As is the case with any emerging technology, there are a lot of questions that those who wish to utilize smart contracts in their daily lives. Smart contracts are a promising piece of technology that will streamline many of the more complicated processes including homebuying and real estate. But, for those who are interested in leveraging smart contracts, but aren’t prepared to make the leap, they have questions: are smart contracts reversible? Are they legally binding? Let’s discuss.
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What are Smart Contracts?
First hypothesized by a cryptographer named Nick Szabo in 1994, smart contracts are a way for you to exchange money, shares, and, importantly for us, property. Smart contracts are computerized protocols to verify and enforce these transactions.
Since there are no third parties required for the smart contract (which is in contrast to traditional contracts), they avoid the services and charges that come with ink and paper contracts. Once the contract has been agreed to and one party pays the agreed amount, they automatically receive their end of the agreement and this transaction is stored on the blockchain.
Are Smart Contracts Reversible?
So, now that we’ve taken a look at what smart contracts are and how they work, let’s get a bit more granular. First, are smart contracts reversible? In simple terms, since smart contracts are digitally written, they cannot be reversed. Why? Well, Szabo conceived smart contracts as a means to facilitate credible transactions—in order to do so, they were designed to be traceable and irreversible when stored on the blockchain. Part of why smart contracts and blockchains provide the security they do is that it is an add-only framework, so once data is stored on the decentralized network, any changes to the existing blockchain would alert the entire network to those changes.
There are times when exceptions have been made, most notably in the DAO Attack of 2016, in which hackers stole upwards of $60 million in Ether due to a vulnerability within the smart contract. The solution was found within an aspect of blockchain known as the consensus protocol or consensus algorithm in which the blockchain network self-corrects to maintain what’s best for itself. In essence, the Ethereum community voted to reverse the transaction history as it concerned the hack. In effect, though this wasn’t by definition a reversal of the contract, it was a correcting mechanism.
Smart Contracts hold a lot of promise for real estate transactions.
Are Smart Contracts Legally Enforceable?
One other major question people have is whether smart contracts are legally enforceable. If you enter into an agreement via a smart contract, is it legally binding? Well, ultimately, it depends. Here’s why:
You may have legal recourse against all parties involved in the development and deployment of the smart contract if you can show the code was inconsistent with your agreement. Leveraging action based on those potential legal rights. What it would take to render the contract legally null is variable from one jurisdiction to another, but while there is currently no US-based government agency that oversees smart contracts, the Commodity Futures Trading Commission has indicated that they are aware of the technology’s emergence.
How can I Use a Smart Contract?
Smart contracts have a future within a number of industries, but the one we’re particularly excited about is the use of smart contracts in the real estate market. Smart contracts can be used for multimillion-dollar deals in a much more streamlined way. To learn more about examples of smart contracts in the homebuying process and how Millennial Blockchain is at the forefront of their application, contact us!