Smart Contracts vs. Regular Contracts

Contracts are one of the essential parts of business agreements for over decades, highlighting the rights and responsibilities and enforcing the commitment between two parties. As time passes, everything is changing for better and easier methods, and like that, contracts are also evolving across the boundary of pen and paper, thanks to blockchain technology. Contracts are becoming smarter, and from where the smart contract enters, this changes the entire concept of the way agreements are made and enforced. But how does a smart contract differ from a basic traditional contract? Let’s break down the key differences and see how they will create an impact on the future agreements of this modern world.

A traditional contract is a legally binding document containing the agreement that involves two or more parties. It typically holds the terms and conditions, making sure all the parties are on the same page, and interprets what and when each of the parties are expected to deliver and the consequences if any of the parties fails to fulfill their final outcome. These contracts are traditionally designed and executed by lawyers and, in the event of any disputes, are taken to the courts.

• Written or Verbal Contract: Traditionally, contracts are either put on paper or agreed upon verbally; verbal contracts might be a little tricky to act upon.
• Third Party Involvement: Ordinary contracts would employ the services of solicitors, notaries, and even witnesses just to make them valid and enforceable.
• Legal Enforceability: Standard contracts depend upon legal jurisprudence to enforce the agreement in case of one party's default or failure to perform.

class SimpleContract:
    def __init__(self):
        self.owner = "owner_address"
        self.balances = {}

    def deposit(self, user, amount):
        if user in self.balances:
            self.balances[user] += amount
        else:
            self.balances[user] = amount
        print(f"{user} deposited {amount}. Current balance: {self.balances[user]}")

    def withdraw(self, user, amount):
        if self.balances.get(user, 0) >= amount:
            self.balances[user] -= amount
            print(f"{user} withdrew {amount}. Current balance: {self.balances[user]}")
        else:
            print("Insufficient balance")

    def get_balance(self, user):
        return self.balances.get(user, 0)


# Usage
contract = SimpleContract()
contract.deposit("user1", 100)
contract.withdraw("user1", 50)
print(f"user1's balance:", contract.get_balance("user1"))

A smart contract is more like a digital contract, where the terms and conditions of agreement are written directly as codes. The contract has the ability for self-execution, and it operates on a blockchain. This entirely removes the oversight of third- parties to enforce the terms. As smart contracts are self-executing, they automatically execute actions like granting access or making a certain transaction, and all these will be transparent for all the parties connected to that agreement.

• Code-Based Agreements: Unlike traditional contracts, where terms are printed on paper, smart contracts can carry the same agreements as code, where the agreements and the certain conditions for self-executing are transparent for all the parties involved in the agreement. These contracts run on blockchain platforms like Ethereum.
• Decentralized Execution: The code is executed on blockchain technology, so there is no need for any third parties to enforce the agreements.
• Automatic Enforcement: When conditions are met, the smart contract enforces the terms autonomously, reducing delays and the risk of human error.
• Immutable and Transparent: Once deployed, smart contracts are nearly impossible to alter, and the terms are accessible to all parties, adding transparency and security.

Although smart contracts are not yet widely adopted, they have been of value through the use of secure off-chain oracle services to realize new capabilities: scalability, confidentiality, order fairness, and connectivity to any real-world data source or system. They still possess the tamper-proof and immutable qualities of blockchains.

Decentralized Oracle Networks allow for a hybrid smart contract model that can unify multiple entities emanating from different systems and blockchains for the secure and seamless automation of various processes. By combining reliable execution through blockchain technology with safe external connectivity, privacy, scalability, and order-fairness using DONs, Chain Link is better positioned to help developers overcome some of the critical shortcomings of traditional smart contracts. The hybrid approach allows existing infrastructures to be hooked to blockchain networks without necessarily having changes in the backend and has network participants more effectively collaborative. DONs enable new use cases that include verifiable randomness, decentralized transaction ordering, and making systems fairer and more transparent, while they also allow applications requiring privacy or scalability, which makes them suitable for enterprise, gaming, and finance. In regard to the same, it is important to note that DONs work in providing services that are highly essential and which cannot be achieved by blockchains through interlinking non-blockchain systems with blockchain. This alone guarantees the security, scalability, and interoperability of an ecosystem.

Since both smart and traditional contracts boast their own strengths and weaknesses, their marriage in a hybrid approach could very well be what the future of contracts will look like.

Advantages of Smart Contracts

1. Speed and Efficiency: Smart contracts start to execute once the conditions are met; this eliminates the time delays associated with manual processing.
2. Cost Savings: Since there is no need for any intermediaries like lawyers, it automatically reduces the extra cost related to this intermedium.
3. Enhanced Security: The risk of fraud and tampering is decreased by blockchain technology. This is possible as blockchain is almost impossible to temper (immutability and cryptographic security). 
4. Global Accessibility: Blockchain allows parties from around the world to enter into agreements seamlessly.

Advantages of Regular Contracts

1. Flexibility: If both parties agree, regular contracts can be discussed and modified.
2. Broader Legal Recognition: Recognized by legal systems across the globe, and this promotes enforcement in the event of an argument.
3. Human Judgment: Allows for flexibility and interpretation, which can be helpful in complicated situations.

Limitations of Smart Contracts

1. Inflexibility: Once executed, smart contracts cannot be altered, and the code must be precisely correct to avoid future issues.
2. Code Dependence: This requires technical knowledge regarding coding in order to draft and review, and any mistake in the code can lead to unintentional consequences.
3. Legal Ambiguity: Not all administrations around the world accept smart contracts as legally enforceable, which can complicate disputes.

Limitations of Regular Contracts

1. Higher Costs and Delays: This requires more time and money due for all the manual processing, especially when involving legal proceedings.
2. Risk of Breach: Relies on trust and the legal system, which can be time-consuming if disputes arise.
3. Limited Transparency: Parties not directly involved may lack access to the full terms, in other words, not fully transparent for everyone.

Smart contracts and traditional contracts stand for different philosophies, respectively, in the creation and enforcement of agreements. Smart contracts function to bring speed, economy, and security to certain types of transactions—particularly those to which automation is well-suited. On the other hand, traditional contracts continue to be crucial in complex arrangements that require human judgment and flexibility and have been legally enforceable. In the future, as law and technology continue to evolve, both of these contract types could almost morph into one new flexible approach to agreements that takes the best of both.