Are you a LatAm based entrepreneur and would like to incorporate smart contracts into your business?

What are smart contracts?

A smart contract is an agreement that can automatically self-execute when predetermined conditions are met. Smart contracts are programmed as a computerized transaction protocol which is configured to recognize an event that triggers execution (i.e., if X happens, then Y takes place) and can operate or be stored on a blockchain network. 

What are smart contracts used for?

Smart contracts can be utilized in any instance where it is possible to streamline or automate a process without the participation of an intermediary. For example, in the real estate sector, mortgage brokers, real estate agents, and escrow companies have found smart contracts useful for deal closings or the release of escrowed funds. Governments have successfully used smart contracts for secure and accurate data recording and in reducing auditing, reporting, and accounting costs. Smart contracts have also been found to streamline the financial services, trade and insurance industries, by tracking values and making payments. 

What are the advantages of a smart contract?

Some of the advantages of utilizing smart contracts include:

1. Autonomous – smart contracts do not require third-party facilitators, which provides autonomy and independence to the parties.
2. Cost Reduction – given that smart contracts do not require intermediaries, they eliminate the cost of third-party facilitators and those required for a transaction to be completed.  
3. Transparency and Trust – smart contracts are encrypted and allow all participants to have access to the same immutable record at all times. Through the use of Distributed Ledger Technology (DLT), a copy of the relevant ledger is distributed to each node on the network, thus allowing for independent verification, and as a result, trust and transparency.

Aspects to take into account when using smart contracts:

As you consider using smart contracts, it is important to work with trusted sources of data and reliable developers.

1. Sources of External Data – although smart contracts can operate autonomously, they still require external information to function. For example, if a smart contract indicates that Person A should pay Person B after a certain event occurs, the smart contract requires information to determine when the relevant event occurs. Typically, this issue is resolved through oracles – i.e., data feeds that make off chain or real world information sources available to the smart contract.
2. Coding – To the extent coding mistakes, vulnerabilities, and bugs are present in a smart contract, they can be exploited by hackers and bad actors.  As a result, it is important to work with a trusted developer and test the code as the smart contract is being developed. Working with a third-party auditor before the smart contract is deployed can ensure that it follows code security best practices.   

Are smart contracts enforceable?

Generally speaking, if there is a disagreement between the parties to a smart contract, they can bring their dispute to a court as long as the smart contract meets the attributes which make a contract legally binding and enforceable, such as contemplating an offer, an acceptance and the related consideration. The attributes which determine whether a contract is binding and enforceable may vary based on the country or law that applies. A qualified lawyer can help you ensure your smart contract is enforceable in the appropriate jurisdiction(s).  

If you own or run a LATAM based business and would like to learn whether your business can benefit from using smart contracts, let us know! Our lawyers admitted to practice law in multiple jurisdictions can help ensure that your smart contract is valid and enforceable.