Smart contracts: the smart future of contractual relations

The Bank of Russia has published a review of smart contracts which highlights the key features and principles of such tools and analyses their impact on the development of the financial market.

A smart contract is an agreement between two or more parties to establish, change or terminate legal rights and obligations. Provisions in such a contract are wholly or partially recorded, executed and/or performed automatically by a computer algorithm using specialised software.

Some financial market participants as well as representatives of other sectors of the economy are currently staging various experiments to use smart contracts to optimise their business processes and reduce financial transaction costs. The use of smart contracts in common transactions may simplify interaction between the government, organisations and citizens.

In many cases, experiments and solutions related to the use of smart contracts are an integral part of the distributed ledger technology. Therefore, to make this tool full-fledged and effective a number of issues, both legal and technological, should be settled.

The review provides examples of smart contract implementation in the financial market. The material also highlights the issues of smart contract application and regulation in Russia.