AL Interview: Smart Contracts Could Help Reduce Corruption

Artificial Lawyer recently caught up with Sergey Nazarov, CEO of San Francisco-based SmartContract.com.

Nazarov’s company launched in November 2014 at the DEMO conference in San Jose, which showcases innovative new technology. The company is going strong and has a focus on custom-building smart contracts for its clients. It also has a focus on developing ‘oracles’ or ‘smart oracles’ that allow a smart contract to communicate and transact with external data sources and financial institutions.

We discussed via a Q&A email several key issues related to smart contracts, but it is perhaps the third question that raised the most significant idea: that smart contracts could reduce corruption in nations where there is a weak legal system.

One reason is because smart contracts would be able to operate without the interference of corrupt ‘off-chain’ officials when the smart contract was embedded in a blockchain. Moreover, because a smart contract is generally self-executing/self-verifying and that it would be linked via oracles to all the parties, those involved in a trade could not easily avoid fulfilling the contract, as might happen with a vaguely worded, physical contract that perhaps one of the parties was never certain they were going to fulfil and where the local courts may be unwilling to enforce the exact terms of the contract.


 

1) The concept of smart contracts has existed since the 1990s, however only now are they being taken seriously by businesses, why is this and are there particular businesses you see as ‘early adopters’?

The early adopters will be from industries where trust between counter-parties is an issue, commonly an issue that is created by fraud and the inability to predict/mitigate fraud; insurance, derivatives (commonly a type of insurance) and trade finance are all industries that immediately benefit from solving trust issues.

I think the delay is partly because B2B commerce needed to start happening on the internet in general for people to become comfortable with “web 3.0” smart contracts that actually control payment. A large part of it is that the back end technology needed to provide certain guarantees didn’t exist before Bitcoin worked.

2) Are smart contracts only possible in ‘deterministic’ agreements between parties? E.g. where there are specific financial values involved, or where a certain action by one party must always trigger a certain outcome? Can smart contracts be used in more open-ended and non-deterministic scenarios?

Sure, they can, but they lose much of their value. Open-ended contracts assume that a dispute will be evaluated by people in arbitration or the courts, highly deterministic contracts that can determine performance on their own (self-verification) eliminate this process and its costs/risks.

3) How far do you see smart contracts impacting (both positively and negatively) the legal sector, given that most contracts are produced at present by lawyers?

I think it will have a transformative impact for contracts where clarity of terms is important; a smart contract is almost always clearer than legalese.

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Sergey Nazarov, CEO, Smartcontract.com

I expect they will be used little in contracts where “strategic ambiguity” allows avoiding the discussion of scenarios that don’t need to be discussed for the deal to move forward.

I am thrilled by the transformative effect that smart contracts will have on agreements that exist in a corrupt/non-existent legal system. Replacing all of the contracts that are written with the expectation that they will never be honoured because the other party has no recourse due to a corrupt legal system, would change our now global society for the better in almost immeasurable ways.


 

[Artificial Lawyer would be very interested to hear your views and from other developers on how smart contracts could contribute to a more equitable and transparent business culture, especially in countries with high levels of corruption. That is to say, that smart contracts may not just be more efficient, but they may prove to be a powerful force for upholding the Rule of Law.]

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