THE NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

MASTER OF CYBER LAW AND INFORMATION SECURITY

4IR and Law

PROJECT ASSIGNMENT ON

Smart Contracts:

Applications and Legal Perspectives

UNDER THE SUPERVISION OF

(Prof.) Dr. Atul Kumar Pandey

SUBMITTED BY

Manas Jain
2022mclis45

Submitted on: 13 April 2023

 ACKNOWLEDGEMENT

I am grateful to and appreciate (Prof.) Dr. Atul Kumar Pandey for enabling me to work on
the project “Smart Contracts: Applications and Legal Perspectives” under his wise
guidance. This endeavour would not have been possible without his superb assistance and
thought-provoking recommendations.

I'd want to thank my friends for their advice, collaborations, and, of course, company. I'd also
like to thank the staff members at NLIU Bhopal for making the required study materials
available. I owe a debt of gratitude to everyone who aided me during the research process;
their efforts were vital to the project's success.

Even though I did my best, I understand that there isn't such a thing as perfection, so any
helpful advice for the future would be greatly appreciated.

With profound gratitude.

Date: 13 April 2023

Place: Bhopal

Manas Jain

2022MCLIS45

Master of Cyber Law and Information Security

The National Law Institute University, Bhopal

 TABLE OF CONTENTS

1. ACKNOWLEDGEMENT.....................................................................................................II
2. TABLE OF CONTENTS.....................................................................................................III
3. List of Statutes.....................................................................................................................IV
4. List OF FIGURES................................................................................................................IV
5. ABSTRACT...........................................................................................................................1
6. CHAPTER I: INTRODUCTION...........................................................................................2
6.1 FEATURES OF SMART CONTRACT............................................................................................2
6.2 REVIEW OF LITERATURE...........................................................................................................4
6.3 STATEMENT OF PROBLEM.......................................................................................................5
6.4 HYPOTHESIS.............................................................................................................................5
6.5 RESEARCH QUESTIONS............................................................................................................5
6.6 RESEARCH OBJECTIVES............................................................................................................5
6.7 RESEARCH METHODOLOGY.....................................................................................................6
6.8 SCOPE AND LIMITATION OF RESEARCH...................................................................................6
7. CHAPTER II: life cycle of smart contract.............................................................................7
7.1 PHASES OF CREATION..............................................................................................................7
7.2 CONCLUSION...........................................................................................................................8
8. CHAPTER III: use cases of Smart contract...........................................................................9
8.1 CURRENT SCENARIO................................................................................................................9
8.2 FUTURE USAGE........................................................................................................................9
8.3 CONCLUSION.........................................................................................................................10
9. CHAPTER IV: legality in India...........................................................................................11
9.1 INTRODUCTION......................................................................................................................11
9.2 DISCUSSION...........................................................................................................................11
9.3 CHALLENGE IN ENFORCEABILITY............................................................................................11
9.4 CONCLUSION.........................................................................................................................12
10. CONCLUSION AND SUGGESTIONS............................................................................13
10.1 CONCLUSION.......................................................................................................................13
10.2 SUGGESTIONS AND SCOPE OF FUTURE RESEARCH..............................................................13
11. BIBLIOGRAPHY..............................................................................................................14

List of Statutes
 The Information Technology Act, 2000
The Indian Contract Act, 1872
The Indian Evidence Act, 1872

List OF FIGURES

Figure 1: Working of a Smart Contract.....................................................................................2

Figure 2: Life cycle of a Smart Contract...................................................................................7
 ABSTRACT

Smart contract technology, embedded in blockchains, has emerged as a disruptive

innovation, revolutionizing traditional industry and business processes. By enabling
automatic enforcement of contractual terms without the need for intermediaries, smart
contracts have the potential to cut down administration costs, improve efficiency, and reduce
risks. However, challenges related to legal validity, security, and standardization need to be
addressed. This paper presents a comprehensive survey on smart contracts, covering topics
such as blockchain technology, smart contract introduction, challenges, recent technical
advancements, comparison of smart contract platforms, and categorization of smart contract
applications. Recent technical advances, regulatory frameworks, and industry standards are
discussed as solutions to mitigate the challenges. As smart contract platforms continue to
evolve and gain wider adoption, businesses and industries can expect to witness a new wave
of innovation and transformation.

