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The legal classification of smart contracts

Smart contracts are a form of automated agreement that are increasingly being used in a variety of industries and sectors. They offer businesses many benefits, including lower costs, better efficiency and greater security. But what does it mean when a contract is described as “smart”? In general, a smart contract is a legally binding agreement between two or more parties that is executed using computer-based technologies. A smart contract can operate on the basis of digital information and automate complex business processes. Smart contracts can also regulate how money or other assets are traded. They may be programmed to meet or prevent certain conditions for the conclusion of the contract. One of the most interesting features of smart contracts is their ability to execute on their own. When certain conditions are met, the contract can be triggered automatically – without human intervention. This makes it possible to execute processes in real time and minimize the manual effort required to process transactions. One of the main goals of using smart contracts is to leverage cost savings by automating processes. It also allows companies to create more security and transparency and potentially generate higher profit margins. This is due to the fact that the correct execution of the contract is guaranteed and is not tied to human error. However, to fully realize this potential, it is important to ensure that all aspects of smart contracts are legal and comply with applicable law – especially with regard to data protection regulations. I

Legal framework of smart contracts

The legal classification of smart contracts is a current and extensive topic that has not yet been conclusively clarified. Nevertheless, there are already a number of approaches and developments that can be helpful for a legal classification of smart contracts. First, it should be noted that smart contracts can essentially be viewed as software programs. Therefore, they are basically subject to the same legal provisions as other software. However, smart contracts pose a particular challenge in that they are automated and therefore do not require any human intervention. Another relevant challenge is that, unlike traditional contracting, smart contracts cannot be designed ad hoc, but must be predefined. However, this also creates the opportunity to check the legal commitment before the contract is concluded and, if necessary, to avoid errors.

Automated agreements in the legal environment of blockchain technology.

The use of smart contracts in blockchain technology is a new and very interesting concept. It allows legal agreements to be executed automatically without requiring human interaction. However, there are some challenges that must be considered when using such agreements. First, the legal framework for smart contracts has not yet been fully clarified. Therefore, it is difficult to understand and determine the consequences of certain clauses (or considered as a computer program – “the functions”). Second, compliance with the agreement can be difficult to verify because the processes behind smart contracts are often complex and difficult to interpret. Third, smart contracts can also become unusable due to bugs in the code or an attack on the blockchain platform. Therefore, it is important to take extra care when designing and implementing smart contracts. A detailed review of the code should be undertaken and all relevant rules should be defined. It must also be ensured that all contracting parties adhere to and comply with the agreed terms. Due to the complexity of blockchain technology, it is not easy to find a universally applicable solution to legal issues surrounding smart contracts.

A computer cannot conclude contracts

While a computer can automate a variety of tasks using a smart contract, it cannot create legally binding contracts. This is because a computer is unable to muster the necessary human skills to enter into a contract. A contract is a legally binding, private agreement between two or more parties in which the parties agree to certain obligations and rights. This can be done either verbally or in writing. However, a computer is not able to declare this kind of consent. Instead, smart contracts can only be considered legally binding if they are accepted by the parties or if the parties feel bound by the function of the computer program.

Case studies and practical aspects of the application of smart contracts

The use of smart contracts allows companies to automatically execute and also monitor various types of agreements and deals. The use of this technology offers a number of benefits for companies, including reducing costs, increasing efficiency and enhancing transparency in business processes. However, smart contracts also have some legal challenges. To understand these aspects, we now look at four case studies that help us understand how smart contracts can legally play out in different scenarios.

1. license agreement: When a company sells software licenses to other companies or individuals, it can use smart contracts to enable its customers to automatically acquire and manage their license. Smart contracts allow sellers to grant rights to license users and continue to maintain those rights after the purchase through automated rights enforcement.

2. financial transaction: With smart contracts, companies can also offer their customers the service of automatically providing them with payment agreements. This allows parties to conduct financial transactions securely and efficiently by implementing security measures such as encryption of bank data.

3. data protection: smart contracts can also serve as a means to comply with personal data protection regulations. This can be done, for example, by implementing policies to ensure that personally identifiable records can only be shared under certain conditions.

4. contract automation: Finally, automating contracts using smart contracts can simplify and speed up the process of contracting. By using such technologies, companies can ensure that all the necessary steps are followed as part of the contracting process, ensuring a more efficient process.

These examples clearly show the wide range of possibilities for the use of smart contracts in different areas of business and commerce for both private and public organizations. Although there are still some legal hurdles to fully integrating smart contracts into the more regulated areas of commerce, this technology offers companies great potential to reduce costs and increase efficiency in their day-to-day operations.

Marian Härtel

Marian Härtel

Marian Härtel is a lawyer and entrepreneur specializing in copyright law, competition law and IT/IP law, with a focus on games, esports, media and blockchain.


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