The "Guiding Note on Adopting Smart Contracts and Smart Contracts Legal Enforceability in Arab Countries" document was prepared by the following team of KARM Legal Consultants, in collaboration with Dr. It also focuses on evaluating opportunities, risks and issues for participants and markets arising from the implementation of smart contracts.
I NTRODUCTION …
OVERVIEW OF DISTRIBUTED LEDGER TECHNOLOGY
Blockchain is a type of DLT where each block is linked to the previous block in a linear structure. There are different types of DLTs, such as Directed Acyclic Graph or DAG,v where individual transactions are linked to multiple other transactions.
HISTORY OF DLT
COMMON MYTHS AND MISCONCEPTIONS ABOUT DLT AND BLOCKCHAIN
Next generation blockchains such as Ethereum can execute smart contracts and build decentralized applications on top of the Ethereum network. Next-generation consensus mechanisms such as Proof-of-Stake (POS), Delegated Proof-of-Stake (DPOS) and Proof-of-Authority (POA) consume a negligible amount of energy compared to the Proof-of-Work used by Bitcoin .xx . d) Myth 4: Blockchains can only be public.
OVERVIEW OF SMART CONTRACTS
ORIGINS AND CURRENT STATE OF SMART CONTRACT DEVELOPMENT
Smart contracts can be composed of natural language, in code, or a combination of the two. Smart contracts can also be written entirely in code, which is the most common format.
S MART CONTRACT ECOSYSTEM IN 2021 AND 2022
Smart contracts are computer programs that function autonomously, in whole or in part, without human involvement. For example, parties to a contract may consider using smart contracts to automate certain activities within traditional contracts, such as payment of insurance claims and supply chain management.
F EATURES OF A SMART CONTRACT
In the absence of a central administrator, the immutability of the ledger means that nodes can trust its validity and deal with each other in confidence. In case someone tries to spend a bitcoin twice, the ledger (which has an immutable record of previous spending) will reject the transaction as invalid and the nodes will reject it.
USE CASES OF SMART CONTRACTS
- DIGITAL IDENTITY
- S MART C ONTRACTS FOR RECORDS
- S MART C ONTRACTS FOR SECURITIES
- S MART CONTRACTS FOR TRADE FINANCE
- S MART CONTRACTS FOR DERIVATIVES
- S MART CONTRACTS FOR FINANCIAL DATA RECORDING
- DEFI
For smart contracts to be widely accepted and used, industry-wide standards for contract templates and processes must be created. It is possible to use smart contracts to ensure that financial data is recorded accurately and in full transparency for financial institutions.
S MART C ONTRACT ECOSYSTEM
- MAPPING PROGRAMMING LANGUAGE ECOSYSTEM FOR SMART CONTRACTS
- V ARIOUS F ORMS AND M ODELS OF SMART CONTRACTS
- F ORMATION OF SMART CONTRACTS
- A GREEMENTS EXECUTED ENTIRELY THROUGH A SMART CONTRACT
- SMART CONTRACT - BASED LEGAL CASE STUDIES FOR ARAB NATIONS
In order to create a legally enforceable contract, there must be an agreement between the parties. Based on the parties' words and actions, an offer and acceptance can be determined objectively.
I NTERPRETATION OF SMART CONTRACT BY JUDICIAL AND REGULATORY AUTHORITIES
- I DENTIFICATION OF TERMS
- D ISPUTES REGARDING CODED TERMS
- R EASONABLE C ODER T EST
- N ATURAL LANGUAGE AIDS
- I MPLIED T ERMS
When a smart legal contract includes encoded terms, parties should include a natural language explanation of how the code works. Clarification of the parties' intentions will be important if the code operates in a way that the parties did not foresee or intend.xlv.
R EMEDIES FOR S MART C ONTRACTS
V ITIATING F ACTORS
An implied provision exempting a party from performance when "an oracle suddenly begins to produce incorrect data." A term exempting a party from performance if an operator provides erroneous data is likely to be judged reasonable in a primarily coded smart legal contract. However, reasonableness is not the essential criterion for finding an implied term.xlix How a code-only smart legal contract could be considered "lacking commercial or practical coherence" if it did not include a phrase that ' a party exempt from performance if an oracle provides erroneous data.
F RUSTRATION
Under the law of unjust enrichment, the parties may seek to recover benefits still granted by the code after the dissolution of the frustrated smart legal contract.lvi. Termination of the contract and the subsequent execution of the code becomes less of a problem.
