Technology is progressing in the legal field, with computer contracts, also known as smart contracts, leading the way.
Smart contracts are a common language that enables machines to interpret contract terms and conditions clearly, allowing computers to automatically execute contracts with high precision.
Law firms will experience lower costs for legal transactions and will have new opportunities to improve contract creation.
Blockchain is now established, allowing for an analysis of how technology will lead the legal sector in a significant change regarding smart contracts. Read more about this topic in the post.
Transforming legislation into smart contracts presents a significant challenge.
A traditional contract involves parties agreeing on future obligations, such as how Alice can compensate Roberto for using her home. In contrast, a smart contract uses computer code to automatically assess and fulfill conditions.
If Alice agrees to pay Bob for renting the property but then fails to fulfill her commitment, the execution can proceed without allowing either party to withdraw.
A key characteristic of a smart contract is its autonomous execution, eliminating the need to rely on external parties to meet specific conditions. Instead of depending on others to fulfill agreements, a smart contract automatically enforces predetermined actions.
In the coming years, there will be significant advancements in smart contract components and their execution methods. However, reaching this level of maturity will require considerable effort.
Computers finding it difficult to understand languages like Portuguese or English poses a challenge. This necessitates a reevaluation of contract drafting to convert law into computational contracts.
The process involves establishing the domain of an ontology, defining key terms and language for describing legal discourse and the relationships between different types of knowledge in legal reasoning.
It seems simple, doesn’t it? I made an error.
Other advanced technologies apart from blockchain, like artificial intelligence, will be utilized to transform contract language into smart contract format.
Practical implementation of a smart contract
The insurance industry has effectively utilized smart contracts, thanks to advancements in blockchain technology and growing global demand for insurance products. This has paved the way for parametric insurance, which automatically triggers payouts upon specific events.
The payment of insurance claims currently relies heavily on an assessor’s subjective evaluation of damages and losses. Parametric insurance offers an objective and data-driven alternative for insurance payouts.
In a model of this type, payments are made for claims only when a specific event happens, and the amount to be paid is predetermined.
The idea of parametric insurance had been around since the late 1990s, but it was not widely embraced or of interest to consumers until a reliable system for swiftly and securely resolving contracts was established more recently.
The introduction of blockchain and smart contracts technology is causing a shift in this situation.
The future of smart contracts
Contracts in the near future will become more intricate, allowing users to incorporate external data and enabling self-execution. Increased adoption of decentralized components, as observed in fintechs and insurtechs, will also be prevalent.
Creating a fair and unbiased legal system with advanced technology is crucial for improving access to justice and legal services for everyone. It requires critical thinking, questioning traditional norms, and recognizing the vast opportunities available.
Read the white paper “Building the future of Blockchain with the hands of Legal” to learn more about blockchain and its significance in the legal field.