Design and Application of Legally Valid Payment Templates Based on Linking Contracts.

Since Friedrich Kessler wrote “Contracts of Adhesion-Some Thoughts About Freedom of Contract” in 1943, condemning narrow adherence to the principle of “freedom to contract” in the face of large scale enterprises’ growing preference for standard form contracts, Courts have balanced their desire to uphold contracts while protecting weaker parties from adhesion. Today, they face similar challenges with the rise of code-driven smart contracts and blockchain governance. Similar to Kessler’s world, where standard-form contracts were a tool for “excluding or controlling the ‘irrational factor’ in litigation” such as uncertain outcomes of judicial interpretation, automated smart contracts aim to put themselves outside the control of both contractual parties and the courts, thus removing any ability to breach or tamper with the original terms. Smart contract advocates contend that removing the judiciary as the governing body over contract law and imposing contractual performance via decentralized blockchain governance improves efficiency and certainty.
 But, how much can one really write a contract that completely circumvents the potential for legal intervention or judicial enforcement? Will smart contracts finally achieve the complete separation between private and public law that advocates of “freedom to contract” originally claimed, or does the common law legal system’s deep-rooted belief in the rule of law and due process prevent the judiciary from being excluded from contract enforcement regardless the medium? And is there a risk that, as smart contract sceptics posit, smart contract platforms and blockchain governance create a new feudal order with a “potentially illegitimate exercise of power” and “normatively suspect” wealth distributions?
 The short answer, as this paper will demonstrate, is that as long as smart contracts meet the traditional requirements of a contract, they cannot fall outside the establish legal system’s purview. The only thing a smart contract truly adds to traditional contracts is automated execution that is enforced by the blockchain’s consensus mechanism; this may provide some efficiency to the legal system by streamlining basic performance but it cannot be the only form of governance over smart contracts. While there may be procedural challenges to undoing or enforcing specific performance under smart contracts because of their decentralized features, any substantive problems that could occur within a smart contract are imminently addressable with and must be subjected to the principles and remedies found in traditional contract law. Finally, I will conclude with current developments in smart contracts which point to a potential for them to become an integral part of our legal system going forward. Overall, I will argue that smart contracts, if carefully drafted to consider potential pitfalls and the future needs of contracting parties to amend or enforce, can hold the potential to provide efficiencies and greater legal certainty to contracting parties. This is achieved, not through circumventing the legal system, but by working with it to automate simple performance enforcement and deferring more complex contractual breakdowns to the judiciary.

In this note we describe a smart derivative contract with a fully deterministic termination to remove many of the inefficiencies in collateralized OTC transactions. The automatic termination procedure embedded in the smart contracts replaces the counterparty default by an option right of the counterparty. The application of smart contracts to cure issues in xVAs has been described before, see Morini et. al. (2015, 2017). However, a direct implementation of an OTC derivative as a smart contract may come with its own issues: * If the smart contract is implemented on a crypto-currency blockchain it will introduce a currency conversion risk. * If the smart contract has an automatic termination in case of insufficient wallet amounts, the contract essentially contains a bilateral American option. Both counterparts can willingly terminate the contract by emptying the wallet. This would render the contract useless. In this note we will fully describe the terms of a smart contract to replace a collateralized OTC transaction. We introduce a penalty payment to modify the American option right in the contract. The penalty and the excess amount in the wallet can be seen as a combination of default fund contribution and initial margin, inducing a per-contract termination probability. Hence, each contract come with its own termination probability (corresponding to the default probability). Based on this, ratings could be assigned on a per-contract basis. Such smart contracts are also interesting with respect to the mathematical theory of systemic risk, since each contract represents an individual counterparty, increasing the numbers of individual counterparties in the whole system and possibly justifying the application of mean filed theory (compared to a setup with a large central counterpart (CCP)).

