The concept of ‘smart contract’ was introduced by Nick Szabo, an American cryptographer and computer scientist in 1994. But, only after blockchain became widespread in 2008, people understood practical applications of smart contracts.
A smart contract is a computer protocol (set of rules) that digitally facilitates, verifies, and enforces the negotiations between two parties. It uses a distributed ledger system (blockchain) to store data on public databases and perform transactions without involving third parties.
In this article, we’ll discuss the legal aspects of smart contracts in India. Before we do, here is a brief insight into how smart contracts work.
How Are Smart Contracts Executed?
The smart contract is a blockchain-based computer code. The contract terms are written in the code itself. Smart contracts interpret and verify every transaction against the terms and automatically executes them.
The key features of smart contracts are-
- Once the smart contract is released, no one including the creator (owner) can modify its terms.
- Physical documents are not required to initiate and complete the transaction.
- Although users can remain anonymous, the smart contract records the transaction details.
- Moderators can track market activity, but cannot regulate the transactions.
- Smart contract transactions are irreversible.