What are Smart Contracts?

Experienced Smart Contract Law Firm

Do you need legal assistance regarding smart contracts? Are you worried about compliance obligations with respect to smart contracts? If so, then do not wait a second longer to contact an experienced smart contract attorney.

Smart contracts allow for a variety of applications to be developed and launched in ways never before imagined.

This can greatly help small businesses expand, especially considering the efficiencies that can be achieved from smart contract automation.

That said, the technology backing smart contracts—blockchain technology—is not well understood or regulated. As a result, federal agencies remain suspicious and increasingly wary of the increased use and reliance on smart contracts.

Do not let your project get dragged into a federal investigation without first securing the advice an attorney experienced in the following areas: smart contracts, blockchain technology, and cryptocurrencies.

At Oberheiden, P.C., we have the Blockchain Team needed to guide you and your company through these uncertainties. Let´s discuss your case and ways to achieve compliance under federal law.

Put Oberheiden, P.C. on your side today to resolve the issues.

Put our highly experienced team on your side

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

Smart Contracts Overview

Basics

A smart contract is defined as an agreement written in computer code and composed of a set of pre-defined rules. The parties to the contract have already agreed upon these rules before they were put in computer code and made a part of the smart contract.

A key feature of smart contracts is that they are self-executing—meaning the code automatically executes a command upon the occurrence or non-occurrence of a predefined events.

The predefined event can be anything that the parties agreed to in advance such as “pay the bill” or “disburse the funds.”

The decentralized nature of smart contracts is important because it eliminates the need to deal with third parties or other intermediaries typically associated with transactions.

Smart contracts enable the application of various digital asset projects simultaneously and can facilitate the exchange of various cryptocurrencies, NFTs, property, or almost anything else of value.

In addition, smart contracts are stored on blockchain technology—meaning the code is immutable and creates a permanent and transparent record.

Process

Smart contracts begin just like any other traditional contract: the parties to the contract negotiate the terms to be included in the contract. The difference is that the terms of a smart contract are written in computer code.

This code is then transferred to the blockchain. The smart contract will be inactive unless and until one of the predefined conditions—”triggering events”—occurs or fails to occur.

Once a triggering event occurs or fails to occur, the terms of the smart contract are automatically executed without needing to have any approval or additional action by a third party or intermediary.

Lastly, a record of the execution of the contract is stored on the blockchain.

Applications of Smart Contracts

Smart contracts are being used in many industries across the nation. While some industries stand to benefit more than others, the most notable industries include the following: supply chain management, financial sector, healthcare, and government-related industries.

Supply Chain Management:

The supply chain involves multiple parties—from manufacturers and distributors to retailers and buyers. Traditionally, these systems relied on paper-based records and systems for multiple functions, including processes, approvals, and travel. Paper-based systems are difficult to manage and can lead to fraud. Blockchain technology and smart contracts can streamline the entire supply chain process. Examples of smart contracts in this industry include automation of payments, simultaneous and automatic execution of multiple tasks, and detailed and transparent recordkeeping for inventory management.

Financial Sector:

The financial sector includes banking, auditing, and accounting companies, as some primary examples. This industry is very high risk because it deals with customer financial data, financial records, and other types of confidential company or customer financial information. Smart contracts in this industry are being used to safeguard such information or to automatically execute payments without the potential for fraud.

Healthcare:

The healthcare industry also deals with confidential information. The information at stake here includes patient health records such as prescriptions, health histories, and patient medical procedures. Smart contacts allow for health records of patients to be stored on the blockchain in a secure manner. The blockchain can be structured in a manner whereby only specified individuals with certain access are granted to right to view the health information on the blockchain.

Government-Related Industries:

The government is a unique industry because it deals with international matters, government procurement and contracting, and other sensitive matters. Similar to the healthcare industry, the information in government-related companies can be secured and safely stored with smart contracts and blockchain technology.

Benefits of Smart Contracts

Below is a non-exhaustive list of the benefits of smart contracts both for individuals and companies:

• Detailed and accurate recording;
• Automation of contracts;
• Independent execution without relying on third parties or intermediaries;
• Little to no risk of manipulation by third parties;
• Cost savings;
• Documents and transactions are kept safe from tampering;
• Computer codes can be executed with greater speed;
• Original files are stored multiple times;
• Automatic storage on the blockchain;
• Automatic backups are created;
• Outcomes that are known and agreed to by the parties in advance;
• Increases trust because contracts are automatically executed without manipulation;
• Significant security via data encryption and cryptography;
• Eliminates human judgement errors;
• Transparency of operations allows for fully visible contracts; and
• Improves efficiency in operations.

Risks of Smart Contracts

In addition to the benefits, it is important to also be aware of the most significant risks for individual and companies using smart contracts:

• Almost impossible to change because the code is immutable;
• Any errors or incorrect terms in the smart contract´s code will stay within the code;
• No possibility for exceptions or loopholes for changed circumstances;
• As with any technology, smart contracts are susceptible to cyber-attacks;
• Sometimes, parties like to keep terms broad or vague; this is not possible with smart contracts; and
• Developing smart contracts is a highly technical skill that not all developers possess.

Need Advice with Smart Contracts?

Smart contracts are an innovation that is here to stay. That said, their novelty and increase in popularity has led many federal agencies to question to what extent federal regulation should apply to them.

Do not let your smart contract project can dragged into a federal investigation or audit without first retaining an attorney to check your compliance.

At Oberheiden, P.C., we have a team of Blockchain Attorneys dedicated to helping clients resolve their smart contract compliance issues.

We can provide detailed and strategic recommendations to boost your compliance and ensure that your project doesn´t run afoul of federal statutes.

Do not wait. Get the advice you need today. Call or contact us today for a free and 100% confidential consultation.