Smart contract technology has seen significant adoption across various sectors, from finance due to the adoption of crypto blockchain to other industries.
The aim of implementing smart contracts is to maintain the authenticity of data documents, preventing manipulation and alteration after official publication and storage.
Moreover, through smart contracts, all aspects recorded in the contract, especially concerning financial mechanisms via blockchain, can occur automatically.
Unfortunately, smart contracts themselves lack strong legality when discussed in terms of a country’s legal system because they lack a clear legal agreement basis.
To address this issue, one rarely discussed innovation in the crypto world is the introduction of Ricardian Smart Contracts.
What are Ricardian Smart Contracts?
Ricardian Smart Contracts are a type of smart contract created in 1995 by a renowned programmer, Ian Grigg.
He developed this type of contract to unify smart contract technology, which provides automation of agreements, enabling the execution of agreements in the contract to occur automatically, along with the legality of an agreement contract.
At its initial development stage, Ian Grigg did not have the appropriate technology to implement his innovation.
However, with the emergence and increasing popularity of blockchain technology, the implementation of this type of smart contract became notable, leading many legal practitioners to understand this type of contract.
In simple terms, a Ricardian Smart Contract is a contractual agreement stored on the blockchain and can be legally recognized, enabling it to be used to assert rights in a court case or acknowledge ownership in legal matters within a country.
For example, in an employment agreement between an employee and an employer, the employment contract could utilize Ricardian Smart Contracts.
The implementation of Ricardian Smart Contracts in this scenario includes the application of salary payments. The employee is paid their salary in the form of crypto or CBDC using blockchain technology. Thus, when the agreement is officially signed, the contract is executed.
Regarding Ricardian Smart Contracts, all signatures use cryptographic verification, similar to signature approvals or sign transactions when crypto investors use DApps and decentralized wallets like Metamask.
In this case, the employer would sign with a wallet containing funds to pay the employee’s salary, while the employee would sign with a wallet to receive the salary.
After signatures, the Ricardian Smart Contract would be automatically executed, with the employer’s wallet automatically transferring funds to the employee’s wallet as salary at the end of each month.
If suddenly the employer’s wallet is empty and unable to pay the salary, the employment agreement Ricardian Smart Contract could be used to sue the employer in labor court, as this contract is legally binding, unlike regular smart contracts.
This contract has two written languages: ordinary language that can be read by humans according to their country’s needs and programming language that makes it readable on a blockchain.
Overall, this contract can be understood by ordinary people who may not even have high-level legal experience and can be understood by the blockchain to execute automatically.
Differences Between Regular Smart Contracts and Ricardian Smart Contracts
Regular smart contracts and Ricardian Smart Contracts have several differences, but both implement cryptographic technology, applying private key technology that makes the contract public but only reveals its detailed contents to involved parties.
However, regular smart contracts lack strong legal bases, making them unable to be used as arguments or grounds for claims in court cases like the example above.
Additionally, regular smart contracts do not always list the names of individual parties involved, whereas Ricardian Smart Contracts provide this information with the aim of being used for enforcing obligations, similar to legal contracts.
But as previously mentioned, even though the names of individuals involved are written, this information can only be viewed by the involved parties, so for other parties to view the contract, they need to see it through the involved parties.
Lastly, regular smart contracts can only be read by individuals who understand the blockchain world or programming due to their language not using commonly understood human languages.
On the other hand, as previously stated, Ricardian Smart Contracts can be read by the blockchain and by ordinary humans, thus facilitating the use of contract agreements.
Currently, some countries have implemented this contract mechanism, but it is still at a low scale due to the limited understanding of blockchain.
Several countries in Southeast Asia, America, Europe, and Australia have adopted this mechanism in the legal realm, indicating that the adoption of this technology will likely expand in the coming years.