Key words: blockchain, smart contract, distributed ledger technology, ethereum

 CHAPTER I: INTRODUCTION

In recent years, blockchain technology has gained widespread attention as a decentralized and
transparent means of conducting transactions and recording data. One of the key applications
of blockchain technology is the concept of smart contracts, which are self-executing contracts
with coded conditions that are stored on a blockchain network. Smart contracts have the
potential to revolutionize various industries by automating processes, reducing the need for
intermediaries, and increasing efficiency and transparency. Smart contracts are not new, as
the concept was first introduced by Nick Szabo in 1990, but with the advent of blockchain
technology, they have gained renewed interest and practical applications. A smart contract is
a piece of software code that is stored on a blockchain, and it automatically enforces the
terms and conditions of the contract without the need for a third party. These contracts are
executed automatically when predetermined conditions are met, and they can facilitate
transactions, agreements, and other interactions in a decentralized and secure manner.

Figure 1: Working of a Smart Contract1

FEATURES OF SMART CONTRACT

 Autonomy: Smart contracts operate autonomously without the need for

intermediaries. Once deployed on a blockchain, they are automatically executed
when the predetermined conditions coded into them are met. This eliminates the need

1
Parikshit Hooda, ‘Smart Contracts in Blockchain’ (geeksforgeeks, 20 September 2022)
<https://www.geeksforgeeks.org/smart-contracts-in-blockchain/> accessed 2 April 2023.
 for a third party to enforce the terms of the contract, making the process more
efficient and cost-effective.
 Transparency: Smart contracts are stored on a blockchain, which is a decentralized
and distributed ledger. This makes the contract's terms and conditions transparent and
visible to all participants on the blockchain. Once a smart contract is executed, the
transaction and the results are recorded on the blockchain, providing an immutable
and transparent history of all interactions.
 Security: Smart contracts are secured by the blockchain's cryptographic mechanisms,
making them tamper-proof and resistant to fraud. Once a smart contract is deployed
on a blockchain, it cannot be altered, ensuring the integrity of the contract and its
execution.
 Programmability: Smart contracts are written in code and can be programmed to
carry out complex functions and logic. They can be created using various
programming languages and can incorporate if-then statements, loops, and other
programming constructs. This allows for customization and flexibility in designing
contracts that meet specific requirements.
 Efficiency: Smart contracts are automated and self-executing, which can streamline
processes and reduce delays associated with traditional contract execution. They
eliminate the need for manual intervention, paper-based documentation, and time-
consuming reconciliation, making the process faster and more efficient.
 Gas: Gas is a concept in blockchain platforms, such as Ethereum, that represents the
computational resources required to execute smart contracts. Smart contracts often
require computational resources to run their code, and gas is used as a unit to measure
and allocate these resources. Users who want to execute smart contracts on a
blockchain need to pay a fee in the form of gas to compensate the network nodes for
the computational resources used.
 Ethereum Virtual Machine (EVM): The Ethereum Virtual Machine (EVM) is a
runtime environment that executes smart contracts on the Ethereum blockchain. The
EVM is a decentralized virtual machine that runs the code of smart contracts written
in Ethereum's programming language, Solidity. It provides the necessary
computational resources for executing smart contracts and managing transactions on
the Ethereum blockchain.
REVIEW OF LITERATURE

