In the modern age of technology, we are constantly finding new ways to digitize and automate everything possible. Contracts are no exception. These self-executing agreements are called "smart contracts." While at first glance smart contracts may seem like a great idea, they lack some benefits that traditional contracts can provide.
In this blog, we will discuss the main differences between smart contracts and traditional contracts and why it is a good idea to still have a traditional contract in place.
Smart Contracts are agreements that automatically execute when specific conditions are met. They achieve this self-execution by writing the terms of the agreement directly into code. The following are some key characteristics of smart contracts:
1. Automation: By automatically triggering the execution of contract terms, smart contracts guarantee that agreed-upon actions will be performed without the need for intermediaries.
2. Immutable and transparent: Smart contracts are usually recorded on blockchain platforms, which ensures they cannot be tampered with or changed by one party without knowledge of the other. This high level of security also reduces the likelihood for fraud or manipulation in these contracts.
3. Decentralized: Since smart contracts typically operate on decentralized networks, there is no need for a central authority or third-party oversight.
Traditional Contracts are the written or verbal legally binding agreements that have been used for centuries. A few key features of traditional contracts include:
1. Flexibility: The terms of traditional contracts have greater flexibility because lawyers can hand-craft them to include a wide range of provisions or tailor them to specific circumstances and needs. They can be used in a variety of contexts, including business transactions, employment agreements, real estate deals, and more.
2. Legal enforcement: Traditional contracts can be enforced through established legal channels since they are recognized by legal systems. For example, compliance with a traditional contract can be compelled by a court or an arbitrator.
3. Interpretation and negotiation: Working with a lawyer to establish a traditional contract gives you the benefit of having the terms clearly explained. Additionally, lawyers can use their expertise to negotiate fair terms for you.
As you can see, both smart contracts and traditional contracts have advantages. Smart contracts are great for cryptocurrency transactions, decentralized applications, and scenarios where automation is crucial. However, these types of contracts are limited to executing predefined actions, which means they can only plan for foreseeable results.
Smart Contracts are also hard to change, have many loopholes, and are unable to interpret vague terms. On the other hand, traditional contracts are best for complex agreements involving human judgment, and can be drafted to encompass possible occurrences and unforeseeable events.
Even in situations where a smart contract achieves your goals, it is still a good idea to put a traditional contract in place along with it. This will ensure your interests are protected and give you peace of mind that you will be covered if an event later occurs that was not accounted for in the smart contract. Contact Venustas Law today with any questions!