What is Blockchain?
As all revolutions in technology do, blockchain technology has also revolutionised the way things are usually carried out. As all technological advancements do, blockchain has also contributed to decreasing the effort put in by an individual while increasing the efficiency of the work performed.
Blockchain technology as the name indicates is a chain of blocks. It is a decentralized ledger system. The words ‘block’ and ‘chain’ indicate digital information being stored in a public database. While blockchain technology was being discussed, it was only truly implemented by Bitcoin. The technology behind the working of the Bitcoin Network is blockchain. The purpose of this technology, put simply, is collecting and storing data while providing high-level security. This technology has been analogized as the digital version of locks and vaults. This technology makes use of cryptography as an integral part of its efficiency. Cryptography in blockchains prevents access to the data from third parties and serves as an extremely efficient protection and security measure.
This technology is said to date back to 1991, when Stuart Haber and Scott Stornetta idealised the development of a technology that will store information in small digital blocks making use of cryptography. This technology functions based on a peer-to-peer distributed ledger system. This enables data to be stored globally while allowing access to several people who are on the same network.
While, Blockchain emerged through Bitcoin, through the years various other uses for this technology were discovered. It wasn’t just a system that recorded, stored, and secured data relating to transactions, anymore. After Bitcoin, another prominent way in which this technology’s capabilities have been channelised is Smart Contracts.
What are Smart Contracts?
Smart Contracts are otherwise known as ‘Self-Executing Contracts’ or ‘Blockchain Contracts.’ The first emergence of this idea was in 1997, by law scholar and cryptographer Nick Szabo. The main difference between smart contracts and traditional contracts is that the former is completely digital. Nick Szabo’s idea was to store these digital contracts in a distributed ledger. The notable feature of a smart contract is that it is immutable, which renders the contract entered into, unchangeable.
A notification put forth by the Telecom Regulatory Authority of India on 19th July 2018 defined smart contracts as, “ a functionality of intelligent and programmable code which can execute pre-determined commands or business rules set to pre-check regulatory compliance without further human intervention and suitable for DLT system to create a digital agreement with cryptographic certainty that the agreement has been honored in the ledgers, databases or accounts of all parties to the agreement.”
Simply put, smart contracts are contracts that are digitally encrypted and are codified and secured using cryptography and blockchain technology. Under a smart contract, the terms of the agreement are written into code. All the information of the contract is stored in a distributed and decentralized blockchain network. Smart contracts are self-executing contracts, therefore in addition to storing data concerning the contract, it also executes and tracks the transaction and as aforementioned, this is immutable.
Once smart contracts have been entered into the terms cannot be changed by any parties. The execution of various aspects regarding a contract such as verification and performance is taken care of digitally and does not require any physical documentation and it also reduces the need for human intervention.
Smart contracts can be executed in several areas such as rental agreements, keeping records of property ownership, and even of votes. An area where smart contracts can make significant improvement is insurance. For example, consider a life insurance policy. The smart contract entered into would consist of all the terms of the policy and accordingly would receive and store the money that has been invested in this policy. In case of the passing of the party of the policy, the notarized death certificate can be provided as an input which would trigger the facilitation and execution of the policy and release the funds to the beneficiaries named in the contract. Here the involvement of smart contracts, ensure the speedy and efficient execution of policy terms.
The Indian Contracts Act, 1872 that regulates all contracts, provides in Section 10 for the basic elements that need to be satisfied with, for an agreement to be considered a valid contract. Smart contracts consist of the main elements such as offer, acceptance, and consideration. As far as smart contracts are concerned, they are valid under the Act.
Section 5 of the Information Technology Act, 2000 provides legal recognition for digital signatures.
Section 6 of the Information Technology Act, 2000 provides for use of electronic records.
These sections render smart contracts to be legally enforceable. But a point to be noted here with regard to digital signatures is that under blockchain technology signatures are self-generated.
Whereas Section 35 of the of the Information Technology Act, 2000 requires a digital signature to be issued by a certifying authority.
Another notable legislation in this regard is Section 65B of the Indian Evidence Act, 1872. This section provides for the admissibility of electronic records as evidence. Considering this, the fact that digital signatures are not obtained through a certifying authority makes the admissibility of smart contracts even more convoluted.
India has not been blind to this development and has recognised the potential of blockchain technology. Niti Aayog has recently documented and identified areas in which blockchain technology can be used to remarkably benefit the country. Smart Contracts are just one such area that has a lot of potentials to revolutionise contracting.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