 Bhabendu Kumar Mohanta and Debasish Jena, ‘An Overview of Smart

Contract and Use Cases in Blockchain Technology’ IEEE2
In this research paper the authors begins by providing an overview of the different
elements and operational principles of smart contracts. Next, it identifies and
examines various examples of smart contract use cases, as well as the benefits of
utilizing smart contracts in blockchain applications. Finally, the paper concludes by
discussing the challenges associated with implementing smart contracts in real-world
scenarios in the future.
 Reggie Shields, ‘Smart Contracts: Legal Agreements for the Blockchain’
ResearchGate3
The paper delves into the origins of smart contracts and blockchain, or distributed
ledger technology and provides an in-depth understanding of their functioning.
Further elaborates on potential use cases of this emerging technology and highlights
technical limitations or obstacles. Additionally, it discusses the legal and regulatory
challenges linked to the wider adoption of smart contracts. Finally, the Conclusion
puts forth recommendations for necessary legal changes to expedite the realization of
the benefits of this technology while mitigating potential risks.
 David Lo and Pavneet Singh, ‘Smart contract development: Challenges and
opportunities’ IEEE4
The findings of the study identified significant challenges and issues in smart contract
development, which include inadequate security guarantees, limited availability of
basic development tools, constraints in programming languages and virtual machines,
difficulties in handling performance issues in resource-constrained environments, and
limited online resources. Later, the study also proposes potential directions for
researchers and practitioners to enhance the development experience and quality of
smart contracts.

2
Bhabendu Kumar Mohanta and Debasish Jena, ‘An Overview of Smart Contract and Use Cases in Blockchain
Technology’ (2018) ICCCNT <https://www.researchgate.net/publication/328581609> accessed 2 April 2023.
3
Reggie Shields, ‘Smart Contracts: Legal Agreements for the Blockchain’ (2017) 21 (1) UNC
<https://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=1435&context=ncbi> accessed 2 April 2023.
4
David Lo and Pavneet Singh, ‘Smart contract development: Challenges and opportunities’ (2021) SCIS
<https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=5499&context=sis_research> accessed 5 April 2023.
  Mark Giancaspro, ‘Is a ‘smart contract’ really a smart idea? Insights from a
legal perspective’ ResearchGate5
This paper examines the legal issues and challenges associated with smart contracts
and covers various aspects, including the definition and characteristics of smart
contracts, their legal status and enforceability, potential risks and liabilities
surrounding them. Additionally, it explores the potential benefits and limitations of
smart contracts from a legal standpoint. The findings from this literature contribute to
a better understanding of the legal implications of smart contracts and provide
valuable insights for legal practitioners, policymakers, and researchers interested in
this emerging field.

STATEMENT OF PROBLEM

Traditional methods, such as intermediaries or centralized systems, lack reliable trust and
security mechanisms. This poses risks of fraud and manipulation, hindering the confidence
and assurance required for conducting transactions online.

HYPOTHESIS

Blockchain based smart contracts can mitigate the risks of fraud and manipulation by
providing transparent, tamper-proof, and efficient transactional processes.

RESEARCH QUESTIONS

RQ1: How significant are smart contracts in blockchain technology?

RQ2: How do smart contracts contribute to improving transparency, security, and efficiency
in business processes?

RQ3: What are the current and future use cases of smart contract?

RQ4: What are the legal and regulatory challenges associated with smart contracts?

RESEARCH OBJECTIVES

5
Mark Giancaspro, ‘Is a ‘smart contract’ really a smart idea? Insights from a legal perspective’ (2017)
Computer Law & Security Review <https://www.researchgate.net/publication/317354410> accessed 5 April
2023.
The objective of this paper is to investigate the significance of smart contracts and how they
contribute in improving transparency, security and efficiency in business processes.

Specific Objectives:

 To examine the legal and regulatory challenges associated with smart contracts.
 To explore the advantages and limitations of smart contracts in various industries.
 To provide a comprehensive understanding of the role of smart contracts in the
blockchain ecosystem and their potential impact on different industries.

RESEARCH METHODOLOGY

The nature of the research which is adopted by researcher in this project is doctrinal. As a
uniform citation method for footnotes and bibliography, the researcher will use OSCOLAs 4 th
edition.

