Video 3: How live contracts foster collaboration between humans and computers

In this week’s video Arnold Daniels, co-founder of LegalThings, explains how live contracts could serve as a means to collaborate for humans and computers and how they can complement each other.

‘What smart contracts are for Ethereum, live contracts are for LegalThings One’, Rick Schmitz, co-founder of LegalThings One, recently stated. Software and developer guru Arnold Daniels tells us in the third video in this series why live contracts should be embraced by humans.

Different blockchains

Last week, we have seen how you can use the blockchain in a deterministic game in a distributed matter. In order to make this work, everyone has to follow the same set of rules. ‘That’s fine if you want to play one game, but it’s getting difficult if you want to play, say, both Robot Turtle and chess at the same time’, Arnold says. ‘To make this work, you need two different blockchains.’

‘Another approach is to take an action which adds certain rules on the chain.’ According to Arnold, there are two straightforward ways to do that. ‘We can add these rules to an existing language, for instance English, so that humans can download these rules, read and understand them and play the game’, Arnold continues. ‘However, in that case, the blockchain itself is not helping, nor validating any action that can be put on the chain. That’s up to humans.’

Smart contracts

That brings us to the second approach. ‘By encoding these rules as computer instructions’, Arnold says. ‘Now the blockchain is able to validate as an action can or cannot take place. This is what happens with smart contracts.’ The problem here, however, is that humans involved lose track, because they don’t understand the written language among computers. ‘To solve this, we still need the natural language instructions.’

However, it is still difficult to play this game, knowing that only few people understand the rules of chess. Arnold continues: ‘Hence, you want some application to show you the state and the moves that can be taken.’

Live contracts

Imagine having a blockchain next to the rules on the side, in a book or in a contract. The rules are encoded in a smart contract on the chain, having an application displaying the state that applies those rules. The only problem is that these have to be sync. And how can you be sure that when you read the rules on paper, the exact same text is encoded in smart contracts? This is the moment when live contracts come into play.

‘With LegalThings One, we have taken a different approach, using finite state machines. The advantage is that you can turn contracts into a graphs which can be understood by humans, so that you know the rules in advance’, Arnold says. ‘Additionally, these can also be understood by computers, so that they can validate the rules. Last but not least, they can display the current state and show that the actions are allowed.’ Arnold sums up: ‘Instead of having three different systems that have to be aligned, we have got everything we need encoded in a single live contract.’

Next week, we discuss how a live contract forms its own blockchain and what the advantages are.