R ECTIFICATION
Any further execution of the code must be terminated if the smart legal contract is frustrated due to an external event that makes the execution of the code legally impossible or fundamentally different from what was intended under the contract.lvii.
CHOICE OF LAW & JURISDICTION
- T HE SUITABILITY OF THE CHOSEN LAW FOR DETERMINING ANY FUTURE DISPUTE
- PARTIES SHOULD CONSIDER THE JURISDICTION THEY HAVE SELECTED FOR THE RESOLUTION OF
- F AMILIARITY OUGHT NOT TO BREED CONTEMPT
- E NFORCEABILITY OF JUDGMENTS
- P ROCEDURAL ISSUES
- U SE OF AN ARBITRATION INSTITUTE
- UAE : A CASE STUDY ON LEGAL ENFORCEABILITY
- RELEVANT COURT PRACTICES
- I N WHICH CASES ARE DOCUMENTS ONLY WITH WET INK SIGNATURES ACCEPTED ?
To simplify matters, the parties often agree on the law of the jurisdiction they want to apply to the matter. For example, a contract may specify English law as the controlling law if the parties agree to submit to the exclusive jurisdiction of the English courts in the event of a dispute. If a dispute arises between the parties about the meaning or implementation of the contract, the latter option can lead to unpleasant shocks.
Furthermore, where the UAE courts have jurisdiction, they will normally apply UAE law rather than the applicable law chosen by the parties. It therefore follows that this requirement will be met if the above is stored in electronic form, provided that the conditions in the Act on Electronic Transactions are met.
A DVANCEMENT IN THE D ECENTRALIZED O NLINE D ISPUTE R ESOLUTION S PACE
- A GREEMENT F ORMATION
- D ISPUTE R ESOLUTION I NITIATION
- E VIDENCE AND A RGUMENTS
- J UROR S ELECTION
- J UROR D ECISION - MAKING AND F INANCIAL I NCENTIVIZATION
- O N -C HAIN A PPEALS P ROCESS
- T YPE OF D ISPUTES
- O THER SOLUTIONS IN THE O NLINE D ISPUTE R ESOLUTION S PACE
- D ISPUTE RESOLUTION
- U SE OF COMPLEX LEGAL CONCEPTS
- H OW S MART C ONTRACTS CAN BE I MPLEMENTED BY G OVERNMENTS
- B IT N ATION
- D-C ENT P ROJECT
- D ECODE P ROJECT
- P ROPERTY R EGISTRATION
- B LOCKCHAIN IN THE T ENDER AND A WARD P ROCEDURE
- B LOCKCHAIN ON THE C ONFIDENTIALITY OF THE D OCUMENTS OF THE C ONTRACTUAL P ROCESS
- B LOCKCHAIN IN THE P ROCEDURE FOR O BTAINING G UARANTEES
- B LOCKCHAIN AND CENTRAL BANK DIGITAL CURRENCY
- H YBRID SMART CONTRACT - BASED BLOCKCHAIN GOVERNANCE
A legal engineering company made up of lawyers, cryptographers and software engineers, it bills itself as "the legal, technical and commercial infrastructure layer for the on-chain ownership transfer and control". On-chain transactions are transactions that take place and value are exchanged on the blockchain network. The contract protocol is based on the concept of "Ricardian contracts", defined as "smart APIs for the legally enforceable transfer of property rights" that "serve as the glue between the complex and bureaucratic legal world and the rapidly changing digital world of data." The focus is on avoiding litigation by establishing a system where an "automated custodian" becomes the legal owner and registrar of an asset for the term of the contract, making enforcement easier. If personal data is processed, it may be subject to the terms of applicable data protection law, such as the European Union General Data Protection Regulation (GDPR).
The Draft Executive Regulation for the Data Protection Law (“the Draft Executive Regulations”), dated March 9, 2022, was issued by the Saudi Data and Artificial Intelligence Authority (“SDAIA”) in collaboration with the National Data Management Office (“NDMO”)). on 10 March 2022, together with a public consultation on it. A smart contract can be partially or fully executed by computers without the direct involvement of the parties.cxxiii. Depending on the nature of the disagreement, the third party may choose to intervene by suspending, terminating, or otherwise modifying the terms and performance of the smart contract.
In this situation, the evidence of the presence of consent for the bidders' access is tagged and recorded on the blockchain.
