Investigating the jurisprudential and legal aspects of using smart contracts in the Iranian financial system
News_Code: 355038 1/30/2021 9:06:44 AM
Investigating the jurisprudential and legal aspects of using smart contracts in the Iranian financial system
The Monetary and Banking Research Institute published a policy report on the jurisprudential and legal aspects of smart contracts in the Iranian financial system.
 

According to the Public Relations of the Monetary and Banking Research Institute of the Central Bank, the summary of this policy report states: "Smart contract is one of the technological developments in the current era that is transforming the processes of industry and business." With the advent of Blockchain technology, smart contracts have taken on a new form and made it possible to automatically execute contract terms without third-party intervention. Thus, smart contracts can speed up processes, save costs, improve transparency, increase business processes' efficiency, and reduce potential risks. Today, the banking, insurance, real estate, health, and many other industries are moving toward greater use of smart contracts and their benefits. Although smart contracts have created a new wave of business process innovation, there are still some challenges ahead.

In the present report, first, the nature, main features, and background of the smart contract are explained, and then its applications, especially in the financial industry, are examined. In the continuation of the report, the general process of implementing the smart contract is introduced, and then the benefits, as well as the general challenges related to it, are described. After introducing smart contracts, while examining this phenomenon in the country's legal system, its jurisprudential and legal dimensions have been analyzed and the most important jurisprudential and legal challenges in this regard have been raised. Therefore, the research's main question is what are the most important jurisprudential and legal aspects of smart contracts and related challenges. The research method used to answer this question is a descriptive-analytical method and using the opinions of experts. The possibility of performing Shariah supervision, the liability of system and guarantee of execution in cases of violation of smart contracts' obligations, contract modification in smart contracts, and the system of responsibility and guarantee of error in smart contracts are among the jurisprudential and legal challenges in this field.

The summary also concludes:

Smart contracting is one of the transformative innovations of the present age that will gradually change the face of many businesses and industries. The present report attempts to explain the nature, process, and main features of smart contracts and their applications, especially in the financial industry. Efforts were also made to explore the most important benefits and challenges of smart contracts. As mentioned, increased speed and security of business processes and cost savings as well as greater transparency are among the most important potential benefits of smart contracts. Lack of flexibility compared to traditional contracts, the possibility of complex scenarios, technical issues, ambiguity in legal acceptance and regulation, and issues related to the parties' contractual obligations to each other are among the most important general challenges of smart contracts.

In the other part of this report, the position of smart contracts as well as Blockchain technology in the Iranian legal system was examined. According to the report, there are no independent rules and regulations in the Iranian legal system regarding smart contracts as well as Blockchain technology. Considering that some examples of smart contracts are currently being implemented in various industries, including financial services, and in the future, we will face more developments in this field, it is necessary to regulate the necessary laws and regulations in this regard and update them in line with technological developments.

In the other part of this report, the jurisprudential-legal aspects of smart contracts were analyzed. One of the famous jurisprudential rules is the rule of validity; According to this principle, any transaction that takes place between two or more people is judged to be valid until its corruption is discovered. According to this rule, all smart contracts on which the will of the parties have been formed are destined to validity unless proven that its basic conditions have not been observed. According to Article 190 of the Civil Code, four conditions are required for the validity of any transaction: 1) the intention of the parties and their consent; 2) the competence of the parties; 3) the specific subject that is being traded; And 4) the legitimacy of the transaction. To ensure the existence of the four basic conditions of transaction validity in smart contracts, it was necessary to analyze and review all four of the above conditions. This report showed that smart contracts have the capacity and possibility to fulfill these four conditions.

Finally, some jurisprudential-legal challenges related to smart contracts were raised. Accordingly, the possibility of performing Shariah supervision, liability system, and performance guarantee in case of breach of smart contract obligations, contract modification in smart contracts, and error guarantee in smart contracts were the four challenges and gaps that are currently present in the implementation of smart contracts.

The results of this study in explaining the jurisprudential aspects of smart contracts and the proposed solutions to alleviate the existing challenges can be useful for programmers and designers of smart contracts on the Blockchain platform on the one hand and for legislators and regulators in the fields of e-commerce and information technology, on the other hand.

Smart contracts are still in their infancy. With the dramatic growth of information technology, more and more actors are trying to reap digitalization benefits. Technological advances are accelerating digitalization, and industry players know that smart contracts make business processes faster, more secure, and cheaper. Various industries, including the banking and financial industries, have a good capacity to execute smart contracts, although the challenges ahead must be carefully considered and overcome by providing innovative solutions. It seems that the context of the smart contract sees the capacity to define and set more standards and rules (especially from a religious perspective), and it is appropriate for future research to examine in more detail the challenges and practical solutions.

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