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Simply put, a contract is a promise between two parties. A traditional contract is a legal act made by a multi-party agreement. In the example, "A gives B 4,000 won, B gives A a sandwich," when does "the formation of the contract" happen?
Under the traditional model of contract formation, a contract is made by mutual assent or agreement. In simple terms, the formation of the contract happens when A and B agree to hand over the sandwich in exchange for 4,000 won. Contracts are the product of the will of both parties. Even before exchanging a sandwich for 4,000 won, the formation of contract has happened. The matter of execution is all that remains. Now that the contract has been established, both parties have a performance obligation.
On the way to work, all four contracts are fulfilled almost simultaneously, but technically formation of contract and fulfillment of contract are separate things. This is why Romans said, "A contract must be fulfilled (pacta sunt servanda)."
However, there are contracts in which performance is automated from the formation of the contract, so that non-performance issues are not possible. These are the so-called "smart contracts."
Smart contracts differ from traditional contracts in that they are formed when conditions are fulfilled and are automatically implemented at the same time. Coding of the terms of the contract based on blockchain technology is a digital contract method in which the contract is automatically fulfilled if the terms are met. It is a kind of automated contract system.
If in the past numerous documents were needed before a contract was signed and implemented, smart contracts can be executed automatically as long as conditions (in the form of computer code) are correctly met, so it is tamper-proof technology. Smart contracts allow people to trade in real estate, stocks, and other things and to trade between parties without a third party escrow.
Smart contracts are sometimes compared to vending machines. This is because a vending machine purchase is implemented almost simultaneously with the conceptual signing of the contract.
However, vending machines and smart contracts are inherently different. A vending machine only automates the behavior of sellers who sell drinks. Smart contracts automate the actions of both parties and also automate the signing of contracts. Experts also say that smart contracts exist "solely electronically." There is no face-to-face transaction by humans at all levels of the contract. Naturally, there is no room for human interpretation to intervene, so the certainty of the contract is likely to increase.
The aforementioned Roman adage seems to be being realized through the technology of blockchain. Let's hope the smart contracts will change our journeys to our workplaces for the better.
Shin Chae-eun is a junior associate at HMP Law and a member of the Tech & Comms team.
