What Is a Smart Contract?

The term ” smart contract ” has been appearing a lot, lately. (A recent Google search returned more than 4 million hits!) But there is confusion and misunderstanding concerning what this term means.

This post explains what smart contracts are, and what they are not.

A Smart Contract Is Not…

Despite their name, smart contracts are not contracts.

• As concerns form, they are not text documents divided into sections, paragraphs and clauses.
• As concerns substance, they are not statements of parties’ respective rights and obligations in their business relationship.

Furthermore, they are not smart. They do not exhibit intelligence.

A Smart Contract Is…

Today, I consider smart contracts most useful as supply-chain management tools.

Here is a simplified example:

• First, a distributed ledger records a supplier’s performance obligations.
• At some point, the supplier satisfies those performance obligations.
• Then the distributed ledger authorizes payment to the supplier.

Put simply, smart contracts are highly secure, readily available records.

Check out all posts about contracts.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.