The article analyzes the positive and negative aspects of the use of smart contracts in various business areas, which respectively give it an advantage or disadvantage compared to traditional civil law contracts. It has been determined that due to the automatic execution of the transaction, as soon as the agreed conditions are fulfilled, smart contracts allow eliminating or minimizing a number of transaction costs that accompany traditional contracts. When using a smart contract, the possibility of improper execution by one of the parties is practically eliminated, since it cannot be violated. It is the difficulty of modifying or terminating smart contracts that is an advantage over other contractual structures. The complexity of changing and terminating smart contracts is a guarantee of their stability and the immutability of the contractual terms that were originally agreed by the parties. But at the same time, smart contracts, eliminating some of the problems of traditional contracts, create new ones when using them. The article also notes that smart contracts are distinguished by both vulnerability in computer code and insufficiently effective legal regulation. The problem of oracles when using smart contracts is considered, which consists in the need to trust the information received from them. It is concluded that due to the vulnerability of a smart contract, like any modern digital technology, the existence of a written original of the contract, subsequently expressed in a smart contract, will make it much easier for the parties to use both judicial and extrajudicial methods to protect their rights. It has been noted that due to the growing use of smart contracts in civil circulation, the number of disputes arising in connection with this, considered both in state courts and in non-state bodies (arbitration courts), will also increase.

In recent years, advanced smart contract languages (ASCLs) have been proposed to solve the problem of difficult reading, comprehension, and collaboration when writing smart legal contracts among people in different fields. However, this kind of languages are still hard to put into practice due to the lack of an effective conversion method from the ASCLs to executable smart contract programs. Aiming at this problem, we take SPESC as example to explore how to design conversion rules from the contract in it to the target programming language in Solidity, and to propose a three-layer smart contract framework, including advanced smart-contract layer, general smart-contract layer, and executable machine-code layer. These rules provide an approach to convert the definition of SPESC contracting parties into party-contracts on target language, as well as to produce SPESC contract terms into main-contract on target language. Moreover, the proposed framework specifies not only program architecture and storage structure on general smart-contract layer, but also important mechanisms, including personnel management, timing control, exception handling, etc., which can assist programmers to write smart contract programs. Furthermore, taking four SPESC contracts as testing objects, we provide the whole process of converting from SPESC contracts to Solidity programs by the SPESC-Translator, and verify the efficiency and security of the conversion process, including coding, deploying, running, and testing through Ethereum. The instance results show that the conversion rules and the three-layer framework can simplify the writing of smart contracts, standardize the program structure, and help programmers to verify the correctness of the contract programs.

Smart contracts are designed to be self-executing and self-enforcing. They are written as computer code that can automatically monitor, execute and enforce the performance of the agreed terms. The code of smart contracts exists across a distributed, decentralised blockchain network, controlling the execution and making transactions trackable and irreversible. This article examines the extent to which the Australian Consumer Law unfair contract term provisions can respond to the use of smart contracts. The article finds that the Australian Consumer Law unfair contract term provisions work relatively well to protect smart contract consumers. While some challenges exist and should be properly considered, there seems to be no need to either create entirely new law, modify the existing regime or totally ban smart contracts to protect consumers against unfair contract terms in smart consumer contracts.