I MPLEMENTATION OF SMART CONTRACTS BY GOVERNMENT AND O RGANISATIONS
B LOCKCHAIN APPLICATIONS AND INITIATIVES IN A RAB COUNTRIES
Smart Dubai Office announced the introduction of the Dubai Blockchain Platform, the first government-approved blockchain-as-a-service in the UAE, in October 2018. To promote cryptography and blockchain technology in Dubai, the DMCC Crypto Center opened in May 2021 and has already housed more than 140 organizations active in the field. The UAE is the primary destination for international companies, entrepreneurs and blockchain enthusiasts interested in doing business in the Middle East regarding DLT, smart contracts and virtual assets.
As part of Bahrain's aim to become a leading FinTech hub in the Middle East, the Central Bank of Bahrain (CBB) introduced a legal framework for 'regulated crypto asset services' in 2019, which was added to Volume 6 of the CBB Regulations governing the country's financial markets. A friendly regulatory environment that encourages the use of DLT and smart contract use cases has made Bahrain one of the best jurisdictions for entrepreneurs, businesses and blockchain enthusiasts interested in doing business in the Middle East.
SMART CONTRACT FRAMEWORK A DOPTION BY THE G OVERNMENTS : C ASE S TUDIES
The accuracy of smart contracts is one of the benefits that business organizations will derive from using them. In the near future, smart contracts have the potential to form the backbone of many foundational systems. Regulatory arbitration in the processing of Smart Contract services may be possible if these gaps are not addressed.
2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads Smart-Contracts-Compiled-Responses-redacted-final.pdf. International Conference on Project and Construction Management (pp https://www.researchgate.net/publication/329363162_Smart_Contracts_in_Construction_Industry.
SMART CONTRACT A DOPTION BY O RGANISATIONS : CASE STUDIES
G UIDANCE FOR S MART CONTRACT ADOPTION
R ECOMMENDATIONS ON P UBLIC -P RIVATE P ARTNERSHIP FOR SMART CONTRACT ADOPTION
Governments should focus their efforts on exploring fruitful public-private partnerships to realize the full potential of smart contracts, whether governance or otherwise. Here are some ways governments can leverage private sector participation in smart contract development. a) Academic interventions: Governments, companies and academics can work together to plan annual conferences, round tables and other smart contract related events on a national basis. Events with predetermined outcomes benefit from an annual calendar that promotes predictability and makes it easier to participate locally and globally.
The Australian, Estonian and Indian governments have launched many pilot projects to encourage greater collaboration between the public and private sectors.clxxiii. When it comes to blockchain innovation, Australian government initiatives such as Austrade corporate missions to international markets and a grant program for aspiring entrepreneurs and Australian Research Council Grants have played a major role in helping the public and private sectors to work together on the development of blockchain smart contracts. clxxv .. f) Ecosystem Creation: Smart contract enthusiasts, blockchain enthusiasts, IT professionals, academics and students from all walks of life can collaborate to create an ecosystem where valuable information and knowledge can be shared.clxxvi.
R ECOMMENDATIONS ON S KILLS & A WARENESS AND SCOPE OF JOB CREATION
G UIDANCE ON A SSOCIATED RISKS RELATED TO SMART CONTRACTS
As a result, rigorous and potentially expensive expert assessments of the smart contract are needed before deploying it in a blockchain.clxxxi. For example, the Ethereum blockchain can only validate 14 transactions per second, but Visa can process up to 24,000 transactions per second. Indeed, the scalability issue causes network congestion, higher transaction commission costs and a longer time to process transactions.
Future research focusing on increasing the number of transactions per second with smart contract platforms will be necessary to overcome the scalability issue. e) Problems with the consent mechanism. Proof-of-Work (PoW), Proof-of-Stake (PoS) and other consensus techniques are already in use.
R ECOMMENDATIONS ON M ANAGING RISKS ASSOCIATED WITH SMART CONTRACTS
Several security flaws in smart contracts have led to massive theft and financial loss in recent years. In short, in recent years, more research has been done to improve the security and performance of smart contracts. Identifying regulatory and supervisory entry points in the context of community consensus can seem contradictory given the ethos of the smart contract market.
Further, the determination of the legal treatment of smart contracts must be decided either by the intervention of the state or the judiciary. Alan Morrison, PwC Technology Forecast Series, http://usblogs.PWC.com/emerging-technology/how-smart-contracts- automate-digitalbusiness.
K EY F INDINGS AND G UIDANCE : S TEPS FORWARD
RECOMMENDATIONS ON SMART CONTRACT BASED TECHNICAL AND
Proposed solution: Smart contract solutions that structurally solve this problem can be explored by governments.
