The Smart Contract Flaw - Stressing the Need for a Machine Readable Legal Prose - Part 1

in #smartcontracts5 years ago (edited)

In a community where the only thing people seem to talk about are Smart Contracts the automation they would bring about, no one seems to understand the huge flaw this idea carries. Smart Contracts are sure to revolutionize finance and automation as we know it,  there still remains a huge problem that needs to be solved. Since Smart Contracts are neither smart nor contracts, what happens when agreements are not honored? What happens when one decides not to go by the pre-defined rules on the blockchain? 

When all parties remain ethical there will never be any problem. But as we all now that won’t always be the case. 

Let me iterate the problem with a small thought experiment 

Say @jadams2k18 and @crypto.piort get into an agreement, wherein one agrees to reward 10 Steem if the other successfully completes a task, submit an article about #HelpVenezuela. They decide to make a smart contracts that has 10 Steem reserve in its wallet, which can only be withdrawn only if @crypto.piotr successfully sends an article to that address. If both parties abide by the agreement, there seems to be no problem at all. @jadams2k18 gets the article he wanted and @crypto.piotr get his 10 Steem.


What happens if @crypto.piotr does not send the article? What happens if @jadams2k18 does not like the article? What happens if @crypto.piotr decides to send gibberish and the contract readily executes and gives him the reward? 

There appears to be an asymmetry between honoring and dishonoring the agreement. The incentives appear to be leaning towards misusing the terms rather than stimulating enforcement.  

What seems to be missing is a legally binding mechanism that ensures the enforcement of agreement between both parties by rewarding good behavior and penalize unethical ones.  

Let us explore and discuss the topic in greater depth in the following post. Until then, I would love to hear your opinion regarding the following questions that have been raised:

- What do you think the problems are with recognizing smart contracts as legal documents? 

- What can be done to make them irrefutable by law?

- What are the mechanisms that can be used to integrate them with existing frameworks?

Waiting to hear your responses. Keep a look out for the follow up post soon.

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First of all great article @reverseacid. You explained smart contracts and issues with smart contract very well.

There are surely many cases when it comes to smart contracts. There are many possibilities. Suppose "Mr. C" is the customer who is paying for some task and "Mr. S" is the seller or the freelancer who is doing the job. There are many possibilities and ways that people can play with smart contracts. With different kind of smart contracts, there are many loopholes using which Client or the seller can do the fraud.

I think following system can work :

The customer creates the order - the fund will be stored in the wallet - Seller submits the files - Fund will be release once customer confirm the delivery - fund will be released but there will be some freezing time and seller will get the fund after a certain time, let's take 7 days of freezing time.

Why freezing time ?

  • So can customer can test files properly and make sure he got the right things. In case he found some issue he can discuss with the seller.
  • they can discuss the problem and if not come on the mutual agreement then Client or seller can open "dispute" and can involve the third party means the person from the platform they are using and then it can be resolved based on the proof.
  • In the dispute third party/platform person can refund the customer or release to seller without any issue.

I don't know if this is the proper solution. But suggested this based on some most popular site's concept.

Hello @flash07

First of all great article @reverseacid. You explained smart contracts and issues with smart contract very well.

Thanks for the appreciation.

There are many interesting thoughts that I came across in your comment. Let me address them.

I find your analogy about the freezing time quite impressive. It could really help in the arbitration with the need for an actual arbitrator. As you said, if any discrepancies arise, a third party can be introduced to help ease the flow. But the contract has to mention beforehand the existence of such a third party acting as an arbitrator.

Your comment is pretty interesting and practical, but it didn't give a good enough explanation for the question I had posed. How can the contract be held up in a court of law? Or can it in the first​ place?

Greetings appreciated @reverseacid.

I loved the simplicity with which you explained the smart contracts. As simple as accurate.

We must not forget that an intyeligente contract is a set of programming codes. They are programs, elaborated routines following a structure. Conditional decisions: Make "A" if condition "1A" is met, otherwise make "B".

Due to its programmable nature, the limit of the contract's completeness will be on the creativity of those who design it.
Many, thousands of conditions can be added.

In contracts there is a frequently used figure that involves involving a neutral third party. This third party must not have any relationship with either of the two parties in dispute.
The funds would go into a reserve state and these would be released once the third party evaluates whether the delivered product meets the requirements, which should have been sufficiently well detailed by the requesting party.

Your friend, Juan.

Hello my dear @reverseacid, thanks for this post. There really is a dilemma here, questions to be resolved. On my part I can tell you that I need to study the subject in more depth to be able to issue a more or less coherent judgment of the matter, for now, your approach sounds very convincing and in reference to ethics, it is possible that these contracts cannot replace the existing legal agreements person to person.

Dear @reverseacid

Very interesting this topic.
I think that both of you have to know very well how the contract is established and that part stops complying with it because the responsibility is individual but both are involved.

If only two are involved, how to know which of the two is including it if both say they are doing well.
Then, in my opinion, there should be a mediator if either one claims that the other is not complying with the contract.

Well that's my humble opinion.

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Thank you for this excellent post.

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