How do you enforce a smart contract?

How are you going to enforce a smart contract? What happens if someone finds a way around the contract? The proliferation in smart contracts has been immense recently and the question that often gets asked is how are you going to enforce them. The hope is that you won’t have to enforce the contract given their nature but there are also circumstances where people try to get around those rules. This article will explain what to do to enforce a smart contract

What is a smart contract?

These are simple programs stored on a blockchain that run when predetermined conditions are met. This means that no party to the contract has to do anything to complete the contract. For example you could have an insurance contract that pays out automatically when a certain weather event occurs in an area. They can also automate workflows triggering the next action when conditions are met.

When might you need to enforce it?

The way that smart contracts are drafted means that ordinarily you will not have to enforce the contract as they are self executing. This means that when an event happens the contract is automatically enforced meaning that enforcement is not necessary.

However there are always going to be situations where a smart contract can’t execute (or may be prevented from executing) these include:

  1. The smart contract was not properly drafted or was not appropriate for the circumstance.
  2. A challenge by one of the parties to the terms of the contract.
  3. Insufficient funds to pay the smart contract.
  4. Hackers who modify the code.

How would you enforce a smart contract?

Of course, there are always to prevent these risks from occurring and it is hoped that they will not arise. If one of these circumstances (or something we have not considered stops a smart contract from self-executing) then the parties will have to rely on either negotiating between themselves or going to the courts and lawyers to enforce their contracts. Obviously this is not what the parties want so it is important that you get advice from a lawyer before entering into a smart contract to ensure that it works the way you want it to work.

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