Contracts are older than a printing press and steam engines. They regulate transactions for over four thousand years. At least, as we know of. Of course, contracts changed along with the rise of states, expanding the scale of operations and technological advances. The most recent ones led us to smart contracts. They operate on cryptocurrencies bypassing additional strands — institutions such as states or banks. Still, contemporary contracts use many ideas accumulated throughout centuries. Let’s take a look at agreements at different points in history and compare them to smart contracts of today.
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First writing — first contracts
It is often considered that written language emerged in Mesopotamia (region of contemporary Iraq, Kuwait, eastern Syria, southeastern Turkey) circa 3500-3000 BC. And the first written contraсts were not long in coming. Historical records date them back to 2250 BC. Typical transactions of that region included barley and silver loans, deeds of real estate or slave sales, lease of fields, marriage contracts, adoptions, and so on. Not only did Mesopotamians use contracts for these activities, but they had also already developed templates.
Usually, contracts were very short — three or four sentences long. But they already included familiar elements. They specified conditions of the deal such as price and location. They referred to the power of a king, had a list of witnesses and the name of the scribe, which were all parts of legal validation. And they also had dates. So basic parts of the contract were invented thousands of years ago and lasted for many centuries to come.
Champagne fairs: control and contract
Not only did contracts last, but they also spread to various regions. For example, to twelfth century Champagne. At that time, the territory was not yet part of France, but a separate province, famous for its fairs. They were held six times a year and attracted merchants from all over Europe.
The reason that brought Flemish and French traders of cloth and wool and merchants bringing spices and luxuries from Italy and Provence was unified policy. Counts of Champagne did not give specific preference to local traders, supporting merchants from all over Europe. First of all, they ensured the safety of people coming to the markets. The second service they provided was contract enforcement. There were officials called fairwardens who could regulate the commerce at the fair, assess and collect taxes, and provide justice and enforcement. Also, there was a four-tiered system of public law courts which judged lawsuits and officially witnessed contracts.
At this point, written agreements regulated not only local matters but international trade. It required creating many arbitration institutions and still faced limitations such as difference of currency. But that was the challenge for the future.
Contracts go digital
Of course, contracts have undergone many changes since Middle Ages. But even as Industrial Revolution shifted the approach towards labor, payments, and forms of agreements, they were still based on the written word. And then digital happened.
In ancient times, contracts were concise. They were handwritten and validated with seals. It meant that the parties were familiar and accordant with the contents. Digital era removed limitations as to length of agreements. Some of them became so long that users gave up on reading them. It also gave way to so-called “submarine” agreements. Those are contracts that lurk beneath person’s awareness and often are accepted by default without proper inspection. Like user agreement, which is a part of installing software.
Most of these everyday contracts became non-negotiable and one-sided — either you agree to the predetermined conditions, or you cancel the agreement entirely.
Smart contracts: from prerogative of programmers to accessible tool
In 1996, a new form of agreements was introduced — smart contracts. They are computer protocols for facilitation, verification, or enforcing performance of the contracts.
Primarily, smart contracts are used in association with cryptocurrencies. Previously, creating such agreements required expertise in coding. But as cryptocurrencies are spreading into different spheres of business and trade, the need for an easily accessible tool emerged. Example of such tool is the Confideal platform. This service has simple interface, provides full stack of tools for creating and fulfilling the agreements, and offers in-built arbitration module in case of disputes.
The terms of a smart contract are established before the deal is made. Unlike with some digital agreements, with Confideal both counterparties can influence contract conditions. They are also granted data privacy. The terms of the contract are available only to the counterparties themselves, and, in case of disputes, to the arbitrator.
Unlike historical cases we have reviewed, smart contracts are not bound by states or banks. All transactions on the Confideal platform are made with the use of cryptocurrencies, which eliminates all barriers to payment.
While comparing smart contracts to traditional ones, we see that the role of ‘witness’ is executed by the system itself — all information about the deal is stored in Ethereum blockchain. Due to the technological specifics of this distributed database, any change of the terms of the deal after it has been signed is nearly impossible. Thus, the risk of unnoticed alterations to an agreement is eliminated. Outlined and executed by program code, the contract between the counterparties can be fulfilled or broken only following the originally established terms.
From historical point of view, the Confideal platform combines advantages of the previous eras: it functions as a scribe and witnesses of the ancient Mesopotamia, it provides arbitration similarly to the special officials at the Champagne fairs, but at the same time, it encompasses immediacy of the digital age.