and businesses that operate with a large number of agreements may not have to fret that code will suddenly eliminate them from the face of the earth — that doesn’t mean they shouldn’t be concerned.
The potential for automation using smart contract technology is real. Forward-thinking lawyers who have seen the rise of legaltech already know this.
And that’s what gives them sleepless nights.
The other side of the coin is that people who see the potential of smart contracts for themselves — but have no technical skills — are afraid of diving into the brave new world of blockchain tech…and rightly so.
After all, slapping a smart contract into the middle of your application is no small feat — and quite dangerous if it goes wrong!
Eliminating the fear factor
One small, but important comfort, especially to those in the legal profession, is the fact that by itself a smart contract is not legally binding. In other words, if it were to be used as the sole source of contractual agreement between two parties — it would not hold up in a court of law.
This means that there is very little danger of a mass exodus from traditional legal agreements. The prospect of all contracts suddenly being transferred into a mumble-jumble of code, accessible and understandable only to a select few is just not going to happen.
This is one of the basic tenets of Contract Vault, by the way: smart contracts are not truly smart, and not really contracts, unless they are linked to legal prose in the form of a dual-linked (Ricardian) contract.
If we take this approach — and at the moment, it is the only reasonable one — then it is much more digestible to see smart contract elements, smaller and simpler, being added to human- and machine-readable digital agreements, and functioning in perfect harmony.
And there is another step in eliminating the fear factor attached to smart contracts — a step which Contract Vault makes easy.
Much suspicion and fear is often attached to the use of smart contracts for transactions — after all you are trusting money and value to code (which we all know can be hacked…).
That’s why it is absolutely necessary to audit smart contracts to ensure their security.
Thanks to a partnership with fellow Swiss startup ChainSecurity, the Contract Vault platform will provide users with safe and secure smart contract templates.
Truly smart with Contract Vault
But what can really get people “over the hump” and away from fearing to use smart contract technology?
Simple — making it easy to use.
Smart — truly smart.
And actually that’s what Contract Vault is all about. Every component of the Contract Vault platform is designed to be “smart”:
- SmartEdit — the contract building function of Contract Vault that allows users to put legal prose into digital form, customize clauses and add smart contract elements to Ricardian contracts that can be read both by humans and by machines
- SmartML — the open-source Contract Vault markup language used to created the dual-linked “truly smart” contracts. Users are not expected learn SmartML themselves, but rather take advantage of it as the basis of contract customisation in the SmartForm interface
- SmartForm —an easy-to-use contract draft mode for inputting variables and triggering conditions used to create a contracts from contract templates.
- SmartTemplates — the output of users’ work using the SmartEdit functionality. SmartTemplates can be uploaded to the Contract Vault marketplace, circulated within a private instance of the Contract Vault platform (for law firms or businesses using the white-label solution)
- SmartDossier — the functionality which serves businesses which may use more than one contract as part of a business solution. SmartTemplates with their variables are linked together so input needs to be given only once.
While the above-listed features may seem a normal digital user-interface, it actually is much more powerful than that. It allows Contract Vault users to add smart contracts to the digital contracts being created — without having to be a technical wizard.
Being smart
So how does it work exactly?
Let’s imagine that a software company (SoftPro) wants to license its software to different resellers.
For this they need a reseller agreement that will trigger a payment as soon as the end user begins using the cloud-based service. Since this will be a usage-based service, the payment to the reseller is triggered by logins to the software portal.
SoftPro would like to implement a smart contract to record the logins and usage of the service and to track the usage in an immutable way across its various resellers.
The company believes that, while payment may not occur in cryptocurrencies, utilizing a smart contract to record the timestamps of the logins to the software will help it track the revenue from its resellers and help it better negotiate terms with them based on performance.
However, no one at SoftPro is a blockchain developer. And they would rather not pay a lawyer to create and check every reseller agreement they need.
So — they use Contract Vault…
Step 1.
The SoftPro account manager (or in-house legal counsel) will log into the Contract Vault platform. On the dashboard he or she will search for a software license agreement in the SoftPro jurisdiction (in this case let’s say Germany). Based on the metadata attached to the templates in the CV platform, he finds one.
Step 2.
Using the SmartEdit functionality, the account manager manipulates the clauses of the agreement to reflect the terms he or she needs. Thanks to an easy-to-use interface, the manager doesn’t have to manually manipulate the Contract Vault SmartML (markup language).
SmartEdit eliminates the need for users to dig into too much code.
Step 3.
Still using the SmartEdit function, the account manager adds a smart contract call to the clause defining the terms and amount to be paid per usage of the software.
The smart contract code snippet (in template form) which SoftPro needs is a generic snippet created by a smart contract developer who has contributed to the platform. (As SoftPro pays to create its SmartTemplate, the developer will be compensated for the smart contract code he contributed to the Contract Vault platform.)
As mentioned before, the SoftPro account manager isn’t a developer so editing the code of the smart contract to reflect the parameters and variables needed would be impossible.
Step 4.
Now the legal prose of the contract is ready, customized to the needs of SoftPro and the entire template is in digital form, meaning that it can be read by both a human and machine.
Step 5.
Of course, the SmartTemplate created isn’t yet an agreement. It must be used to create an actual contract. This is where the SmartForm draft mode comes in — allowing the manager to quickly input the necessary data pertinent to the actual agreement (names, dates, amounts etc). In the case of the SmartForm field “Jurisdiction” for instance — the Contract Vault system automatically changes the necessary clauses included in the legal prose, in order to match the jurisdiction where the contract will be used.
Step 6.
From the Contract Vault dashboard, the SoftPro account manager chooses to have the smart contract element of the SmartTemplate audited using the ChainSecurity automatic auditing service.
Step 7.
SoftPro now has a legally-binding agreement which it can download as a PDF (for backup reasons, if desired), sign digitally itself and send to its resellers for digital signature. SoftPro will pay a fee (using VLT tokens) for the SmartTemplate it created — part of this fee will go to the legal content provider, who uploaded the skeleton legal prose of the agreement and part to the smart contract developer who added the code template to the Contract Vault marketplace.
SPECIAL NOTE: This SmartTemplate can be reused for each reseller agreement — and SoftPro can even create a SmartDossier from the collection of agreements.
Should its pricing model change, the SoftPro account manager can change the variables one time in the SmartTemplate and thus “update” all agreements in the SmartDossier.
And there you have it — no fear, no worry! Just #trulysmart contracts working at the speed of business, just as they are needed!