SCOPE AND LIMITATION OF RESEARCH

The scope of this research will be focused on the significance of smart contracts in the
context of blockchain technology and their contributions to improving transparency, security,
and efficiency in business processes. The research will involve a comprehensive review of
existing literature, case studies, and analysis of relevant data related to smart contracts.
However, there may be limitations in obtaining up-to-date and comprehensive data, as the
field of smart contracts and blockchain technology is rapidly evolving. Also, the technical
implementation and deployment of smart contract in the Blockchain environment is not
explained in this research paper.
 CHAPTER II: life cycle of smart contract

Figure 2: Life cycle of a Smart Contract

PHASES OF CREATION

The whole life cycle of smart contracts typically consists of four consecutive phases 6:

1. Design and Development: In this phase, the smart contract is conceptualized and
designed according to the intended purpose and requirements. This includes determining
the functionality, defining the logic, and writing the code for the smart contract. It
involves choosing the appropriate blockchain platform or protocol, selecting the
programming language, and conducting thorough testing to identify and fix any potential
vulnerabilities.
6
Tern, Somboun, ‘Survey of Smart Contract Technology and Application Based on Blockchain’ (2021)
<https://www.researchgate.net/publication/355704432> accessed 9 April 2023.
2. Deployment: Once the smart contract is designed and developed, it is deployed to the
chosen blockchain platform or protocol. This involves uploading the smart contract code
to the blockchain network and creating a transaction to deploy the contract. Once the
contract is deployed, it becomes publicly available on the blockchain and can be
interacted with by users.
3. Execution: After the smart contract is deployed and becomes active on the blockchain, it
can be executed or triggered by invoking its functions or methods. Users can interact with
the smart contract by sending transactions to it, which trigger the predefined logic and
rules encoded in the contract. The smart contract autonomously executes its functions and
processes the transactions according to its pre-programmed logic.
4. Termination: The termination phase occurs when the smart contract is no longer needed
or when it reaches its predefined conditions for termination. Smart contracts can have
specific termination conditions encoded in their logic, such as reaching a certain date or
achieving a particular state. Once the termination conditions are met, the smart contract
ceases to execute and becomes inactive on the blockchain.

CONCLUSION

The life cycle of a smart contract, from design and development to termination, ensures that
smart contracts are created, deployed, executed, and terminated in a systematic and secure
manner. This life cycle provides a structured framework for leveraging the full potential of
smart contracts, ensuring their integrity and reliability throughout their existence.
 CHAPTER III: use cases of Smart contract

CURRENT SCENARIO7

Smart contracts have gained significant traction and are being increasingly used in various
industries and applications. Here's a few of the current scenario of smart contracts:

 Supply Chain Management: Smart contracts can be used to create transparent and
efficient supply chain management systems. For example, a smart contract can be
used to track the movement of goods from the manufacturer to the retailer,
automatically updating the information on the blockchain at each stage. This can help
reduce fraud, improve accountability, and streamline the supply chain process.
 Insurance Claims: Smart contracts can automate the processing of insurance claims.
For example, in the case of flight delay insurance, a smart contract can be
programmed to automatically trigger a pay-out to the insured party if the flight is
delayed by a certain amount of time. This can eliminate the need for manual claims
processing and reduce the potential for fraud.
 Decentralized Finance (DeFi): Smart contracts are a key component of many DeFi
applications, such as decentralized lending and borrowing, decentralized exchanges,
and yield farming. Smart contracts can enable peer-to-peer transactions, automatic
interest payments, and collateral management without the need for intermediaries.
This can provide greater financial inclusivity, lower transaction costs, and increased
transparency in the financial system.

FUTURE USAGE8

 Integration with Internet of Things (IoT): Smart contracts can be integrated with
IoT devices, allowing for automated and secure interactions between devices. For
example, smart contracts can be used to automate payments for services such as
energy consumption, vehicle charging, or device usage, creating a decentralized and
autonomous ecosystem of interconnected devices.

