The growth of usage of blockchain based smart contracts in Italy might be boosted by a new law which deemed them equal to written documents in some cases.
What are smart contracts?
According to Investopedia, smart contracts are
“Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.“.
Therefore, the main features of smart contracts are that:
- they opeate on the basis of pre-set terms that are written in a code;
- such code is contained in a blockchain and
- are self-executing since once some events are registered on the blockchain (e.g. an insurance claim), an action is automatically activated.
They are called “smart”, but actually are no meant to be used to complex contracts and you can read my previous article “Blockchain is the future of insurance but what are the legal risks?” on their usage in the insurance sector.
The Italian law on blochchain based smart contracts
As part of the so called Simplification Decree, it has now been introduced a definition of blockchain and smart contracts, also providing that
“Smart contracts satisfy the requirement of the written form after the electronic identification of the interested parties, through a process having the requirements set by the Agency for Digital Italy with guidelines to be adopted within ninety days from the date of entry into force of the law converting the present decree.“
The consequence of the above is that
- not all smart contracts meet the requirements of the written form, but only those that meet the requirements to be set in the coming 90 days;
- the above law is in place, but cannot be relied on at the moment since the technical requirements are not defined yet.
Once it will be possible to rely on the above provisions, it might be a major improvement in a country where one-sided clauses in any type of agreement still require the so called “second written signature” which gives rise to major issues for instance in relation to online contracts, but is relevant in any type of agreement.
Courts are trying to adopt a more open minded approach on the topic (Read the article “Digital and online contracts get a major support by Italian courts“), but the above provision might represent a major improvement if supported by courts.
I will keep you posted on the development of the matter.