Smart Contracts: Essence, Legal Nature, Advantages and Disadvantages

Abstract

Amidst the rapid digital revolution and the swift proliferation of blockchain technologies and their diverse applications, smart contracts have become a focal point for researchers, legislators, and economic practitioners alike. These contracts, with their ability to automate the execution of agreement terms without intermediaries, reduce transaction costs, enhance transparency, and accelerate contractual procedures, offer numerous advantages. Nevertheless, they also raise several legal concerns and challenges, including the lack of consensus regarding their legal nature and their incompatibility with traditional contract theory. Additionally, technical challenges arise due to vulnerabilities to security breaches, inflexibility, and difficulties in modification, among others. Accordingly, this study aims to shed light on this type of contract by defining its concept, examining its legal nature, and reviewing its advantages and disadvantages.