7
Ukeje Goodness, ‘6 examples and use cases of smart contracts’ (logrocket, 30 March 2022)
<https://blog.logrocket.com/examples-applications-smart-contracts/> accessed 9 April 2023.
8
Open Access Government, ‘What does the future hold for smart contracts?’ (23 January 2023)
<https://www.openaccessgovernment.org/future-for-smart-contracts-blockchain/151776/> accessed 9 April
2023.
  Governance and Voting: Smart contracts can be used to facilitate decentralized
governance and voting systems, enabling transparent and secure decision-making
processes. This can be applied in various contexts, such as corporate governance,
community governance for blockchain-based projects, and even governmental
elections, where smart contracts can enhance transparency, security, and integrity of
the voting process.
 Cross-Chain Interoperability: Currently, most smart contracts are limited to a single
blockchain platform. However, in the future, there may be increased focus on cross-
chain interoperability, allowing smart contracts to interact seamlessly across different
blockchain networks. This could enable broader connectivity, interoperability, and
flexibility for smart contracts, unlocking new possibilities and use cases.

CONCLUSION

As smart contracts continue to evolve, their future is promising. With wider adoption in
diverse industries, smart contracts can reshape business processes, enhance transparency, and
increase efficiency. The vision of a decentralized and autonomous ecosystem of
interconnected devices and systems holds great promise for the future of smart contracts,
unlocking new possibilities and driving innovation across industries.
 CHAPTER IV: legality in India

INTRODUCTION

In India, the legality of smart contracts is still a relatively uncharted territory as there is no
specific legislation that explicitly addresses smart contracts. However, smart contracts can
potentially be considered legally binding in India based on existing laws and provisions.

DISCUSSION9

The legal status of smart contracts in India is still evolving due to the absence of specific
legislation governing them. However, smart contracts can potentially be considered legally
binding in India based on existing laws and provisions. Section 10 of the Indian Contract
Act, 1872, which governs the formation and enforcement of contracts, requires a lawful
object and consideration, and the parties must have free consent. The Information
Technology Act, 2000, recognizes the legal validity of electronic contracts, including smart
contracts, under Section 10A, which states that contracts formed through electronic means
shall not be deemed unenforceable solely because they are in electronic form. The Indian
Evidence Act, 1872, allows electronic records to be used as evidence in courts, including
smart contracts, under Section 65B, which deals with the admissibility of electronic records
as evidence. Additionally, the general principles of contract law, such as offer, acceptance,
consideration, and intention to create legal relations, may also be applicable to smart
contracts in India. However, it is crucial to consider the specific terms and conditions of a
smart contract, the intention of the parties, and the relevant laws and regulations in force to
ensure compliance with the applicable legal framework in India.

CHALLENGE IN ENFORCEABILITY10

One of the challenges in providing legality to smart contracts in India is related to the use of
digital signatures, as outlined in the Information Technology Act, 2000. Section 3 of the IT
Act recognizes digital signatures as a valid means of authentication and Section 5 specifies
that digital signatures must be affixed by the use of a private key that is securely held by the
signatory. Additionally, Section 35 of the IT Act establishes the requirement for a certifying

9
Iblogpleaders, ‘Smart contracts and their enforceability in India’ (24 April 2022)
<https://blog.ipleaders.in/smart-contracts-and-their-enforceability-in-india/> accessed 11 April 2023.
10
Mondaq, ‘The Enforceability Of Smart Contracts In India’ (13 December 2019) <
https://www.mondaq.com/india/contracts-and-commercial-law/874892/the-enforceability-of-smart-contracts-in-
india> accessed 11 April 2023.
authority to issue digital signatures. Therefore, the use of digital signatures in smart contracts
may pose challenges in ensuring compliance with the specific requirements of the IT Act,
such as obtaining digital signatures from a recognized certifying authority and securely
managing private keys, to ensure the legality and enforceability of smart contracts in India.

