Puerto Rico Gov’t Exploring Use of Smart Contracts
The government of Puerto Rico continues to attempt to discover beneficial uses for blockchain technology, which is a way to structure data that is the foundation of digital cryptocurrencies such as bitcoin.
One of those uses are the implementation of smart contracts, or digital contracts, which are self-executing contracts with the terms of the agreement between the parties being directly written into lines of code. In this format, contracts are stored and supervised by a network of computers, instead of a centralized system, that runs the blockchain.
For contracts to be valid in Puerto Rico, they must have the consent of all parties, an object or transaction, and a cause for the established obligation. According to Vicente García Gil, a lawyer who is an expert in blockchain, smart contracts and initial coin offerings (ICOs), these contracts can meet the criteria.
García Gil, a CEO & partner of Dictum Abogados and Dictum Futurae, as well as president of Fefed, the Foundation for Financial Innovation & Digital Economy in Spain, said smart contracts help individuals exchange money, property, shares or anything of value without needing a lawyer or middle person. He provided examples of the use of smart contracts for insurance claims, which would allow payments to move faster.
He noted that in smart contracts, the privacy of the data and identity of individuals remain anonymous because it is written in cryptograph. The contracts provide for an individual to give consent to the contract by using a private cryptographic key as a signature. A third party can see that signature and immediately know who signed it, preventing many disputes about the authenticity of a signature, he said. He did not say, however, what would happen if someone steals a cryptographic key and uses it to make a contract.
However, these contracts do have their problems. For instance, once the contract is signed, it is difficult to make changes to it because the information is contained in a network of computers.
What happens if one party does not comply with the smart contract or there is a dispute? He noted there are firms dedicated to doing mediation work to resolve disputes.
In response to a question, Gil acknowledged that if the contract involves a loan that is guaranteed by a property, as in the case of a mortgage, the individuals involved will still have to go to court to be able to foreclose or seize the property for lack of payment.
Still, he said “these contracts can revolutionize contracts because the technology and programming are not costly” for a firm.
Economic Development Bank President Luis Burdiel Agudo said that with so many things happening with government contracts, such smart contracts will allow the government to know whether funds are being adequately used in real time, and not three years later in an audit. “There will be people who may not want this, but anyone who wishes transparency and trust in government transactions will be on board,” he said.
While Burdiel Agudo said he believes the private sector will incorporate blockchain before the public sector, he said smart contracts will be one of the first things that will be used.
He made these remarks at a recent forum, “Blockchain & Other Disruptive Technologies: The Competitive Edge for Entrepreneurship & Digital Transformation,” which was sponsored by Dictum Puerto Rico, Fefed, Dictum Futurae and the Economic Development Bank.