Smart Contracts are a prominent type of digital contract used by Blockchain. So, how are these Ricardian Contracts different from the Smart Contracts that are presently in use? Let's take a closer look at the differences.
Smart Contracts
Smart contracts, like Ricardian Contracts, are machine-readable contracts, or sets of instructions that govern and steer future actions and occurrences.
Smart Contracts are used in the blockchain sector to ensure confidence during transactions. These contracts may be used to swap money, stocks, real estate, and other assets over the internet. You may achieve this by creating and executing responsibilities between two parties using computer code.
They're an important aspect of the blockchain network's procedure since the parties are all anonymous. Smart Contracts include the following basic characteristics:
Self-verifying and auto-enforcing; executes on its own depending on the instructions supplied in the computer code
Immutable, which implies you can't change the terms if you want to.
The main problem with Smart Contracts is that they are not legally enforceable agreements, which means that if something goes wrong, it will be difficult to prove a case of fraud or scam in a court of law.
The second major distinction is that it is not human readable. Ricardian contracts are readable by both people and machines, despite the fact that they are only code.
Ricardian Contract:
Ricardian Contracts, on the other hand, lay forth the intentions as well as the actions that will be taken as a result of a future legal agreement.
The type of agreement is the primary distinction between the two contracts on blockchain systems.
The first (Ricardian contracts) records a multi-party agreement, while the second (Smart Contracts) implements the activities stated in the agreement.
Smart Contracts are not legally binding, but Ricardian Contracts are. It converts a human-readable legal contract into machine-readable code that the software can understand and execute.
Smart Contracts, to put it simply, automate the activities of a blockchain application. They do, however, have certain limits, as many situations may not provide a clear picture of what would happen next. You can't utilize Smart Contracts to automate something you don't know about in such a situation.
As a result, if an event occurs that is not anticipated in the Smart Contracts' instructions, it might cause substantial complications.
Because a Smart Contract lacks a legal foundation that can determine how to proceed in such a scenario, it simply does not operate in certain situations. In the absence of a legal framework, Smart Contracts also lack the potential to adapt to such eventualities.
The following are the essential properties of Ricardian contracts:
- Available in printable form and human parable
- Program parsable with all forms equivalent in terms of manifest
- Signed by the issuer and both parties
What Kind of Data Does It Contain?
Ricardian Contracts can include everything that can be coded to form a legal contract between numerous parties, as well as for instructions for executing an event or action. The following are some of the most important components of the agreement that may be included:
1. Parties
What is the total number of parties involved? Who are the people who are signing this contract? Who are the people who represent them?
2. An Element of Time
What is the Contract's Validity? Is it valid for a set amount of time or indefinitely? In terms of time, what does it mean? A contract must be made within three months, for example, otherwise, the contract would be null and invalid.
3. Including Exceptions for Various Possibilities
What happens, for example, if one of the parties passes away? Exceptions of a similar nature should be considered.
4. Conditions
You are free to use as many criteria and if/then clauses as you like.
Are They Secure?
They are, indeed. Because they utilise a cryptographic signature, Ricardian Contracts are extremely safe. The hash of each document in the Contract serves as a unique identifier.
What exactly does this imply? This implies that once all parties have agreed on a legal agreement and it has been converted into a machine-readable format, no one may modify it arbitrarily.
This also protects you from a practice known as frog boiling, which is widely utilised in legal agreements.
During the execution of traditional legal agreements, an issuer with the upper hand continuously modifies the terms of the agreement. With Ricardian Contracts, this is not feasible. Private keys can be used to sign Ricardian Contracts.
When you sign the document with the signature of the Contract's issuer, you're creating a readable and legally enforceable agreement on the information provided in the document.
With the use of the private key, it is also feasible to hunt down the persons involved and hold them accountable.
So as you can now understand, Ricardian contracts are a lot like smart contracts, but with a few major benefits – almost like “smarter” contracts. And now that you are able to recognize the differences between the two, you can make a smart decision as well!
Written By – Devika Mishra
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