Smart Contracts on Blockchain vs Ricardian Contracts
If you look at some of our previous blogs, we have emphasized on how Smart contracts on Blockchain are one of its best features. Be it on Ethereum, Hyperledger Fabric or any other blockchain like Hyperledger Sawtooth or Hyperledger Indy, smart contracts can be implemented on any blockchain. Smart Contracts on Blockchain provide an array of benefits like trust, speed, automation and security. Since smart contracts execute automatically they remove the complex part of human intervention and related erroneous functions. Smart contracts execute predefined tasks on a particular event trigger and when specific conditions are met. Thus, complicated business executions and computations can be completely automated using smart contracts. And so it is hailed as the USP of Blockchain technology.
But on the flip side, Smart Contracts are not legally enforced agreements, but are simply agreements recorded on a Blockchain. There is no physical, bounded agreement between the two parties nor there is any validation of the same. Therefore, in the event of any dispute, there is very little that can be done by either of the two parties to resolve the issue, since there is no authentication by a legal body.
Ian Grigg conceptualized the Ricardian Contracts which not only act as smart contracts but are also legally bound. Ricardian Contracts are contracts that are recorded on a Blockchain as well as are maintained in a legally binded physical agreement duly signed by the two parties.
Defined by Grigg, a Ricardian contract is,
“a digital contract that deﬁnes the terms and conditions of an interaction, between two or more peers, that is cryptographically signed and veriﬁed. Importantly it is both human and machine readable and digitally signed.”
Ricardian contracts records all the information that is present in the physical agreement document, on the blockchain as well. Which means that Blockchain’s underlying cryptographic algorithms ensure that the contract is authentic and verified.
Few characteristics of Ricardian Contracts are,
1) Human Readable
2) Machine Readable
3) Both forms are authentic & equivalent
4) Physically signed by both parties
The physical Ricardian Contract makes it easy for the parties to read and understand it without the need of any legal entity. The Blockchain Ricardian Contract ensures that the contracts are encrypted, safe and secure.
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One of the significant benefits of Ricardian Contracts is that they are legally bound. This means that if in future there arises a dispute between the two participating bodies, then the case can be taken to the court of law for further course of investigation, which is certainly not possible in case of smart contracts on Blockchain. This makes the entire process more cost and time efficient as there is a proper, pre planned way of handling disputes. Smart Contracts only execute recorded instructions and do not carry any information or action guidelines for dispute resolution.
Ricardian contracts are highly secure as the Blockchain based agreement can be hashed, encrypted and stored safely. Any malicious activity by either party can be immediately identified by the unique hash addresses generated by Blockchain hashing.
While Ricardian contracts can act as smart contracts on Blockchain, vice-versa is not the same. Listed below are the prime differences between Smart Contracts on Blockchain vs Ricardian Contracts.
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Quite recently, EOS blockchain implemented Ricardian contracts.. Many dApps have been looking forward to incorporate Ricardian Contracts as well in the coming future. Due to its many features and characteristics, Ricardian Contracts have given a sense of security to stakeholders due to which many investors are pitching in for it.
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