Babbitt Column | On the Similarities and Differences of Traditional Contracts, Electronic Contracts and Smart Contracts

Abstract: The three forms of contracts are products of different productivity conditions and will coexist for a long time.

Keywords: contractual agreement, intelligence, similarity, source, source, transaction cost

One of the signs of the continuous development of human civilization is the gradual contractualization of the relationship between people and people. The contract establishes the whole process of the establishment, change and dissolution of the rights and obligations between the opposite parties. The form of the contract also goes from verbal to external carrier (the peak of the development of external carriers is paper as a contract carrier), from the tangible to the development of electronic data. With time as the axis, the contract can be roughly divided into three stages: traditional contract, electronic contract and smart contract. These three stages are not substitutes, but coexistence. Different contract expressions adapt to different people, regions, and time and space. . The form of contract is a mapping of productivity at each social stage.

The similarities and differences between traditional contracts, electronic contracts and smart contracts will be the focus of this paper.

First, the concept analysis

Traditional contract

The traditional contract we are talking about is the contract between the opposite person and the common compliance clause made by the two parties or parties to determine their respective rights and obligations. From the perspective of jurisprudence, the legal characteristics of traditional contracts are: two or more parties with equal legal status mean a consistent agreement; contracts for the purpose of generating, changing or terminating rights and obligations; contracts are a civil legal act. Specifically, a valid traditional contract (contract) contains the following contents in addition to the meaning ability expression and the meaning autonomy principle: A. The contract body: Party A and Party B, which includes natural persons. There are also legal persons and institutions; B. Contract terms: stipulate the rights and obligations of both parties; C. Dispute resolution mechanism, when there is a breach of contract, or when the parties to the contract are ambiguous about the terms of the contract, the arbitration institution and the judicial body are required to decide the rights and The attribution of obligations.

2. Electronic contract (contract)

What is an "electronic contract" and no accurate legal definition has been found. At present, there are mainly two laws in China to clarify the legal status of “electronic contract”—the “Contract Law of the People’s Republic of China” and the “Electronic Signature Law of the People’s Republic of China”. Articles 10 and 11 of the Contract Law of China stipulate that the data telegram form is a written contract: (Article 10) The parties conclude the contract in written form, oral form and other forms. Where the laws and administrative regulations stipulate that they are in written form, they shall be in written form. Where the parties agree to use the written form, they shall use the written form; (Article 11) the written form means that the contract, letter and data message (including telegraph, telex, fax, electronic data exchange and e-mail) can be tangibly represented. The form of the content contained. In addition, the Hong Kong Electronic Transactions Ordinance (Cap. 553), in the definition and regulation of "electronic contract" ("ETO"), legally recognizes electronic contracts: (a) any use of electronic records to establish any A contract shall not be used to negate the validity and enforceability of the contract solely for the purpose of electronic recording; and (b) in the case of contract formation, where the offer or contract is expressed in whole or in part in electronic record, it shall not be An electronic signature associated with or logically associated with the electronic record is an electronic signature that denies the legal effect of the electronic signature.

According to some legislative practices and related regulations at home and abroad, such as: UNCITRAL Model law on Electronic Commerce, US Uniform Computer Information Exchange Law, Electronic Signature Law, Hong Kong, China The Hong Kong Electronic Transactions Ordinance and the Mainland China's "Contract Law" and "Electronic Signature Law" can make a preliminary definition of "electronic contract": [1] The parties reach through electronic information networks and electronic records. A contract for the establishment, alteration, or termination of civil rights and obligations. Formally must be established by means of electronic records, which refers to an electronic agreement between equal subjects under the network conditions to achieve a certain purpose, through the data message, e-mail and other forms of clear mutual rights and obligations.

