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Filling in the Missing Piece of Smart Contracts

Smart contracts, self-executing legal agreements that are powered by blockchain technology, have begun to prove their worth through various use cases. However, mainstream use of smart contracts still seems a way off, despite their evident potential. This is because businesses continue to face various constraints that prevent widespread adoption.

Barriers to Smart Contract Adoption

There is vast complexity in generating, deploying and managing smart contracts. Many businesses are still only just discovering the power of blockchains. Implementation will be a far more rigorous step, involving time and financial investment. Also, many organizations are required by law to have a legal contract for every transaction performed.

The smart contract is only the execution of an agreement that already exists between parties and is not, in itself, the basis of the deal. Additionally, smart contracts are encrypted and unreadable by humans, so a smart contract does not represent a legal agreement that can be easily read and audited by a human. 

Complex transactions are dependent on the parameters and rules defined in the contract. If circumstances change and parties agree to something different, paper-based agreements can be easily altered. Smart contracts are not so flexible. Current use cases of smart contracts work well in an “if-this-then-that” scenario but become cumbersome in more complex situations.

OpenLaw recently attempted to test these constraints by coding tax law into an employment-offer letter using smart contracts. However, this attempt concluded that the smart contract is unable to address all the complexities of the use cases. 

Ricardian Contracts

The Ricardian contract was first conceived of by financial cryptographer Ian Grigg in the 1990s. It is a contract that is represented both in plain text and in digital code. The plain text representation can be read by humans in the same way a paper document can be read, while the digital version makes it readable by machines. It is digitally signed, meaning it has the same basis in law as a standard legal contract.

In 2015, Grigg produced a paper discussing the intersection of Ricardian and smart contracts further. He defines the role of the Ricardian contract as a document that attempts to recognize the intent of the agreement between the parties, while the smart contract is the machine that executes that agreement. Converging the Ricardian contract together with the smart contract creates a more complete digital representation of a legal contract and its execution then when each is used separately. One such example of this already in practice is seen in OpenBazaar, a blockchain marketplace using Ricardian contracts in the invoicing, acceptance and payment processes.

RASC Protocol

A further element of the real-life contract not yet explored by these solutions is adaptability. Real-life contracts are frequently subject to amendments, usually due to changes in circumstances or situations not foreseen by the original agreement. To incorporate the element of adaptability into smart contracts, blockchain company SciDex is developing a Ricardian Adaptive Smart Contract (RASC) protocol.

The SciDex protocol addresses challenges faced in the adoption of smart contracts. The Ricardian element produces a legible contract document that can be audited by a human. The adaptive element means that the contract can be changed according to circumstances. Finally, the smart contract mechanism performs the automatic execution of the agreement.

In this way, the RASC protocol can be deployed by businesses in areas such as trading, to ensure compliance with the requirement for legal documentation to support the transaction. The system also allows for input from oracles — nodes that can verify real-life occurrences that influence the execution of the agreement. 

Example Use Case for RASC Protocols

SciDex is already proving one use case of the RASC in the SciDex Marketspace, a decentralized exchange for scientific data. Users can access a collection of scientific data, as well as monetize their own contributions.

For example, an agricultural company is conducting a scientific study to assess the benefits of a particular seed treatment on its seed products in four different locations. In addition to collecting data from growers, the company also wants accurate data about prevailing conditions such as climate and soil quality.

The SciDex Marketspace allows the company access to meteorological and soil quality data available on the platform and can also put out a call to action, asking for contributors to provide data that may be available to them. The data exchange transactions are governed by RASC protocols that represent the real-life agreements between the parties over the use of the data.

Smart contracts are still very much in the infant stages of maturity. However, there are plenty of innovators working to accelerate development and overcome issues like corporate compliance. The current pace points to the possibility of mainstream adoption by businesses happening sooner, rather than later.

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