Bridging the Gap between Denotational Semantics of Traditional Contract And Smart Contract

In this era of increasing cyber dependency in business dealings there is huge potential in the adoption of Distributed Ledger Technologies (DLT) particularly in the context of smart contract in the commercial world. The phenomenon of smart contract operates independently without the cumbersome need to engage any intermediary. It has been argued that there is too much dependency on the programming aspect in the creation of smart contracts by programmers and computer scientists. Smart contract are more like an Apps which is capable of executing specific task but it fails to observe the fundamental understanding and agreement between the negotiating parties which is the core essence in traditional commercial contract. The objectives of this paper are to first, demonstrate the semantic discrepancies between traditional contract and smart contracts and the implication of the latter. Secondly, to support the proposition that programmers and computer scientists lack the required legal knowledge and logic in appreciating the various legal terms and effects of a concluded contract, there is a need to include lawyers and regulators to enhance the drafting of the corresponding denotational semantics in programming smart contract. This paper contends that the operational semantics which deals with the execution of the contract on technical platform should be consistent with and correspond with the denotational semantics.

This book provides a landmark survey of computational contracting: one of the most important legal and practical trends for centuries. Computational contracts introduce software functionalities to operationalize, rather than merely record, acts of commercial coordination. In doing so, they bring together software and law in interesting and unchartered ways to create dynamic documents that present unique opportunities and challenges. Distributed ledger technologies have propelled ‘smart contracts’ into mainstream application over the last decade. The introduction of software into contractual relationships, however, may be implemented in a number of ways, of which such ‘smart contracts’ are only one. Broadly, it is possible both to express legal promises in code and to incorporate code-based elements within conventional (‘paper’) contracts. This volume examines the observed approaches and reflects critically on their relationship and the common issues raised. The organizing principle behind the volume is that emerging design patterns and considerations are beginning to form around the instantiation of code in contractual agreements—the ‘smart legal contract’. With incisive analyses from legal scholars, computer scientists, judges, and legal practitioners across common law jurisdictions, this volume addresses many of the foundational questions raised by smart contracts in legal theory and practice and provides a critical point of orientation in an emerging but still disparate literature.

Introduction: the article is devoted to the analysis of legal regulation of smart contracts, the concept, content, and scope of their application. The author analyzes in detail foreign expe- rience of using smart contracts and suggests possible options for expanding the application area. The article also has a separate section that looks at smart contracts as compared with traditional institutions of civil law. Smart contracts are expected to find application in almost all areas of life in the future. As is often the case with new technologies, the use of smart con- tracts raises a number of civil law issues. Blockchain technology makes it possible not only to create new means of payment but also to autonomously manage almost any process. It can be used for individual contracts and even for the creation of autonomous decentralized systems. Purpose: to provide an insight into the institution of smart contracts and define their role in civ- il law. Methods: empirical methods of comparison, description, interpretation; theoretical me- thods of formal and dialectical logic; special scientific methods such as the legal-dogmatic me- thod, the methods of interpretation of legal norms and comparative legal research. Results: smart contracts are computer programs that perform legally significant actions according to predetermined algorithms set out in the form of a so-called program code. In practice, they are especially important in connection with the development of blockchain technology or (more generally) distributed ledger technology. Conclusions: the term ‘smart contract’ was defined by Nick Szabo in the 1990s as a sequence of commands represented in digital form, including transaction protocols that execute these agreements. Thus, smart contracts formulate rules and sanctions for agreements and execute them automatically. These are not necessarily contracts in the legal sense, but they are capable of controlling, tracking, and documenting legally signif- icant actions. Smart contracts can also be implemented using traditional, for example, mechan- ical technologies (e.g. in a vending machine). However, blockchain and distributed ledger tech- nologies make it possible to implement incomparably more complex rules and enforcement me- chanisms and offer a decentralized environment with an integrated settlement system. From a legal point of view, smart contracts perform two functions. On the one hand, they serve as a functional equivalent of a contract since their technological code can identify the services to be exchanged as well as the conditions under which they must be provided. Being the normative order of the digital, this code formulates the program of obligations of the parties. It resembles the legal order of a contract, without necessarily coinciding with it. On the other hand, smart contracts serve as a tool for the execution of contracts – by controlling, monitoring, and docu- menting the exchange of services. They can also facilitate the execution of conventional con- tracts by translating their provisions into a technical code, verifying the occurrence of agreed- upon events, and enforcing contracts. Smart contracts are suitable for contractual relation- ships, for example, for processing payments or delivering goods without the participation of the parties and an intermediate step in the form of direct execution. Smart contracts are gaining more and more popularity, especially in the financial sector. In addition to the so-called token economy (cryptocurrencies, ICO, etc.), there are also discussed algorithmic ETFs, online plat- forms for loans or project financing. Another important area of application is sharing economy. From a legal point of view, smart contracts can either be the subject of a contractual agreement or generate it on their own. There is sometimes put forward a thesis under the motto ‘Code is law’ that smart contracts give rise to a largely autonomous legal system and/ or are not subject to applicable law. However, this appears to be an erroneous conclusion