As blockchain technology advances, so has the deployment of smart contracts on blockchain platforms, making it exceedingly challenging for users to explicitly identify application services. Unlike traditional contracts, smart contracts are not written in a natural language, making it difficult to determine their provenance. Automatic classification of smart contracts offers blockchain users keyword-based contract queries and a streamlined effective management of smart contracts. In addition, the advancement in smart contracts is accompanied by security challenges, which are generally caused by domain-specific security breaches in smart contract implementation. The development of secure and reliable smart contracts can be extremely challenging due to domain-specific vulnerabilities and constraints associated with various business logics. Accordingly, contract classification based on the application domain and the transaction context offers greater insight into the syntactic and semantic properties of that class. However, despite initial attempts at classifying Ethereum smart contracts, there has been no research on the identification of smart contracts deployed in transactive energy systems for energy exchange purposes. In this article, in response to the widely recognized prospects of blockchain-enabled smart contracts towards an economical and transparent energy sector, we propose a methodology for the detection and analysis of energy smart contracts. First, smart contracts are parsed by transforming code elements into vectors that encapsulate the semantic and syntactic characteristics of each term. This generates a corpus of annotated text as a balanced, representative collection of terms in energy contracts. The use of a domain corpus builder as an embedding layer to annotate energy smart contracts in conjunction with machine learning models results in a classification accuracy of 98.34%. Subsequently, a source code analysis scheme is applied to identified energy contracts to uncover patterns in code segment distribution, predominant adoption of certain functions, and recurring contracts across the Ethereum network.

Smart contracts are one of the digital technologies that have the potential to significantly alter the way market participants interact. It is emphasized in the research that a smart contract is a specialized computer protocol that allows negotiating parties to exchange assets between themselves: stocks, money, or property without involving a third party as an intermediary. It should be noted that smart contracts also have a wide area for use not only in the financial sector, but also in other sectors of the economy, and the global trend towards digitalization is one of the fundamental drivers of the development of this tool. The most recognizable technology for the operation of smart contracts today is blockchain. It is mentioned that blockchain guarantees the reliability and security of the concluded contracts in terms of their confidentiality, immutability, and permanence. Four basic stages of a blockchain-based smart contract were revealed. It is stated in the article that one of the most promising applications for smart contracts is the automation of the provision of banking services, such as supply chain financing, mortgage lending and small business lending. The automatic implementation of the full lending process, from application to credit risk assessment, mortgage renewals, title transfer, and mortgage servicing and securitization, can be facilitated by sharing borrower information and digital versions of multiple registries and title documents.It is emphasized that smart contracts have a number of advantages over traditional paper-based contracts. It's important to remember that no matter how advanced technology gets, there's always the risk of IT-system vulnerabilities. The future of smart contracts in banking was forecasted. Many banking processes and legal agreements will be substituted by blockchain-based finance solutions in the future; however the shift will be slow. Incumbent banking institutions are unlikely to completely relinquish control of their databases from unknown third parties. Most likely, groups of banking institutions will use authorized blockchains, and customers will only interact with trusted nodes, and not directly with the ledger.

Current research on smart contracts focuses on technical, conceptual, and legal aspects but neglects organizational requirements and sustainability impacts. We consider this a significant research gap and explore the relationship between smart contracts and sustainability in supply chains. First, we define the concept of smart contracts in terms of supply chain management. Then, we conduct a content analysis of the literature to explore the overlapping research fields of smart contracts and sustainability in supply chains. Next, we develop a semi-structured assessment framework to model the potential environmental and social impacts induced by smart contracts on supply chains. We propose a conceptual framework for supply chain maturity by mapping the relationships between organizational development, sustainability, and technology. We identify smart contracts as a foundational technology that enables efficient and transparent governance and collaborative self-coordination of human and non-human actors. Thus, we argue that smart contracts can contribute to the economic and social development of networked value chains and Society 5.0. To stimulate interdisciplinary research on smart contracts, we conclude the article by formulating research propositions and trade-offs for smart contracts in the context of technology development, business process and supply chain management, and sustainability.

