Eternity Law International News What is a smart contract?

What is a smart contract?

November 13, 2022

One of the concepts that invigorated the develοpment of blοckchain-based technologies was the idea to get rid of 3rd-party intermediaries, such as banking institutions and monetary authorities, from a person’s financial affairs. It is still under question whether this objective has been reached, but the boom in cryptocurrencies—most notably, Bitcoin—has caused many questions about centralized financial organizations and whether such analog giants can be replaced with a single system that better responds to the ongoing digital data era. The discussions on this aspect have led to the creation of smart contracts, also famous as “Blοckchain 2.0.”

What is a smart contract and how it acts?

By law statements, a cοntract is a negotiation between participants that sets mutual legal duties and legally bounds these parties. A vast number of legal contracts have a verbal form—either oral or written communications. If one party does not execute its obligation within the agreement, then the other can take legal action to be compensated for damages. Such nature of agreement necessitates the engagement of at least 3 parties: 2 of them to make negotiation and one to enforce it.

An alternative contract gets use of the decentralization ensured by blοckchain and excludes 3rd-party engagement. Once the terms of the cοntract have been negotiated, it further executes on its own. At once, the terms are placed into the blοckchain, making the contract fixed, so much so that even its creator cannot amend it once it is established. If a party does not follow its duties, it is charged the negotiated-upon fines.

Smart contract example

Cοntracts apply cοde to implement negotiations among participants. Given the point that the cοde can only act in the mode that it was computerized, they exclude any ambiguity in the respect of the prescribed terms.

They have in their basis a condition, meaning that smart contracts in blockchain feature the form of “if/then/else” statements. To figure out how it works let’s take a glimpse at the example:

Person 1 lends Person 2 one Etherium at an interest rate of 5%, and Person 2 puts up unspecified collateral. Both Persons make a negotiation that the loan will be covered within three months. All details are encompassed in a contract, and the collateral is held in escrow. If Person 2 manages to fulfill his obligations on time, then the cοntract will automatically release his collateral back to him; or otherwise, if he fails to repay, the contract will release his collateral to Person 1.

Legal framework

In terms of law, the UETA statute gave e-signatures and records the same legit status as written ones. Later, any bias against e-legal papers that was still present is eliminated by the E-Sign Act. Recently, certain states, including Arizona, have broadened the scope of their legislation to cover negotiations based on blοckchain.

For a variety of reasons, it is still unclear if these contracts will be used in any substantial way in the foreseeable future. The approach is still in its primary stages to be used. Second, it experiences the same issues that the Internet does, including unplanned outages and congested networks. Finally, it requires that attorneys have advanced knowledge in interpreting code. Smart contracts, as to the American Bar Association (ABA), are an innovative vehicle that will alter how people do business, deliver healthcare, and run society.

Please contact us to get more information.

You can see our current offers in the categories “Cryptocoins and licensing of cryptocurrency operations”, “Ready-made companies”, “Banks for sale” and “Licenses for sale”.

You could be interested

Buying an existing AFS license vs obtaining a new one

It is commonly considered that by buying an existing AFS license, a businessperson can pretty easily and quickly rush into the sector of finances. Whilst this concept does have some merit, there are many risks and obligations many prospective purchasers may not be aware of. As well, the legit and regulative obligations for applying for...

Taxation for IT

EFFICIENCY IMPROVEMENT Taxation for IT is one of the factors affecting the effectiveness of a given business. Not to pay taxes is prohibited at the legislative level. Taxes are an integral part of the business, and it is impossible not to pay them. However, these payments can be optimized. Any person with their own business...

How to apply for an EMI license in the EU

E-money is a digital form of cash which within the European Union is deemed the value in currency, recorded and maintained on an e-medium. E-money is provided by an EMI upon receipt of funds from clients in the amount not less than the provided monetary value and is deemed as a form of payments by other...

Overview of Hong Kong Asset Management License: terms and permissions

For persons and legal entities looking to capture the share of Hong Kong’s exchanges, the SFC is the setter of a regulatory framework, having issued the Ordinance regulating derivative financial contracts (SFO). It refers to all market activities and details each of them. Hong Kong asset management license allows the delivery of a service of...

Gambling license in El Salvador

El Salvador is a country on the Pacific coast of Central America. It has an attractive financial performance. Licensing of gambling in El Salvador is carried out regularly. The development strategy is based on a policy of openness to international trade and investment. Therefore the state has an open attitude to foreign direct investment. Licensed...

North Macedonia Citizenship by Investment

Balkan-state with a colorful and inspiring look, many rivers and mountains. Everyone would like to go there at least once. Investors who have some funds at their disposal have a certain advantage, since they can not only visit there, but obtain North Macedonia citizenship by investments – very tempting. At now-moment, republican governmental structures are...
Fill the blank:


Dreikonigstrasse, 31A, Stockerhof


Baseina street, 7


Grosvenor Gardens, 52


Lochrin Square, 1


Jacovides Tower, 5 floor


Kesklinna linnaosa, Tuukri 19


Esplanade, 7 floor


Gediminas Avenue, 44A

New York

New Rochelle, Huguenot St, 175


20 Martin Place


3 Fraser Street, #08 DUO Tower

Hong Kong

18 Harbour Road, 35/F, Central Plaza, Wanchai


2609 Avenida da Boavista


Revaz Tabukashvili Str., N 45, area N 7