What is a Smart Contract?
A smart contract is a self-executing contract in which the terms of the agreement between the purchaser and the seller are explicitly entered into lines of code. The code and the agreements contained therein exist in a distributed, decentralized blockchain network. The code governs the execution and the transactions are traceable and permanent or reversible.
Smart contracts allow secure transactions and agreements to be made between independent, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. Although blockchain technology has come to be largely thought of as the basis for bitcoin, it has developed well beyond the virtual currency.
The goals of smart contracts are to reduce the need for trusted intermediaries, arbitration and compliance costs, fraud losses and the reduction of malicious and unintended exceptions. Smart contracts should be differentiated from smart legal ones. The second one refers to a traditional natural language legally binding agreement which has certain words articulated and enforced in a machine-readable code.
Legal Status of Smart Contract
A smart contract does not actually represent a legally binding agreement in effect. Some legal scholars argue that smart contracts are not legal agreements, but rather means of executing obligations resulting from other agreements, such as technical means for the automation of payment obligations or obligations involving the transfer of tokens or cryptocurrencies.