The article is devoted to the analysis on a crypto assets smart contract in the civil law and common law jurisdictions and the implementation of the best practices into Ukrainian law. It is argued that the essence of a crypto assets smart contract is that it is a self-executing contract which is represented and executed by a computer program, remains unchanged and unstoppable after the creation of this contract, and its terms are included in the internal functions of a decentralized database which is not controlled by the databases of the parties to the contract or third parties. It is noted that a cryptoasset smart contract, like any contract, may be declared invalid if the will to conclude it does not meet the conditions for the validity of this transaction, regardless of the form in which this transaction is concluded, as in this case in the form of a computer code. It is also stated that the terms of a cryptoasset smart contract must be specific (clear, unambiguous), feasible (objective), legitimate, and capable of automation (no evaluative terms, such as “reasonable time,” may be used), exist within the blockchain platform (on which cryptoassets are currently transacted) and not involve obtaining and confirming information from outside (in this regard, the terms of force majeure are not specified in the smart contract). The study applies dialectical, comparative legal, formal and logical, and systemic and structural methods of scientific knowledge. It is proved that a smart contract is a contract which is represented and executed by a computer program, the components of which are a computer code, some or all of the terms of this contract which are fulfilled upon the occurrence of predefined events, are stored in an electronic register system which records the result of execution of this program, and the contract itself cannot be changed and is executed in accordance with the programmed instructions of the computer program. The author concludes that the determination of the person who is legally liable when a smart contract fails to perform the programmed function depends on the terms of the smart contract, and in their absence, the provisions of applicable law regarding the legal consequences of non-performance of the contract and liability for such non-performance should be used.

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 and is capable of executing specific task.(Thake, 2018) People relates it more to a piece of code (known as a software agent) that is designed to execute certain tasks if pre-defined conditions are met. Such tasks are often embedded within, and performed on a distributed ledger.”(Stark, 2016) However, if one accepts the contention that smart contract is not merely as a set of computer code but a smart legal contract which contains obligations and legal terms that are enforceable, hence, in programming or writing smart contract, one must ensure that the software developers who design smart contract take note of the legal rules and principles behind the specific type of contract in question. 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. (Khalil et al., 2017)

Smart contracts can automatically perform the contract terms according to the received information, and it is one of the most important research fields in digital society. The core of smart contracts is algorithm contract, that is, the parties reach an agreement on the contents of the contract and perform the contracts according to the behaviors written in certain computer algorithms. It not only needs to make sure about the correctness of smart contracts code, but also should provide a credible contract code execution environment. Blockchain provides a trusted execution and storage environment for smart contracts by the distributed secure storage, consistency verification and encryption technology. Current challenge is how to assure that smart contract can be executed as the parties' willingness. This paper introduces formal modeling and verification in formal methods to make smart contract model and verify the properties of smart contracts. Formal methods combined with smart contracts aim to reduce the potential errors and cost during contract development process. The description of a general and formal smart contract template is provided. The tool of model checking, SPIN, is used to verify the correctness and necessary properties for a smart contract template. The research shows model checking will be useful and necessary for smart contracts.

The development of smart contracts remains in its early stages, with significant differences in underlying programming languages and application platforms resulting in a lack of standardization. This lack of standardization increases the susceptibility to vulnerabilities and associated financial losses. To address security vulnerabilities in smart contracts on the Ethereum blockchain platform, this paper proposes a security audit method based on formal verification. The method integrates an input module, static analysis module, formal verification module, analog execution module, and report and recommendation module, which can accurately discover the security vulnerabilities and logical flaws of smart contracts through formal verification and other analysis techniques, thus realizing correctness detection. During the experiment, the method detects 8 types of common vulnerabilities in 148 smart contracts and marks 21 smart contracts with vulnerabilities. After manual review and analysis, it is found that 17 of these 21 marked smart contracts do have security vulnerabilities. The experimental results show that the proposed method can accurately detect security vulnerabilities and logic flaws in smart contracts through formal verification and other analysis techniques before smart contracts are deployed, thus significantly improving the security of smart contracts and reducing the economic losses that may be caused by code defects.

