As a result of the increasingly dynamic development of blockchain technology, a growing range of possibilities for its use is emerging. One of these is the idea of smart contracts, which has been gaining popularity in recent years. In some respects, they are safer and more practical than traditional forms of contract. This popularity is confirmed, among other things, by the fact that Malta – a long-time pioneer in blockchain technology – in November 2018 introduced a series of laws concerning smart contracts, simultaneously introducing a legal definition of the term. This definition defines a smart contract as a technological agreement consisting of a computer protocol or an agreement concluded in whole or in part in electronic form, which can be automated and enforced by computer code, although some parts may require human intervention and control, and which can be enforced using ordinary legal methods or a combination of both .*
Based on the aforementioned definition, a smart contract is a computer program or transaction protocol running on a blockchain network, which is triggered (executed) when the previously entered conditions are met. This means that if the parties fulfill their mutual obligations based on the assumption that if X, then Y , introduced into the blockchain network, the smart contract is automatically executed. Smart contracts take the form of self-service network-based applications, the most well-known of which is Ethereum. They operate by automatically treating the contract as fulfilled when its terms are met. Therefore, a smart contract replicates the nature of a traditional contract, as the parties agree on certain terms based on the aforementioned principle: if event X occurs, then event Y will occur . Once events X and Y are fulfilled, the contract terms (previously recorded in the blockchain) are immediately executed. At the same time, due to the nature of the blockchain network, the risk of fraud or forgery is eliminated, as any user of the network has access to view such a contract. Concluding smart contracts is therefore simpler and faster than concluding traditional contracts and allows for reliable transactions without the intervention of any intermediaries, such as a notary, agent, or bank.
Moreover, due to the fully automated process of concluding such a smart contract, there is no room for human error, and the transaction itself is verified by a computer program.
From a practical perspective, the idea of smart contracts can be illustrated by applying it to online shopping. In its current form, we make a purchase and then transfer the funds using the services of an intermediary, in this case a bank. Therefore, we are exposed to the risk of errors made by the intermediary. Using a smart contract, the transfer is made directly to the seller, allowing for faster transaction completion, as it occurs solely between the seller and buyer.
Smart contracts can also be used for more advanced transactions, such as real estate sales. Traditional real estate sales agreements require the completion of a number of formalities and the involvement of intermediaries such as notaries or banks. When purchasing real estate using a smart contract, there is no need to involve these intermediaries, and the transaction itself takes place directly between the seller and buyer. Thanks to blockchain technology, both the funds for the purchase of real estate and the ownership rights remain secured in the system. If the contract terms are met, they are distributed to both parties simultaneously. However, it's important to remember that the above considerations, considering Polish law, are merely theoretical, as under Polish law, a real estate sales agreement must be concluded in the form of a notarial deed.
Regarding the legal regulations regarding smart contracts, there are currently no legal provisions in Poland directly regulating this institution, nor is there a definition. This doesn't mean, however, that they cannot be used in civil or commercial transactions, as Polish law does not prohibit concluding contracts in this manner. The Civil Code provides for the freedom of expression of intent, and the manner of concluding contracts is very broad. Article 60 of the Civil Code even explicitly provides for the possibility of submitting a declaration of intent electronically, without specifying the method. This means that concluding contracts in this form is not prohibited. However, as with other forms of contracts, statutory limitations and principles of social coexistence must always be considered.
Looking to blockchain technology pioneers like Malta and Estonia, and examining the functionality of smart contracts, it seems only a matter of time before detailed legal regulations in this area are introduced, including in Polish law.
* https://lawmore.pl/prawo-a-inteligentne-kontrakty/
This alert is for informational purposes only and does not constitute legal advice.
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