Building Castles in the Air — Smart Legal Contracts

“If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.” — Henry David Thoreau, Walden

🔮 The Contracts of Tomorrow

Contracts are the foundation of the economy. This economy is adopting technology with an exponential rate. Connections between people, businesses and devices are rapidly growing and real-time. Meanwhile, contracts are disconnected from all this information. They are static paper (or PDFs) documents, that are out of sync with real-time events and are slow and costly to manage.

However, with the emergence of Blockchain and Smart Contract technology, the concept of a ‘Smart Legal Contract’ suddenly isn’t that far fetched. These are human-readable contracts with machine-readable parameters, with clauses that can be executed by computer logic.

The self-aware contracts can then be connected to a variety of Data Sources, like IoT networks, ERPs, Blockchains and other Shared Ledgers. This opens the door for an automation of transactions, live visibility to contract state and other contract management processes like signatures and renegotiation.

Does this sound like a fugazi, a whazy or a woozie to you?

Let’s break it down.

Matthew McConaughey, The Wolf of Wall Street

🤖 The Technicals

Legal Contracts

In order to innovate traditional agreements, one must first understand the definition of a contract. The Draft Common Frame of Reference (DCFR) is a draft for the codification of the European contract law and related fields of law and it states the following:

Article II. 1:101: Meaning of Contract and Juridical Act

A contract is an agreement, which gives rise to, or is intended to give rise to, a binding legal relationship or which has, or intended to have some other legal effect.

In general, a contract can be concluded if the following points are met:

  1. At least two parties are involved — natural persons or legal persons.
  2. There is an intent of the parties to have legal consequences.
  3. A sufficient agreement is reached.

Next, let us compare its properties with those of the novel technology, Smart Contracts.

Blockchain and Smart Contracts

A Smart Contract is a computer program that allows for credible transactions without third parties. These transactions are trackable on the blockchain and have an immutable character. It is, in essence, a piece of code, designed to perform pre-defined actions when certain conditions are met.

The irony of the situation is that it is neither smart nor a legally binding contract. The protocol is subject to the quality of the written code. It can contain bugs and is irreversible. It is, however, able to self-execute transactions, which is why it is a core building block of a Smart Legal Contract.

Smart Legal Contracts

Smart Legal Contracts are legal agreements that can be read and executed by a machine. It contains the legal prose of a lawyer, a digital signature and finally hashes the document.

The Accord Project’s open source technology enables the creation of legally binding contracts that become ‘self-aware’ through connection to external data sources and other information systems. This enables automation of transactions and other contract management processes.

They provide open source software tools that form a triangle of model-logic-language of functionality. The combination of these three elements allow for contract templates to be edited, analysed, queried and executed.


My internship project carries the name Covenant. I aim to research the functionality of Smart Legal Contracts and ultimately find a fitting use case for it in a modern business process.

Covenant is an application layer for Contract Management of Smart Legal Contracts. The three crucial elements of this platform are Digital Identity, Digital Signature & Smart Legal Contract Templates.

It is necessary to integrate a Digital Identity system that is supported by governing institutions. In Belgium, itsme is a popular Federated Digital Identity Provider. It is built by a consortium of leading banks and mobile operators. In the future, this service can be replaced by the decentralised variant: Self Sovereign Identity.

The contracts will be built with Smart Clauses provided by Accord Project. This model is supported by an increasing number of leading law firms. Utilising this framework will aid in the acceleration and adoption of the technology.

Lastly, writing identifying information to a Public Ledger could provide more integrity and data assurance. The Ethereum Blockchain is a prime example of this type of ledger. Because contracts contain discrete information, content of the document can be separately stored on a private ledger.

A glance at the High-Level Architecture of Covenant — It is subject to change over time.

The next publication of this series will cover specific use cases that benefit from this new technology. Additionally, it will contain an analysis of the challenges and pitfalls that arise with them.


🕵️ ‍About Me

I am a 22-year-old Student-Entrepreneur with an expertise in Web Technology and Digital Product Development. My interests include innovation, design, psychology, philosophy and financial markets. I am currently doing a three-month internship at the amazing Blockchain Consultancy Startup TheLedger.

I am always open for a good conversation: Contact me.

TheLedger is part of a larger group called Cronos Groep. It is an ecosystem of businesses and a framework which helps entrepreneurs to build out their business. They provide services like fleet and HR so startups like us only have to focus on our core business. Cronos Groep has holdings in more than 370 companies in various sectors and is actively involved in the start-up of some 20 companies per year.

Within this group, we belong to a smaller group called IBIZZ. IBIZZ stands for IBM, Open source and Innovation. This is where our love for Open source innovative technology comes from. We’re agnostic, but we also have some IBM in our veins.