CONCLUSION

In conclusion, while smart contracts in India may potentially be considered legally binding
based on existing laws and provisions, challenges related to digital signatures and compliance
with the Information Technology Act, 2000 need to be carefully addressed to ensure their
legality and enforceability in practice. Further clarity and guidance from lawmakers and
regulators are essential to ensure the effective and lawful use of smart contracts in India's
legal landscape.
 CONCLUSION AND SUGGESTIONS

CONCLUSION

The conclusion of this research paper suggests that further advancements are needed to fully
leverage the power of blockchain and smart contracts. This may involve addressing the
scalability issues to enable more efficient processing of transactions, enhancing flexibility to
accommodate diverse use cases, and finding solutions to protect privacy in smart contract
implementations. Additionally, future research could explore novel approaches to improve
the security and reliability of smart contracts, as well as investigate potential regulatory and
legal considerations associated with their implementation.

While smart contracts have shown great promise, there is still work to be done to overcome
the challenges and unlock their full potential. Further research, development, and innovation
in this area are necessary to enable the integration of blockchain and smart contracts to
become a more mature and robust technology for various applications in the future.

SUGGESTIONS AND SCOPE OF FUTURE RESEARCH

 Research on scalability and performance solutions for smart contracts, such as off-
chain computation, sharding, and layer-2 solutions, to address the challenges of gas
fees, transaction throughput, and processing delays.
 Exploration of privacy and security techniques for smart contracts, such as zero-
knowledge proofs, confidential computing, and privacy-preserving frameworks, to
protect sensitive information and mitigate potential vulnerabilities and risks.
 Analysis of legal and regulatory frameworks in different jurisdictions for smart
contracts, and identification of gaps, challenges, and opportunities for legal and
regulatory reforms to facilitate their widespread adoption.
 Study of interoperability and standardization challenges in smart contracts, and efforts
towards developing interoperability protocols, common data models, and best
practices for cross-chain and cross-platform interoperability.
 Investigation of user experience and adoption factors related to smart contracts,
including usability, accessibility, and user trust, to understand barriers to adoption and
identify strategies for improving user acceptance and adoption rates.
 BIBLIOGRAPHY

Research Papers

 Giancaspro M, ‘Is a ‘smart contract’ really a smart idea? Insights from a legal
perspective’ (2017) Computer Law & Security Review
<https://www.researchgate.net/publication/317354410> accessed 5 April 2023
 Kumar B and Jena D, ‘An Overview of Smart Contract and Use Cases in Blockchain
Technology’ (2018) ICCCNT <https://www.researchgate.net/publication/328581609>
accessed 2 April 2023
 Lo D and Singh P, ‘Smart contract development: Challenges and opportunities’
(2021) SCIS <https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?
article=5499&context=sis_research> accessed 5 April 2023
 Shields R, ‘Smart Contracts: Legal Agreements for the Blockchain’ (2017) 21 (1)
UNC <https://scholarship.law.unc.edu/cgi/viewcontent.cgi?
article=1435&context=ncbi> accessed 2 April 2023
 Somboun T, ‘Survey of Smart Contract Technology and Application Based on
Blockchain’ (2021) <https://www.researchgate.net/publication/355704432> accessed
9 April 2023

Websites and Blogs

 Goodness U, ‘6 examples and use cases of smart contracts’ (logrocket, 30 March

2022) <https://blog.logrocket.com/examples-applications-smart-contracts/> accessed
9 April 2023
 Hooda P, ‘Smart Contracts in Blockchain’ (geeksforgeeks, 20 September 2022)
<https://www.geeksforgeeks.org/smart-contracts-in-blockchain/> accessed 2 April
2023
 Iblogpleaders, ‘Smart contracts and their enforceability in India’ (24 April 2022)
<https://blog.ipleaders.in/smart-contracts-and-their-enforceability-in-india/> accessed
11 April 2023
 Mondaq, ‘The Enforceability Of Smart Contracts In India’ (13 December 2019) <
https://www.mondaq.com/india/contracts-and-commercial-law/874892/the-
enforceability-of-smart-contracts-in-india> accessed 11 April 2023
 Open Access Government, ‘What does the future hold for smart contracts?’ (23
January 2023) <https://www.openaccessgovernment.org/future-for-smart-contracts-
blockchain/151776/> accessed 9 April 2023