Blockchain technology has the ability to significantly lower transaction costs while also enabling faster and more secure operations. The financial industry has been influenced by the rapid growth of blockchain technology and cryptocurrencies. Finance is just one field where blockchain technology used for the first time. There are many other Health care, Agriculture, Food industries and many more industries where blockchain technology is being used. The only reason for the for rapid development and trust is decentralization and consensus protocols.With the advent of Blockchain technology, smart contracts came into being and are very popular today, but the question is what and what problems do they have. In this paper the details of the conversation will be done the same. The term smart contract was first used by Nick Szabo in 1997.Smart contract concept, to use a distributed ledger of the Blockchain platform to store contracts. Now smart contracts on Blockchain are like contracts in the real world. The only difference between a traditional contract and a Blockchain-based contract, is that they are completely digital. In fact a smart contract is actually a small computer program stored within a blockchain.Smart contract is a Self-executing and Self verifying block of code(agreements) which is useful for applications involving third party, that can operate independently. This chapter presents the study of smart contracts, how is i evolved. Chapter also discuss about how smart contract is different from the traditional contract from the technical point of view. Development platform are very important to understand to go into depth of the technicality related to Smart contract. paper also explores various Applications and platforms for Smart Contract.

The paper analyzes the legal status of the consumer when concluding and executing a smart contract. The author proves the existence of special risks for citizens associated with the conclusion and execution of a smart contract. In particular, the author considers the risk of a consumer’s misunderstanding of the terms of a smart contract, the risk of a difference between the terms of a smart contract and the terms of a contract set forth in the natural language, the risk of including in a smart contract conditions that infringe on consumer rights (unfair contractual terms), as well as special manifestations of regulatory and operational risks in relation to a smart contract. Currently, in the Russian Federation, as in most foreign jurisdictions, there are no special legal mechanisms aimed at protecting consumer rights from these risks. The “general” mechanisms of consumer protection existing in the Russian jurisdiction are insufficient. Considering this, the author proposes mechanisms for each risk aimed at minimizing its implementation and negative impact on the citizen. The following risk-oriented approach to regulating relations when concluding a smart contract with the participation of a consumer is proposed. A citizen can conclude transactions using a smart contract subject to legislative limitation of his potential losses under a transaction (limiting the transaction price) and the introduction of the proposed legal regulation aimed at minimizing the risks discussed in the paper.

BackgroundThe Health Avatar Platform provides a mobile health environment with interconnected patient Avatars, physician apps, and intelligent agents (termed IoA3) for data privacy and participatory medicine; however, its fully decentralized architecture has come at the expense of decentralized data management and data provenance.ObjectiveThe introduction of blockchain and smart contract technologies to the legacy Health Avatar Platform with a clinical metadata registry remarkably strengthens decentralized health data integrity and immutable transaction traceability at the corresponding data-element level in a privacy-preserving fashion. A crypto-economy ecosystem was built to facilitate secure and traceable exchanges of sensitive health data.MethodsThe Health Avatar Platform decentralizes patient data in appropriate locations (ie, on patients’ smartphones and on physicians’ smart devices). We implemented an Ethereum-based hash chain for all transactions and smart contract–based processes to guarantee decentralized data integrity and to generate block data containing transaction metadata on-chain. Parameters of all types of data communications were enumerated and incorporated into 3 smart contracts, in this case, a health data transaction manager, a transaction status manager, and an application programming interface transaction manager. The actual decentralized health data are managed in an off-chain manner on appropriate smart devices and authenticated by hashed metadata on-chain.ResultsMetadata of each data transaction are captured in a Health Avatar Platform blockchain node by the smart contracts. We provide workflow diagrams each of the 3 use cases of data push (from a physician app or an intelligent agents to a patient Avatar), data pull (request to a patient Avatar by other entities), and data backup transactions. Each transaction can be finely managed at the corresponding data-element level rather than at the resource or document levels. Hash-chained metadata support data element–level verification of data integrity in subsequent transactions. Smart contracts can incentivize transactions for data sharing and intelligent digital health care services.ConclusionsHealth Avatar Platform and interconnected patient Avatars, physician apps, and intelligent agents provide a decentralized blockchain ecosystem for health data that enables trusted and finely tuned data sharing and facilitates health value-creating transactions with smart contracts.