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Definitions[]

Smart contract(s)

are unambiguous. They are enforced by cryptographic algorithms. The rules of the game are determined before the contract executes, rather than at the foot of a judge's podium.[1]
are computer protocols that facilitate, verify, or enforce a digital contract. The idea is that these programs will eventually be used to replace lawyers and banks when handling common legal and financial transactions.[2]
are legal contracts, or elements of legal contracts, being represented and executed by software.[3]
is an automatable and enforceable agreement. Automatable by computer, although some parts may require human input and control. Enforceable either by legal enforcement of rights and obligations or via tamper-proof execution of computer code.[4]
is
(A) Business logic that runs on a blockchain; or
(B) A software program that stores rules on a shared and replicated ledger and uses the stored rules for:
(i) Negotiating the terms of a contract;
(ii) Automatically verifying the contract; and
(iii) Executing the terms of a contract.[5]

Overview[]

"'Smart contracts' involve greater automation of the processes of creating, monitoring and enforcing contracts. This may be intended to increase efficiency and reduce the risk of human error.[6]

Blockchain[]

Blockchain's digital nature has led to it being associated with smart contracts. A contract in the physical world is an agreement among parties that, upon execution of certain conditions, a transfer of assets will occur. A smart contact codifies these attributes in code, so that machines can validate that conditions are met, and initiate the transfer of assets. In addition to the parties engaging in the transaction, other users of the blockchain platform may provide computational resources necessary to process or validate the contractual transaction, thereby gaining a stake in the transaction or contributing to the verification of the transaction on the ledger.

For example, Ethereum (an open-source, public, blockchain-enabled computing platform) allows users to build smart contracts. In Ethereum, users build their smart contract and pay fees so that other users contribute computational resources to enable the smart contracts and validate the transactions.

References[]

  1. "Code as Law: How Bitcoin Could Decentralize the Courtroom," Motherboard (full-text).
  2. NexChange, The geek's glossary: A guide to fintech jargon for 2016 (full-text).
  3. Smart Contracts and Distributed Ledger–A Legal Perspective, at 4.
  4. C. Clack, V. Bakshi & L. Braine, "Smart Contract Templates: foundations, design landscape and research directions" (2016 rev. Mar. 2017) (full-text).
  5. Ark. Code 25-32-122(a)(3).
  6. Digital Currencies: Response to the Call for Information, at 8 n.8.

Source[]

The Blockchain section: Blockchain: Background and Policy Issues, at 7.

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