Smart Contract, a blockchain powered tool that is revolutionising the way technology and law intersect. Smart Contracts are basically computerized agreements that enforce automatically and are extremely secured. It can be compared to a computer programme, which has certain conditions pre-fixed and at fulfilment of these conditions, the contract is executed. This contract eliminates the need of an intermediary who negotiates or executes the contract. Since the contract is stored in a blockchain, the terms of the agreement are very much visible and clear to the parties involved. Now Smart Contracts are not electronic contracts. An electronic contract is one which is legally binding and is signed and stored electronically.
Think of a smart contract as a vending machine which is programmed to release the product the moment money is inserted. A smart contract is executed and made in 3 simple steps where the first step is coding or writing the conditions which only have to be written once. Second is the transaction which is done automatically providing the code is eligible to operate on computers of all the parties and lastly is the verification. This can be used to serve notices, sale or purchase real estate or getting a loan. Some of its examples are mentioned below -
A) Smart Contract in Lending -
Smart contract can be used in a loan agreement where A may wish to borrow three Bitcoins and promises to return the Bitcoins with 20% interest in one year. Now the code governing the currency can be programmed to execute this agreement. The code itself can receive the Bitcoins from the lender, and then distribute the Bitcoins to the borrower. At the end of the year, the borrower will send 3.6 Bitcoins back to the computer code, which then returns the original three Bitcoins, plus 20% interest, to the lender. The computer code could even acquire control over a digital asset of the borrower during the original transaction to act as collateral. If the borrower does not return the 3.6 Bitcoins at the end of the year, the computer code could then transfer the collateral at that time to the lender (example given by bitlaw).
B) Smart Contract in Supply Chain Management –
A smart contract who has the control of money can release it when the shipment of goods is received and hold back funds in case of no delivery. It can also be programmed to impose penalty and reduce payment in case of a late delivery.
C) Smart Contract in Real Estate –
Smart Contract can also be used for sale and purchase of real estate where the ownership can be transferred the moment money is received. One such cryptocurrency that puts real estate on blockchain is landshare which currently has a market capital of $8 Million.
Currently India does not have any statute or law which governs the operations of smart contracts in India. The nearest India has is the IT act which only governs the electronic contracts. However, once this technology is appropriately regulated it will revolutionise the way contracts are performed and executed. But even before regulating smart contracts India needs to have a robust law on cryptocurrency and blockchain since most of the Smart Contracts are executed through crypto currency.
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