Smart Contracts Are the Subject to Regulations and Laws?
On November 27th, the Commodity Futures Trading Commission (CFTC) has released its guide to the smart contracts and announced that they are subject to existing laws, including anti-money laundering (AML) regulations, and the Commodity Exchange Act (CEA), depending on where they’re applied. What does it mean for the companies implementing this technology?
Before we start…
Let’s refresh our knowledge of smart contracts. What is it?
In layman’s terms, a smart contract is a set of self-executed codes that can trigger some certain terms of a contract, and take action in case of occurrence, or non-occurrence of an event. For example, a smart contract can include the elements of a binding contract (offer, consideration, or acceptance).
The concept of the smart contract was first described by Nick Szabo, a computer scientist, about 20 years ago:
“A smart contract is a set of promises, specified in the digital form, including protocols within which the parties perform on the other promises…. The basic idea of smart contracts is that many kinds of contractual clauses (such as liens, bonding, delineation of property rights, etc.) can be embedded in the hardware and software we deal with, in such a way as to make breach of contract expensive (if desired, sometimes prohibitively so) for the breacher.”
It means that smart contracts are nearly impossible to breach by any third-party — only the creators are able to edit the code.
Where smart contracts are applied?
Due to their versatility, smart contracts can be applied in a huge number of spheres:
- eCommerce;
- transportation;
- legislation;
- government;
- and so much more.
The amount of companies implementing smart contracts is enormous, and some projects are specifically tailored to help clients introduce the technology. Precium is one of such startups: it offers a few sets of codes that can be used to create and customize a smart contract tailored to business requirements. That simplifies the task for customers, minimizes time and money required for the elaboration of a specific smart contract.
Should Smart Contract Abide by Law?
As it has been mentioned, smart contracts execute the program written by developers — it means that some codes can be faulty or intentionally malignant. This is one of the reasons for the existing laws and regulations to apply to contracts, no matter which form they take. The fact that coders will be held liable for the contracts they create will protect investors and their capital and minimize the risk of frauds.
Although it may pose hindrances to development and implementation of smart contracts, compliance with local and international legislation will protect companies from further legal and financial problems. No matter who creates the smart contract — the corporate dev team, or a third party — they are officially responsible for the delivered product and consequences of its use. It applies to such projects as Precium, as well: the smart contracts provided by it should comply with regulations and laws to ensure flawless user experience for customers.
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