What are Smart Contracts?

What is a Smart Contract and what does it represent for lawyers?

Por: Adolfo González-Ruiz

It is no secret that lawyers and the legal industry are in a restless mode due to the rapid growth of blockchain technology, including the use of Smart Contracts, which may mean a displacement of the need to hire lawyers in the not-so-distant future.

A Smart Contract is a term used to describe computer code that automatically executes all or part of an agreement and is stored on a blockchain-based platform. Smart contracts allow automating contractual processes and can be used for a wide range of activities, such as financial transactions, construction contracts, e-commerce, the real estate sector, leases of any kind, among others.

Smart contracts are based on blockchain technology, which allows keeping records of movements in a decentralized mode. This guarantees that once a smart contract is executed, it cannot be altered or deleted, thanks to the trust and security generated by blockchains.

Blockchain technology plays a crucial role in the creation and execution of smart contracts. A smart contract is a self-

executing contract in which the terms of the agreement between the parties are written directly into lines of code. This code, and all transaction data related to the contract, are stored on a blockchain. All parties have access to the same information, and the contract cannot be altered without the consensus of the users. In addition, they can be programmed to automatically execute certain actions, such as the transfer of funds or cryptocurrencies, when certain conditions agreed in the smart contract are fulfilled. This tool provides security to the parties for the execution of the subject matter of the contract.

An easy way to explain how smart contracts work is as follows: imagine that Carlos rents his apartment to Maria for $1,000.00 per month. Both agree on a contract, and Carlos gives the keys to the apartment to Maria. In turn, Maria must make the monthly rent payment on the first five (5) days of the following month. When the payment date arrives, the smart contract executes the automatic collection through Maria’s wallet.

In conclusion, it is evident that the emergence of Smart Contracts is going to affect the legal industry because these types of contracts are drafted by an expert in coding, and the debate that arises over the meaning of words ceases to be a problem among lawyers. There are already many platforms that generate Smart Contracts automatically. This means that lawyers, in addition to knowing the law, will have to know about coding to stay updated with this new technology. We can also conclude that the world of law is turning towards a fully digitalized and technological practice where we will depend on computers, clouds, and software. The value of a law firm will be focused on computer security that protects confidential client information.