Smart contract Blockchain

Smart contracts were tested in the 90s but the idea of ​​smart contracts can be traced back to the 70s in relation to the need to manage the activation or deactivation of a software license according to certain conditions. Smart contracts have recently become the focus of numerous debates on digital transformation, due to the numerous contexts in which they can find application and because they represent one of the many dimensions of the growing blockchain phenomenon.

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But what are smart contracts?

Smart contracts are defined by our regulation - in the D.L. 14 December 2018, no. 135, converted into law with Law 11 February 2019, n. 12, in art. 8-ter - as "a computer program that operates on blockchain technologies and whose execution automatically binds two or more parties on the basis of effects predefined by them". It is also necessary that they "satisfy the requirement of the written form after electronic identification of the interested parties". With this concept we mean the transcription and translation of a contract, containing the conditions that must be respected in order for the operational definitions to be fulfilled. The logic that is respected is that of "if-this-then-that", or "if this happens then it happens". It follows that the legal support is therefore useful in drafting the smart contract, but not in the verification and activation phase, which takes place automatically.

How do smart contracts work?

The first step is signing a contract. The two parties transcribe the clauses in a smart contract and subsequently, the "smart contract" is recorded in the blockchain. This means that the transaction cannot be changed. At this point the block will have to be "evaluated" by the users of the blockchain through the Proof of Work (PoW) mechanism. The contract will then be monitored by a third-party agent (which can also be an app for smartphones or tablets). When the app sends the signal to the blockchain that one or more conditions have been fulfilled, then the app itself will ensure that the conditions expressed in the smart contract occur automatically. Within a smart contract, there can be as many clauses as necessary to satisfy the participants and cause the operation to complete satisfactorily. To establish terms, participants must determine how transactions and their data are represented on the blockchain, agree on the rules governing those transactions, explore all possible exceptions, and define a framework for resolving disputes.

Differences between smart contracts and contracts governed by the civil code

The main differences between smart contracts and contracts governed by the civil code are: in normal contracts, trust is guaranteed by a third party, which can be that of a notary or a lawyer. In the smart contract, the use of a third party is lost. However, it is clear that some guarantees must always be respected: the code must not be modifiable, the databases and data sources must be certified and reliable and the methods of reading and checking the data sources must be certified; in smart contracts there is no room for the violation of the signed conditions, since their intrinsic characteristics include automatic execution and inalterability. The negotiating agreement, which represents one of the essential requirements of the contract itself (1325 of the Civil Code), remains with the respective parties. There must be, as in normal contracts, a perfect coincidence between the will of the parties, which must be translated into code.

The advantages of smart contracts

There can be several advantages deriving from the use of smart contracts: independence from intermediaries, such as notaries and lawyers, in the verification and approval phase of the contract; unchangeability of the code, which excludes the need for third parties to assess the lawfulness and validity of an agreement; economic savings, largely due to the exclusion of intermediaries in the verification and approval phases; greater precision and reduction of errors, since the smart contract, automatically, upon the occurrence of the established conditions, causes certain actions to take place; generically, simplification of bargaining operations

The points of attention to consider in the use of smart contracts

In addition to various advantages, some elements also emerge to be carefully monitored: coded language: on the one hand, the parties must rely on an IT expert capable of translating the text of the agreement into code, on the other hand on intermediary figures the correct transmission of the will of the parties to the IT figure, in order to avoid misunderstandings or misunderstandings, which would compromise the real will of the parties; interpretation of the contract (relating to the intention of the parties, overall interpretation of the clauses, interpretation of good faith, etc.). automatic execution of the service: it does not leave the possibility for the contracting parties to carry out actions contrary to or different from those foreseen in the contractual clauses, limiting the discretionary power of the parties. It can therefore create difficulties as regards the irrevocability of the agreement and therefore the management of institutions such as: withdrawal, voidability, nullity, resolution.

Smart contracts can be fully equated to contracts pursuant to art. 1321 of the Civil Code?

The art. 1321 of the civil code defines the contract as "the agreement of two or more parties to establish, regulate, or extinguish a legal patrimonial relationship between them". In addition to the patrimonial aspect, therefore linked to the evaluation/economic nature, smart contracts must comply with other requirements prescribed by art. 1325 of the Civil Code: the agreement, the parties, the cause, the object and the form. Among these requirements, the written form is the one that raises the most doubts. The written form finds its raison d’être for two main reasons: Ad substanziam: the form is required for the very validity of the deed. Ad probationem: the form is the only way to prove the existence of that shop. The problem of the written form in electronic documents was addressed by Legislative Decree 13 December 2017 n. 217, containing the amendments and additions to the "Digital Administration Code." The art. 20 of the aforementioned Decree establishes that the electronic document satisfies the requirement of written form and has the effectiveness referred to in Article 2720 of the Civil Code. ("full proof" of the origin of the declarations from the person who signed the document unless disavowed by the latter) if it is signed with a digital, qualified or advanced signature, or, in the case of documents signed with different electronic signatures, if it complies with the technical standards identified by Agid (with methods aimed at guaranteeing security, integrity, unchangeability of the document and traceability of the author). In the remaining cases, the probative value of the electronic document is left to the free judgment of the judicial bodies. Other elements of interest are the issue of the identification of the signatory (and the relative ways in which this can take place, such as, for example, with the electronic signature, or with the use of SPID) for which the AgID is defining suitable requirements to ensure that an IT identification process can give rise to the creation of electronic signatures. Another issue to manage and regulate is that of civil liability, since human intervention is limited: writing the code is in fact capable of triggering consequences following the occurrence of certain conditions. The use of smart contracts is still limited today but their diffusion in contexts dominated by new technologies, where automation and speed of execution are a real differential factor and of which blockchain networks are a clear example, places them at the center of attention of national and international legislation.

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