Interests in smart contracts have grown lately especially with the formation of The DAO – Decentralized Autonomous Organization which is based on Ethereum.
They are computer applications in which contracts are written into computer code and perform or execute automatically. These applications are expected to run as programmed without any possibility of downtime, censorship, fraud or third party interference.
These trusted and permanent records shared across parties through a tamper-proof network have the potential to reduce costs, increase automation, and remove the need for manual processing. Many businesses are already investing considerable time and money into the technology, particularly financial services.
However, according to experts from Allen, an international law firm with offices throughout Australia and Asia, smart lawyers still have a role to play to make smart contracts work.
The law firm said:
Smart contracts built on distributed ledgers could automate the way many standard contracts are entered into and performed.
However, while some legal work could disappear, lawyers have a crucial role to play in understanding the risks of this new technology and protecting the interests of participants and users alike.
Simun Soljo and David Rountree wrote that while automating contracts could reduce the need for lawyers doing repetitive contract writing and interpretation, predictions of the demise of the lawyer have been exaggerated.
Smart contracts are still best suited to arrangements where clearly defined outcomes can be programmed – computers do not understand ambiguity. Many contractual relationships will not lend themselves to programming.
Even where smart contracts on blockchain technology are appropriate, lawyers have an important role to play in the development of blockchain and smart contracts technology.
Ranked the Australian Law Firm of the Year 2014, Allen works with many of the world’s leading organizations – including 55 of the world’s top 100 companies and more than 75 of Australia’s top 100 companies.
The writers highlight four things lawyers can do that computer programs will not do. They include getting a binding contract and enforce necessary rights after party how transactions in a distributed ledger system will be performed.
Since smart contracts are a collaboration or joint venture that require a governance framework which may be difficult to change once established, lawyers will make parties understand their rights and how they can be exercised and modified.
Lawyers will also help resolve disputes when something goes wrong. They test the design of distributed ledger and smart contracts systems and think about what could go wrong before it does.
A similar idea, Decentralized Arbitration and Mediation Network (DAMN), a research proposal seeking to provide arbitration for smart contracts, was presented to the public for feedback earlier this year.
Lawyers will help get the regulator on side so as not to stifle innovation or drive investment away.
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