3. Smart contract

"Smart Contracts" has two keywords, one is "contract" and the other is "smart". The first thing to clarify is that "smart" here is not the same concept as "intelligence" in artificial intelligence. In the English expression, "smart" is used in smart contracts, while artificial intelligence uses "intelligence". In fact, Didi taxis and Uber are the prototype of smart contracts. Customers place orders, drivers receive orders, and orders are irrevocable under normal circumstances. Why is it a prototype? The reason is that the contract between Didi and passengers can be cancelled in many cases.

Then we assume that there is a situation in which all the operating vehicles of Didi are automatically controlled (or intelligently driven) by the system. This system is completely connected to the blockchain technology, and passengers must pay for the ride after placing the order. The drip-operated vehicles unconditionally sail to the pick-up location according to the order information and then deliver it (even if the empty car must be carried), so that no matter what the situation, the drip also fulfills the obligation to leave the car, and the passenger pays the corresponding consideration, each The car and the passengers who place each order are distributed nodes, which is in line with the concept of smart contracts.

In principle, to explain smart contracts, smart contracts are not mysterious. [2] It is a set of promises defined in digital form. It is a small computer program stored in the blockchain that automatically executes the terms of the contract. The set of promises here is a series of codes consisting of Roman words or numbers. The information contained in the code refers to the commitment of the parties to the contract to control the rights and obligations of the two parties on the big data platform; whether the agreement between the two parties can be carried out or the implementation of the program is completely based on the logic function, this logic function It is a switch that triggers whether or not the agreement is made. If so, the transaction proceeds, regardless of whether the parties are willing or not, the program will continue forever until the purpose of the code is designed. Since all kinds of events can happen in real life, the content of mutual agreement will change. If the smart contract ignores these facts, it will be very rigid. So in terms of adaptability, smart contracts are not smart.

Smart contracts are smart enough to explain smart contracts technically. The computer terminology in a smart contract is a procedural specification of syntax, semantics, and timing in communication. It is divided into three parts: compilation, storage, and execution. First, the parties to the transaction formulate the contract-related matters and the rights and obligations of both parties based on the transaction content, and the developer writes the corresponding digital code in a program called Solidity. Second, the digital code is shared on the Ethereum- At present, the largest support platform for smart contracts in the blockchain can be seen by all nodes in the whole network; finally, its execution process is similar to logic statements. When a certain condition triggers the execution button, it will be automatically executed. An operation, until the contract is completed, is similar to the above example of the drip billing, the transaction proceeds, regardless of whether the parties agree, the program will continue until the purpose of the code design.

Second, the traditional contract, electronic contract and smart contract similarities and differences

1. Similarities and differences between carriers

The so-called carrier difference refers to the physical similarities and differences carried by the contract content. For traditional contracts, electronic contracts, and smart contracts, the most obvious similarities and differences are in the carrier. From the time when human beings entered the civilized period, the contractual carriers between people were basically presented in physical form, from the initial verbal agreement to bamboo slips, sheepskins, sables, papers, etc. Through these carriers, people and people The contract was recorded, the economic life of mankind was traded and enriched, and the culture was preserved and spread, which profoundly affected the development of the social age.

Today, due to the development of productivity, the contract provides a variety of forms of expression, which is the emergence of electronic contracts and smart contracts. Electronic contracts use computer binary algorithms to generate various text contracts. The information conveyed is basically not much different from traditional contracts. Because it is electronic text, the delivery and preservation of contracts are much better than traditional contracts. Of course, smart contracts are also generated based on electronic computers and must also be attached to computer hardware and software. The carrier that smart contracts rely on is blockchain technology, which is the core of smart contracts. The difference in traditional contracts, electronic contracts and smart contract carriers reflects the advancement of social productivity, which is also the carrier difference presented by the three visual physics.

2. Different sources of law

The so-called legal source similarities and differences refer to the source of the contract or the external binding force. For traditional contracts, the traditional custom, the authority of the tribal leader is its original source, and then the national law is backed by its violent organs to maintain the validity of the contract. For example, the Hammurabi Code and the Roman Law detail the origin, content and effectiveness of traditional contracts of that era.

