Understanding smart contracts
Technology is shaping one industry after another. Changing the way, we do business, act as consumers, citizens, how we think of entertainment, travel, purchasing everyday items, money, how we interact with each other and run our everyday errands.
The reason the changes are happening is because technology simply makes our lives easier and more efficient. Industries untouched from much technology will, however, soon start to yield counterproductive results on our productivity in business as well as our personal lives, if certain processes are not automated or made smarter.
For some reason, the area of legal relationships and contract have remained the same for decades, untouched by innovation and technological advancements. It’s gone without saying for too long that entering any kind of contractual relationship or creating a legally binding document, involves a few guys in expensive suits and a hefty hourly rate, lots of time spent on negotiating and even more time following up on payments, rights, and obligations. The legal industry has to keep up with the demands of modern business-making, it has to automate and become more intelligent. Starting with making contracts smart.
How do you make a contract smart?
The idea of smart contracts was first mentioned by Nick Szabo, who coined the term in 1994. 20 years later in 2014, Ethereum emerged with its smart contracts. Agrello isn’t the first company to come up with it, but we’re doing it in a way that has started to change how people think about contracts in general.
A smart contract is essentially a program code, placed within a blockchain which then acts as necessary. It’s safe and can’t be tampered with. How you bring value to intelligent contracts, and to whoever is using them, is however how you revolutionize the legal industry and bring technology fully into play.
In order to automate something or make it so that a machine can understand it, you have to create a certain kind of system, or leverage and explain an already existing logic. Every contract in every legal system is a network of rights and obligations, which identified parties have agreed upon. If you manage to simplify that network and structure it enough so it is readable by a machine, you’re a step closer to automating and creating what will at some point become an intelligent contract
At their core, all contracts boil down to obligations and rights of both parties. Those two constructs reflect each other and have a very standard structure of elements such as obligor, beneficiary, action object, action type, precondition, and deadline. Those rights and obligations have stated, like inactive, active, performed, delayed and breached. With those constructs, it is possible to set up a network of rights and obligations, which can be reasoned by virtual agents that guide the progress of the contract execution based on the states of the contract terms and their content.
With this approach, we developed a formula at Agrello for creating smart contracts digitally in a way that’s similar to how regular “non-digital” contracts are put together in the legal industry. This way, any legal professional can assemble one offline, yet it can still be easily made into smart contract code.
Smart contracts can’t exist, be binding or legally viable without the digital identity. Agrello has built up a digital identity system, which proves the identity of the parties.
Agrello can provide all contract elements - clearly show what has been the offer, when was it made and when did the acceptance to the offer happen. The digital ID with electronic signature functionality proves sufficiently the declaration of intent of the persons behind the offer and the acceptance.
Agrello ID is also a great update to current authentication systems on the web. Currently, the access management of web services relies on passwords, which have proven not to be the safest option nor providing anything extra on the user experience side of things.
Agrello was founded in Estonia, one of the most digitally advanced nations in the world. As Estonia has shown with its national ID card and Mobile ID system, it is possible to get rid of centralized access management, by giving everyone the critical access and authentication mechanisms into their own heads and hands. This rules out any potential mass attack possibilities. The Estonian ID system, Mobile ID, in particular, has changed the way we live our everyday lives in Estonia and interact with the State, use government, banking, or web services. It’s all done digitally while the services are all accessed by the same access code, the same device and access mechanism.
However, the Estonian Mobile ID requires an Estonian phone number, making it limited to the region. Thus, Agrello has taken aboard some of the people who have built this system in Estonia and together we’ve now made a solution that is available for the whole world.
The smart contract system that will take the legal industry forward and impact global business must be able to expressively show the elements of a contract in an understandable way to a judge in the court, not just a technical expert.
What must be kept in mind is that a program code makes software behave and a human-readable contract makes people behave. There’s a gap that needs to be filled, perceptions that need to be shifted from how things were inefficiently done in the past and how the future can prove much more productive. For smart contracts, there must be a bridge between a human-readable contract and program code and this is what Agrello smart contracts can sufficiently provide.
A smart contracting system is highly needed in today’s fast-improving technological environment. At their core, business is based on the mutual agreements of people and affected by their behavior and interpersonal communication. With socio-technical smart contracts, the aim is to make all technology start fulfilling these agreements, simplifying communication, and shaping behaviors so that no resources or time is lost.
This goal for maximum clarity and efficiency is what Agrello is an aiming for and what will change how we think about legal relationships forever.