[Op-Ed] Smart Contracts vs Traditional Contracts — Key Differences?
Before dig into the details, it might be a wise idea to recap what a contract represents first of all.
A contract can be described as an agreement with specific clauses between two or multiple parties where they are committed to trade one element of value for another. Contracts are usually legally protected and enforceable by law. Additionally, in order to a contract be valid, it has to be within legal boundaries, therefore ,it can be enforced.
Societies have been using some form of contracts for millennials. Traditional bilateral written contracts which are manually signed by the two parties, might be the most common among them. Any party can manually modify these contracts at any point in time. Even, it might require the validation of a third party. So, the key difference between traditional and smart contracts is the requirement of any third party during the creation of the contract.
On the flip side of the coin, smart contracts are self-executing and digital contracts that run when predetermined conditions are met. Smart contracts cannot be changed once they have been created since they are protected by the blockchain, and they are also traceable. That’s why these “intelligent” contracts have an upper-hand over to its traditional counterparts.
Not requiring any authority or a third party to authenticate the contract is the biggest advantage of smart contracts. So, for a particular transaction, both parties involved in the contract save time and money. Furthermore, self-verification by the blockchain is another key advantage of smart contracts. Where traditional contracts can be manipulated, if not properly protected by law, smart contracts are securely stored on a blockchain and almost impossible to temper with. All clauses are timestamped and the ledger is distributed across many nodes within the network which prevents forgery or hacking.
Also traditional contracts can be done on behalf of both ends by one party, without the other party having any clue. However, smart contracts require authentication through a digital private key which is only owned by the person who owns it. So this heist is also impossible to pull off. That is why smart contracts are more fast, transparent, secure, authentic and most importantly, once the trade is done, it self terminates itself which means you don’t have to do anything else to maintain the contracts after creation.
May be the only issue smart contracts has is that they are pseudonymous since they are stored on a blockchain. Simply speaking, transactions made on a blockchain use wallet addresses for the parties involved but no identities are revealed. Therefore, in case of a disagreement, smart contracts cases are almost impossible to take legal actions against each other as the only information known about the parties are their wallet address and not their identities. There are some ways to solve this issue, like KYC requirements, which makes the user verify themselves. But it might not work in all the cases and users tend to have negative impressions for it since it is a centralized trait.
Every passing day more industries are leaning towards using smart contracts instead of regular contracts. Smart contracts are gaining more popularity and tractions due to the better qualities it has over traditional ones . They are cost effective, secure, traceable, and authentic, making them very suitable and lucrative for many industries. However, traditional contracts also have its respective advantages. So, maybe the future of contracts could be “hybrid” contracts, where the best of the two worlds meet, smart contract’s automation and traditional contract’s credibility!
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