Time has entered the present, electronic contracts have emerged with the development of information technology. With the widespread use of e-commerce, electronic payment and other application scenarios, the development of electronic contracts is also maturing. Some countries and international organizations have also developed relatively complete electronic contract laws to regulate civil and commercial activities between different entities, such as: UNCITRAL Model law on Electronic Commerce, the United States. "Unified Computer Information Exchange Law", "Electronic Signature Law", Hong Kong "Hong Kong Electronic Trading Regulations" and "Contract Law" and "Electronic Signature Law" in mainland China. Among them, the "Contract Law of the People's Republic of China" has detailed provisions from the form of the contract, the validity of the subject, the content of the contract, the execution of the contract and the liability for breach of contract.

The generation of smart contract law sources is more complicated. Since the smart contract is based on blockchain technology, its generation is completely based on the agreement of both parties. People from different regions and different countries can form a contract to conclude a transaction. The creation of such a contract is not caused by the laws of the country, and the execution of the contract is less. The external binding force is a necessary condition, and the state's violent organs are not required to guarantee the execution of smart contracts, but the self-creation, self-fulfillment, and self-responsibility between the parties. [3] Therefore, we can regard smart contracts as a self-help behavior, and can also be understood as “the law allowed by individuals without legal coercion and without the assistance of personnel to prevent or remedy civil negligence. behavior". In fact, for smart contracts, no country has established comprehensive laws and regulations to define and restrict them, but the operation of smart contracts does not have fundamental technical and legal defects. This is the similarity and difference of the source of law. If you want to find certainty in the source of smart contract law, "code is law" can be understood as the source of smart contracts.

3. Connotation and similarities

The so-called intension and similarity refers to the inherent logical difference of the contract. The inherent logic of traditional contracts and electronic contracts is the result of a series of consultations between the parties, which is the result of the game and compromise between the two parties. Such a process is not automated and is a bargaining process. It requires the expression of the party's meaning, and the expression of expression is reflected in the offer of the offer and acceptance of the promise during the formation of the contract. From the perspective of connotation formation, the logic of the formation of traditional contracts and electronic contracts is contact-consultation-consultation (contract). But the smart contract is different, it is inherently logically certain, and the meaning is absolutely consistent. That is to say, the intelligent contract is a legal contract realized by blockchain technology. It converts the written legal language into a technology that can be executed automatically. It is a new type of contract with commercial value. String of code.

[6] In smart contracts, the early and late execution of contracts are concentrated in the computer algorithms (ie, code) behind them. The blockchain establishes a trust consensus on a global scale through mathematical algorithms combined with cryptography. This trust is global, anonymous, and cannot be modified at will. The consensus algorithm of the blockchain and the encryption algorithm can ensure that the smart contract is not tampered, so the execution of the smart contract is guaranteed. At the same time, due to the certainty improvement, certain contractual obligations will not exist, such as performance mode, performance of defense, remediation and guarantee, etc., which greatly simplifies the contract content and makes the fulfillment of the contract simple. This is the difference in meaning.

4. Similarities and differences in transaction costs

The so-called transaction cost refers to the social resources that need to be consumed in the process of contract execution or the realization of its trading objectives. The core is the difference in efficiency and the increase or decrease of carbon emissions. [4] Traditional contracts and electronic contracts are created by a series of contractual agreements, from labor contracts to trading contracts with suppliers, as well as rental sales and purchases of equipment, including employment contracts, supply contracts, sales contracts, etc. Lawyers and judicial personnel constitute the peripheral resources of the execution system of such contracts. We can see that the transaction costs required are not low, whether it is the conclusion of the contract or the execution stage of the contract. For any lawyer with legal experience, the transaction costs will increase greatly if traditional contracts and electronic contracts are not fulfilled.

