A smart contract is essentially a computer program stored on a blockchain that automatically executes an agreement once predefined conditions are met. An Example: A shipping contract that automatically releases payment to a supplier once a delivery is confirmed on the blockchain.
The obvious benefits of smart contracts include prompt compliance with contractual obligations and cost savings since intermediaries such as brokers are not required. However, some of the pitfalls of such contracts include their inflexible “if-then” logic which may not leave much room for nuance and varying interpretations. Another issue is governing law as these contracts operate globally and it is not clear which country’s law would be used to interpret terms of the contract in case of a disagreement/dispute.
Smart contracts offer huge benefits but in view of the aforementioned legal uncertainties, businesses should consider appropriate legal safeguards.