Applications of distributed ledger technology (DLT) and Blockchain-enabled smart contracts in construction

Within the framework of this article, the authors carry out the study of the design of the smart contract in the context of jurisprudence and technical sciences. The paper analyzes the legal nature of the smart contract and the issues concerning the scope of application (in relation to distributed ledger technology).The authors conclude that the category of “smart contract” can be defined in technical and legal aspects. In foreign literature, there are two categories: a legal smart contract and a smart contract code (or smart contract). The smart contract as a technical phenomenon represents a computer code that allows automated fulfillment of obligations. From legal point of view, the approaches to the definition of the smart contract depend primarily on the fact that the authors rely on the possibility of using smart contracts only within the framework of distributed ledger technology or other information technologies. At the same time, the majority of authors share the view that the smart contract exists exclusively in relation to the technology of distributed ledgers, namely, the blockchain. The article proposes to define the smart contract as a standard (special) contractual design — a contract concluded by electronic or other technical means, under the terms of which performance of the obligation is carried out without directed explicit additional expression of will (under Part 2 of Article 309 of the Civil Code of the Russian Federation).The article states that the smart contract cannot be qualified as an independent way of ensuring the performance of obligations. Such qualification is possible only if the functional approach to understanding security is applied. The paper examines the main fields of application of smart contracts and possible risks of their application (in terms of statement of terms of agreements in relation to a programming language; in respect of necessity of compliance with such fundamental principles of civil law as legality, fairness, protection of the weak; the need for communication with public authorities and notaries, as well as risks of using smart contracts in relations involving the participation of consumers). A separate set of questions concerns the protection of the rights infringed due to the use of smart contracts.

In modern electrical grids, the numbers of customer-owned distributed energy resources (DERs) have increased, and consequently, so have the numbers of points of common coupling (PCC) between the electrical grid and customer-owned DERs. The disruptive operation of and out-of-tolerance outputs from DERs, especially owned DERs, present a risk to power system operations. A common protective measure is to use relays located at the PCC to isolate poorly behaving or out-of-tolerance DERs from the grid. Ensuring the integrity of the data from these relays at the PCC is vital, and blockchain technology could enhance the security of modern electrical grids by providing an accurate means to translate operational constraints into actions/commands for relays. This study demonstrates an advanced power system application solution using distributed ledger technology (DLT) with smart contracts to manage the relay operation at the PCC. The smart contract defines the allowable total power factor (TPF) of the DER output, and the terms of the smart contract are implemented using DLT with a Cyber Grid Guard (CGG) system for a customer-owned DER (wind farm). This article presents flowcharts for the TPF smart contract implemented by the CGG using DLT. The test scenarios were implemented using a real-time simulator containing a CGG system and relay in-the-loop. The data collected from the CGG system were used to execute the TPF smart contract. The desired TPF limits on the grid-side were between +0.9 and +1.0, and the operation of the breakers in the electrical grid and DER sides was controlled by the relay consistent with the provisions of the smart contract. The events from the real-time simulator, CGG, and relay showed a successful implementation of the TPF smart contract with CGG using DLT, proving the efficacy of this approach in general for implementing electrical grid applications for utilities with connections to customer-owned DERs.