However, the smart contract is executed by the technical code, and the conclusion, performance and accountability of the smart contract are all completed by technology, and the human factor is greatly reduced, and the resulting transaction cost is also greatly reduced. Therefore, based on blockchain-based smart contracts, transaction costs are greatly reduced or eliminated compared to traditional contracts and electronic contracts, making smart contracts more efficient, achieving shorter trading times, requiring fewer social resources, and more competition. force.

In the author's view, a series of code in the smart contract makes the contract exemption from the contract matching or negotiation process. The process of code writing is the process in which the contract transaction occurs in advance. For example, traditional contracts and electronic contracts are like traditional markets. Completing a transaction requires the buyer and seller to meet, then bargaining and finally completing the transaction. The completion of the transaction has strong time and space restrictions, and the contract is lengthy. However, smart contracts are like online auctions. All information, prices, specifications, original owners, etc. of the auction items will be published online before the auction. Under such conditions, the buyers and sellers do not need to negotiate too much, so the transaction process is obviously It is simpler than the previous traditional transaction process.

5. Applicable subject similarities and differences

The so-called applicable subject difference refers to the difference between the contract relatives and the difference between the specific counterpart and the unspecified counterpart (distributed). According to Article 2 of China's "Contract Law", a contract refers to an agreement between an equal person's natural person, legal person, and other organization to establish, change, or terminate the relationship between civil rights and obligations. Therefore, for traditional contracts and electronic contracts, the establishment of a contract must have two or more opposing parties, thus creating the legal effect that the contracting parties intend to achieve. Both parties to the transaction usually have to know each other in detail, investigate, and then generate the desire to trade, and generate trust in the transaction.

However, smart contracts go beyond traditional contracts and electronic contracts in form. [5] Smart contracts do not use third-party trading institutions as trading center models, but directly adopt peer-to-peer trading models. At the same time, blockchain technology relied on smart contracts. It is a decentralized distribution, and each node can have all the blockchain data, so that the parties to the contract are unspecified relatives. This relative person can be either a familiar person or an unfamiliar relative in any corner of the world. In this way, the contract party of the smart contract can get rid of the limitation of time and space, so that anyone can become the appropriate subject of the smart contract. Even if a node in a smart contract is attacked or crashed, it does not affect the operation of the contract and each node can verify the legitimacy of the contract, and the agreement of the parties can maintain stability. This is different from the applicable subject.

6. Execution effect similarities and differences

The so-called execution effect refers to the fact that the three will have relatively large differences in the execution of the contract. Specifically, for traditional contracts and electronic contracts, the execution process is completely reversible. All implementation processes will consider the influence of external conditions. For example, traditional contracts and electronic contracts often record breach of contract obligations during the execution process. In this way, how about changes in government policies and how to deal with force majeure are problems that traditional contracts and electronic contracts may encounter during implementation, so this process is completely reversible. The parties to the contract do not comply with the contents of the contract, as long as they can compensate according to the agreed breach of contract conditions.

But the smart contract is very different. Its execution process is completely irreversible. Once the desired condition is triggered, the desired program will continue. Regardless of the external conditions, the smart contract will guarantee the contract to continue. This is both an advantage and a disadvantage. The advantage is that the efficiency is extremely high, which excludes the one-sided and limitation of people's subjectivity. It is completely based on the smart contract concluded by both parties, without any possibility of compromise and amendment. The disadvantage is that it does not consider the flexibility of the implementation and the changes in external conditions and the environment, which may create new problems.

In summary, it can be predicted that the three forms of contracts can coexist for a long period of time in the future. The three will play different roles and complement each other to jointly improve social productivity and efficiency, reduce carbon emissions, and serve human needs.

Reference source:


2. He Xiaomiao: "Application of Blockchain Technology: Prospects for Smart Contracts and Legal Issues" Page 1 Shanghai University Law School Shanghai 200444


4. Wang Jie: China Business Theory, June 1, 2019

5. Zou Jingying: Legal System and Society December 15, 2018

6. Wang Wei: Legal Expo December 1, 2018

Author: Beijing-day Thai law firm Fung Pui Cheung Chi-jun