block will cease to be valid. It is thus exponentially more difficult to alter a prior
entry in the ledger.
3 Concept of Smart Contract
Initially, blockchain technology was applied in the domain of finance and was
mainly concerned with banks and banking. The technology advanced in tandem
with the introduction of the infamous digital currency known as “bitcoin”. Subsequently, new blockchain technologies evolved, such as Ethereum, which provides a
platform allowing for the operation of “smart contracts”
18 There is no universally
established and accepted definition of smart contract but according to the pundits in
the field, they are essentially coded instructions that enable “self-execution” of
transactions. This is made possible by the fulfillment of certain pre-defined conditions which activates the “execution” of the smart contract.
19 It is submitted by the
author that the term “execution” in the present context is nothing but jargon
associated with the concepts of blockchain and smart contracts. In terms of contract
law, it is a misnomer in view of the fact that “execution” means the act by which a
contract is entered into by the parties. It is further submitted that what is meant in the
context of blockchain and smart contracts is its performance and the consequences of
compliance with it or failure to comply. Thus “self-implementation” is a more
appropriate term descriptive of this function.
The self-implementation function can be typically exemplified by the instance of
a marine insurance contract conjoined with a smart contract under which, proceeds
can be automatically paid to the assured upon the eventuality of an insured risk such
as the sinking of a ship. A smart contract utilizes the basic principle often referred to
as “if/then” meaning that if the insured risk materializes, then indemnification is
automatic; that is, the proceeds of insurance are paid without further ado. It is a
transparent process which is immune to any external intervention or control by any
entity. In effect what happens is that a traditional paper contract is transformed into a
computer code which is then stored, replicated, supervised and monitored by the
network nodes, arguably in a virtually flawless manner as no human control can be
exercised over the contract.
In practical terms, the documentation pertaining to the transaction is uploaded on
to a blockchain, and the consequent negotiations and actions taken by the parties are
recorded which are then approved by the system enabling the contract to be
performed and the obligations under it to be fulfilled. It is advanced by the protagonists of the smart contract that the system is efficient, secure and virtually free of
any possibilities for human error to occur, or at least that is reduced immensely.
Furthermore, the smart contract eliminates the need for any intermediaries, human or
18 Bashir (2018), p. 28.
19 Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective
419
entry in the ledger.
3 Concept of Smart Contract
Initially, blockchain technology was applied in the domain of finance and was
mainly concerned with banks and banking. The technology advanced in tandem
with the introduction of the infamous digital currency known as “bitcoin”. Subsequently, new blockchain technologies evolved, such as Ethereum, which provides a
platform allowing for the operation of “smart contracts”
18 There is no universally
established and accepted definition of smart contract but according to the pundits in
the field, they are essentially coded instructions that enable “self-execution” of
transactions. This is made possible by the fulfillment of certain pre-defined conditions which activates the “execution” of the smart contract.
19 It is submitted by the
author that the term “execution” in the present context is nothing but jargon
associated with the concepts of blockchain and smart contracts. In terms of contract
law, it is a misnomer in view of the fact that “execution” means the act by which a
contract is entered into by the parties. It is further submitted that what is meant in the
context of blockchain and smart contracts is its performance and the consequences of
compliance with it or failure to comply. Thus “self-implementation” is a more
appropriate term descriptive of this function.
The self-implementation function can be typically exemplified by the instance of
a marine insurance contract conjoined with a smart contract under which, proceeds
can be automatically paid to the assured upon the eventuality of an insured risk such
as the sinking of a ship. A smart contract utilizes the basic principle often referred to
as “if/then” meaning that if the insured risk materializes, then indemnification is
automatic; that is, the proceeds of insurance are paid without further ado. It is a
transparent process which is immune to any external intervention or control by any
entity. In effect what happens is that a traditional paper contract is transformed into a
computer code which is then stored, replicated, supervised and monitored by the
network nodes, arguably in a virtually flawless manner as no human control can be
exercised over the contract.
In practical terms, the documentation pertaining to the transaction is uploaded on
to a blockchain, and the consequent negotiations and actions taken by the parties are
recorded which are then approved by the system enabling the contract to be
performed and the obligations under it to be fulfilled. It is advanced by the protagonists of the smart contract that the system is efficient, secure and virtually free of
any possibilities for human error to occur, or at least that is reduced immensely.
Furthermore, the smart contract eliminates the need for any intermediaries, human or
18 Bashir (2018), p. 28.
19 Ibid.
Blockchain and Bills of Lading: Legal Issues in Perspective
419