Due to their decentralized and trustless nature, blockchain and distributed ledger technologies are increasingly used in several domains, including critical applications. The behavior of such blockchain-integrated systems is typically driven by smart contracts. However, smart contracts are application-specific software and may contain faults with severe system-level impacts. This is especially true in the case of the extensively used Hyperledger Fabric (HLF) platform, where smart contracts are written in general-purpose languages (Java, among others), and applications can go far beyond handling virtual-currency-like assets. In this work, we present a novel formal-verification-based approach to smart contract verification and a high-level empirical model of the HLF platform. Our Smart Contract in the Loop (SCIL) method uses a model checker (Java Pathfinder) to check whether specific error properties hold for a given smart contract, while a predefined combination of platform-level fault modes is active. We facilitate the checking of HLF smart contracts without modification and enable the propagation or non-propagation of platform faults through the smart contracts to the system failure level.

Automation and smart materials in detecting smart contracts vulnerabilities in Blockchain using deep learning

Distributed ledger technologies (DLT) enable new forms of business collaboration while the combination with smart contracts allows for an automation of business and collaboration processes. The immutability of DLT secures the execution of business processes. Hence, any process automation or resource management activities are tamper-proof. Yet, a widespread use can only takeoff, if business process experts can directly use this new form of technology, since business process experts are not necessarily programming experts. Thus, we argue for a high-level business process modeling to allow an application-oriented formulation of business collaboration. Hence it is important to research the instantiation and execution of business processes on DLTs, which are formulated in conventional notations. Existing approaches for process implementation on DLTs build-upon state machines that encode the process flow in smart contracts. Thereby every process instantiation requires the creation of a new smart contract with its state machine. In contrast we propose a variant of process implementation that builds-upon an extending kernel. The execution logic is encoded as a core function in the validation routine of DLT nodes. Going down this avenue, the process flow is specified inside transactions and the validation routine will ensure that the process is correctly executed. We validate the implementation of our approach and compare it to alternatives that implement processes by state machines across smart contracts.

Smart contracts are seen as the major building blocks for future autonomous blockchain- and Distributed Ledger Technology (DLT)-based applications. Engineering such contracts for trustless, append-only, and decentralized digital ledgers allows mutually distrustful parties to transform legal requirements into immutable and formalized rules. Previous experience shows this to be a challenging task due to demanding socio-technical ecosystems and the specificities of decentralized ledger technology. In this paper, we therefore develop an integrated process model for engineering DLT-based smart contracts that accounts for the specificities of DLT. This model was iteratively refined with the support of industry experts. The model explicitly accounts for the immutability of the trustless, append-only, and decentralized DLT ecosystem, and thereby overcomes certain limitations of traditional software engineering process models. More specifically, it consists of five successive and closely intertwined phases: conceptualization, implementation, approval, execution, and finalization. For each phase, the respective activities, roles, and artifacts are identified and discussed in detail. Applying such a model when engineering smart contracts will help software engineers and developers to better understand and streamline the engineering process of DLTs in general and blockchain in particular. Furthermore, this model serves as a generic framework which will support application development in all fields in which DLT can be applied.

This chapter provides an in-depth engagement with the project of expressing legal propositions in machine-readable language. Smart Contracts use computer technology to automate the performance of aspects of commercial agreements. Yet how can there be confidence that the computer code is faithful to the intentions of the parties? To understand the depth and subtlety of this question requires an exploration of natural and computer languages, of the semantics of expressions in those languages, and of the gap that exists between the disciplines of law and computer science. It builds on the metaphor of a ‘contract stack’ with the idea of a ‘language stack’ and illustrates the various layers of language—both natural and formal—that might exist and interact in any instantiation of a ‘smart legal contract’. It also explains the importance of language design in the development of reliable smart contracts, including the use of domain specific languages and the design of controlled natural languages within the specific methodology of computable contracts. Reflecting the author’s original research in the area, this chapter examines ‘computable contracts’ in particular detail—a sub-type of ‘smart contracts’ in which the top two layers of the language stack (‘natural language’ and ‘specification language’) have been merged. As well as providing an in-depth overview of theory, this chapter provides an up-to-date survey of existing projects and reflections on directions for future research.

