Adolfo Gonzalez-Ruiz

What are Smart Contracts?

What are Smart Contracts and what do they represent for lawyers?


Adolfo Gonzalez-RuizBy: 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.


“Smart contracts” is a term used to describe computer code that automatically executes all or parts 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 pivotal 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 US$1000 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.


Summarizing, 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 meaning of the words is no longer a matter of debate among lawyers, and there are already many platforms that generate Smart Contracts automatically. Therefore, in addition to law, lawyers will have to know about coding to be up to date with this new technology. We can also conclude that the world of law is turning to a fully digitalized and technological practice where we shall be dependent on computers, clouds, and software, in which the value of a law firm shall be focused on computer security that protects confidential client information.

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