A new blockchain-based smart contract prototype has been developed by researchers from Zayed University. The prototype has been demonstrated as a way to streamline and automated rental agreements, which could lead to a disruption of the legal field and provide an ‘automated lawyer and notary’ for every person, at near-zero cost.
In many ways, the legal field has been created because of trust issues between two entities. When a person wants to hold his friend (or enemy) accountable for his actions, then the two need to sign a contract that clearly defines each other’s responsibilities. For that they need an attorney or a notary – a third party that will arbitrate between the two of them – as they themselves cannot trust each other.
Unfortunately, third-party agencies like that are expensive, and cannot always be trusted themselves. The need for them, however, may be lessened in the near future as blockchain technologies become widespread.
Blockchain-based systems are ‘trustless’ ones – meaning that the actors in them don’t need to trust one another. The system makes certain that they can work together safely even if there’s no trust between them. Two or more actors can, for example, sign a smart contract which the blockchain system will later enforce as if it were a trusted third party. In many ways, that makes the work of notaries, lawyers and even judges redundant.
Legal smart contracts on a blockchain system can minimize expenses and lower fraud loss, arbitration and enforcement costs, as well as other transaction costs. Furthermore, they can be highly transparent and certainly be resolved more rapidly than any contract that needs to be assessed by the governmental law system.
Despite the stunning potential inherent in smart legal contracts, there are still several challenges that need to be addressed before this technology makes it into common use. The process for drawing smart legal contracts, for example, needs to be streamlined and automated. That includes writing the contracts in a natural language, translate them to a business process and finally implement them by code in a blockchain-based system. What’s more, contracts in the physical world are nebulous constructs, with many clauses often left unspecified, and with the signees’ relationship with each other constantly evolving and changing, but with the contract staying relatively immutable. Therefore, there needs to be some mechanism for an easy update of the smart contract without compromising the trust the two parties have in it.
In a research conducted by Eleanna Kafeza and Haseena AlKatheeri from Zayed University and their colleagues, the researchers considered the challenge of contract modification. They further proposed a mechanism that will allow contract modification when the need arises. To do that they have –
- Provided a system architecture that allows smart contract updates without compromising the security and transparency of the blockchain system.
- Proposed a novel mechanism that can deal with the immutability of smart contracts on the blockchain system.
- Charted a roadmap showing how smart legal contracts can be created using different technologies which can be integrated into the blockchain system.
- Provided a prototype for a smart contract based on their new approach, which can potentially disrupt the rental agreement legal sector.
In their prototype of a smart rental agreement contract, the researchers suggested a mechanism in which the landlord can upload and deploy a contract over the blockchain. The contract can only be updated or terminated by the landlord, but only the tenant can confirm the agreement, agree to any changes to it, and pay the rent. The tenants themselves can cancel the contract at certain time points agreed upon in the contract, and the landlord must return the tenants’ deposit based on the time of contract termination.

While these stipulations seem intuitive at first glance, they are considerably more difficult to implement in a way that both preserves the security and transparency of the system, while still allowing for both parties to be intelligibly involved in the contract editing and updating process. The researchers have demonstrated the architecture required for such a smart contract to exist and be deployed.
While the blockchain technology is still nascent, works like this one have the potential to bring this technology to the public, allowing every person to essentially enjoy a ‘lawyer at hand’ for near-zero cost. Blockchain technology stands to revolutionize the legal field – and the disruption begins here and now.
Original content by Nawartna