Smart contracts are challenging the traditional business structure by offering a trustworthy decentralized platform where business transactions can be conducted with accountability, transparency, and traceability guarantees. Smart contracts, enabled by the distributed ledger technology, can be employed in many business sectors to reduce transaction time and cost and improve identity verification and proof of ownership, just to mention a few. International trade is one of these sectors with an urgent need for improvement: a market of trillions of dollars still based on traditional paper‐based transactions. The shipping industry carries 90% of the goods of the global trade market, whose costs for processing trade documents and information have nowadays doubled those for the transport itself. The need for a digital transformation is urgent for the development of and access to new markets. Insurance, letter of credit, bill of lading, factoring, etc. could obtain substantial benefit from the use of smart contracts. The possibility to transparently track and seamlessly validate the integrity of trading activities via an immutable ledger will permit reducing intermediation risks, automating contract settlement, and dispute resolution. These efficiencies will have (i) micro effect in the transferred efficiencies to consumers and small business parties and (ii) macro effect in the trade benefits for countries and industries. This chapter will explore and explain the distinguishing features of smart contracts, the functionalities that will enable trade finance, and the benefits that their application will bring to the parties of the process.

The construction sector is at a point where distributed ledger technologies (DLT) such as blockchain and smart contracts (SCs) are accepted as a future technology in the sphere of digital construction [Xue and Lu, 2020]. The challenge lies in how to move from today’s poorly digitalised sector [Perera, 2020] to a highly digitalised future where DLT and SCs are commonplace throughout the construction lifecycle. In a sector that is resistant to change [McNamara and Sepasgozar, 2020] and second only to agriculture [Argawal et al., 2016] in terms of its digital capabilities, this is an area of research that requires focus. This study aims to support the adoption of DLT and SCs in construction through introduction of two roadmaps to support their implementation. The first is a macro roadmap that supports the sector in readying the construction sector ecosystem that will enable the success of such applications and their contribution to the digital transformation of the sector. The second is a meso roadmap that supports development and implementation of DLT- and SC-based applications through taking a sociotechnical approach to analysis and actions to get the applications to market.

Smart contracts (SCs) run on the distributed ledger technology (DLT) platform and can implement agreements between participants without a trusted third party. This paper uses the DLT and SC techniques to build distributed applications composed of existing services. In practice, there are many functionally-equivalent services on the Internet. To beat their competitors, the service providers usually offer flexible QoS and use dynamic pricing strategies. Moreover, the service providers can change at runtime, e.g., they may encounter problems so that their QoS drops suddenly. This makes achieving the optimization goal at runtime (e.g., the maximization of the utility) more difficult. To address this problem, first, this paper proposes an SC-based negotiation framework. The SCs can ensure that the transactions are automatically and reliably performed as agreed upon between the service requesters and providers. The DLTs can provide the reliable data of the requests and responses of the service requesters and providers to the SCs. In addition, the SCs can identify the troubled service providers, and find other service providers to replace them at runtime. Second, this paper proposes a Bayesian Nash equilibrium (BNE) of the service providers. In the BNE, the cost-efficient service providers offer the high QoS the service requester asks for and report their costs truthfully. This BNE enables the selection of the cost-efficient service providers and the achievement of the (near) maximization of the service requesters’ utility. This paper implements the proposed negotiation framework on a DLT platform called Hyperledger Fabric. The experiment results demonstrate that the proposed approach outperforms the existing approaches and can adapt to the changes of the service providers.

: A smart contract is a self-executing program designed to automatically enforce the terms of an agreement between two parties, eliminating the need for intermediaries. Stored on blockchain or other distributed ledger technologies (DLTs), smart contracts ensure high security, immutability, and protection from vulnerabilities. These contracts facilitate various transactions, including financial exchanges, service delivery, and data manipulation, such as updating land titles. Additionally, they can be used to enforce privacy protection by selectively releasing privacy-protected data.While smart contracts are not legally binding by default, they automate business processes based on pre-defined conditions. Legal steps must be taken to make them enforceable in a legal context. This paper provides a comprehensive analysis of the anatomy of smart contracts, focusing on their key components, architectural structure, and underlying working principles., aiming to provide a comprehensive understanding of their operation and the challenges they present for adoption in various industries. Additionally, the study examines the various types of smart contracts, their real-world applications, and the significant benefits they offer, including automation, transparency, and security. The paper also addresses the challenges and limitations associated with smart contract implementation, such as scalability issues, security vulnerabilities, and legal complexities. By providing a detailed exploration of smart contracts from design to deployment, this research aims to offer valuable insights into their transformative potential in the digital economy. Keywords: Blockchain, Smart Contract,dApps,Hyperledger, DeFi,NFT,GDPR.