We belong to the 21st century, the era of technology. Innovators are trying every conventional method to convert our daily transactions from cash into a digital method day by day. Nowadays the currency is digitized, the education system is running through e-platforms. Even feedback systems, doctor’s consultancy, booking systems are using electronic methods to make the process easy and handy.
Then, why not the contracts or agreements are done without any paper? Here comes the concept of Smart Contracts which refer to the computer protocols that digitally facilitate the verification, control, or execution of an agreement. It uses a controlled ledger system (blockchain) to store data on public databases and perform all transactions without involving any third party.
In 1994, Nick Szabo, an American cryptographer and computer scientist first described the concept of ‘smart contract’. But, only after blockchain became widespread throughout the world in 2008, people understood the applications of smart contracts in daily life.
Belarus was the first country to legalize smart contracts in 2017. Soon the developed countries like the United Kingdom, United State of America, South Korea, China, Russia adopt the Smart Contract system.
India as a developing country is not lacking behind to recognize the potential of blockchain technology. If a country has a positive response towards blockchain technology, it will also accept Smart Contracts with open arms.
Given the current situation with the COVID-19 pandemic, it has become imperative for people to minimize social contact when interacting with each other for performing various activities or transacting things with each other, which can be done with the help of Blockchain and smart contracts as they are digital in nature.
How do Smart Contracts Work?
The smart contract is a cryptographically secure computer code. Similar to traditional paper-based contracts, smart contracts contain rules and penalties around an agreement and automatically enact those commitments. The contract terms and conditions are written in the code itself. Smart contracts define and verify every transaction against the terms and automatically execute them.
The key features of smart contracts are-
- Once the smart contract is signed, no one can modify its terms and conditions.
- Physical documents are not required to commence and complete any transaction.
- The smart contract encrypted the transaction details but saved its user as anonymous.
- Moderators can track the activity any time, but cannot control the transactions.
- Smart contracts are irreversible.
- Many smart contracts can also be integrated together.
The main components of a smart contract are termed as objects. There must be three objects in a smart contract – the signatories, who are the parties engaged in the smart contracts that use digital signatures to approve or disapprove the contractual terms and conditions; the subject of agreement or contract; and the specific terms and conditions.
Fields to Use the Smart Contracts in India
In India, Smart contracts can be used in a variety of fields, from voting systems to supply chain & health systems to financial services. Its implementation will save lots of time and make the system transparent as there will be no third-party involvement. The Smart Contract process is also cheaper than the conventional paper contract method.
National voting system
Smart contracts provide a secure environment to conduct the voting system which is less susceptible to manipulation. Votes using smart contracts would be ledger-protected in crypto codes, which is extremely difficult to decode in any circumstances.
In such conditions, smart contracts could increase the numbers of active voters, which is normally low due to the inefficient and manipulated system that requires voters to stand in a queue, show identity, and give the vote in forms or EVMs. The voting system, when transferred online using smart contracts, can increase the number of participants in a voting system, conduct it in very little time and with transparency.
Traditionally, supply chains are suffering due to paper-based systems where the forms have to pass through multiple channels and persons to get approvals. This laborious process is full of risk of fraud and loss of money.
Blockchain can rule out such risks by offering an accessible and secure digital version to users involved in the chain. Smart contracts can be used for inventory management, automatic payment collection, and services.
Smart Contracts can reserve the health records of patients with an encoded private key. Only specific individuals would be allowed to access the records for privacy concerns.
All hospital bills of patients can be stored on the blockchain and through an automatic system, it will be shared with insurance companies as proof of service. The smart contracts can be used for different activities, such as managing hospital supplies, supervising drugs, and regulating compliance.
Smart contracts help to metamorphose traditional financial services in various ways. In the case of insurance claims, they perform error checking, routing, and transfer payments to the user from the company if everything is found accurate.
Smart contracts incorporate AI inbuilt high-tech tools for bookkeeping and sort out the possibility of infiltration of accounting records. They also allow admins to take part in decision-making in a transparent way.
Smart Contracts can be used for issuing Govt. Certificates like Birth Certificates, Death Certificates, Caste Certificates, Job Certificates etc. Completion of an educational course can be awarded through a smart contract. National Identity documents can be encrypted in a Smart Contract as a piece of code.
Research and Record-Keeping
Research can be conducted confidentially and securely using smart contracts. Details of participants in the research are recorded in a crypto secured code.
This Smart Contract Technology may help the nation to keep the records of individuals in a key for Survey Purpose.
Viability of Smart Contracts in India
Indian jurisdiction has not yet allowed its financial institutions to accept bitcoin transactions. Since bitcoins exhibit a peer-to-peer transactional network, the fact that it is illicit questions the viability of “Smart Contract” in India.
However, In Indian Contract Act, 1872 section 10 states – “All agreements if prepared by the free consent of parties suitable to contract, for a lawful judgement and with a lawful object, and are not hereby definitely declared to be invalid.”
Therefore, legally, two parties can sign a contract with or without involvement of third parties. By statement, the Indian Contract Act 1872 allows Smart Contracts.
Also, in sections 5 and 10 of the Indian Information Technology Act, 2000 legally approve digital signatures and consider a contract formed through electronic means as valid and possible.
Though Indian law allows for digital contracts, Ponzi schemes facilitated by blockchain raise questions about the viability of this technology to safeguard people’s interests.
Since Smart Contracts do not involve a third party to interfere, fraud-control is a real concern. But, according to section 65B of the Indian Evidence Act, 1872 digitally signed contracts are acceptable in a court of law. Therefore, the government can interfere to resolve the disputes between participants. Also, sections 17, 18, and 19 of the Indian IT Act, 2000 allows controls from national and foreign governing authorities.
The future of India lay down in the hands of Smart Contract Technology. We can grow faster and develop quickly using this e-technology. To make the processes more handy and transparent, it is the golden time to adopt Smart Contract Technology.