1

1. Introduction
In today's rapidly evolving legal and technological landscape, contracts remain
fundamental to business and personal interactions. A traditional contract is a legally
binding agreement between two or more parties, typically documented on paper with
physical signatures. It outlines the obligations and rights of each party and is
enforceable by law if it meets essential legal requirements, ensuring clarity and
reducing the risk of disagreement. They are known for depending on legal frameworks,
usually requiring physical paperwork, and often come with lengthy enforcement and
dispute resolution processes.
However, the advent of blockchain technology has introduced a paradigm shift
in the way contracts are created, executed, and enforced. Smart contracts, in contrast to
traditional contracts, are self-executing codes stored on a blockchain that trigger
contract terms when specific conditions are met. These contracts automatically enforce
clauses, such as penalizing a party for breaching the agreement. These types of
contracts are powered by blockchain, which offers a decentralized and unchangeable
transaction ledger. Therefore, this automation eliminates the need for human
intervention, reducing the risk of errors and disputes.
Understanding the distinctions and similarities between traditional and smart
contracts is crucial in today’s evolving legal and technological world. This report aims
to provide a comprehensive overview of how contracts are changing, especially with
the rise of smart contracts. It will explore the key characteristics of smart contracts,
their potential benefits and challenges, and the legal and technological considerations
involved in their adoption. By understanding the implications of this technological
shift, businesses, lawyers, and policymakers can better prepare for the future of
contract management.

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2. Highlight the similarities between Traditional Contracts and Smart Contracts
2.1 An overview of Traditional Contracts and Smart Contracts
2.1.1. Traditional Contracts
A traditional contract1 is an agreement between two or more parties that are
legally enforceable, typically documented on paper and often requiring physical
signatures. These contracts comprise terms and conditions that outline the obligations,
rights, and responsibilities of each party involved. They are legitimate under law under
the condition that they meet certain crucial requirements such as agreement,
consideration, contractual capacity, and legality2. Traditional contracts rely on written
paperwork, which provides a tangible record of the agreement and strengthens its legal
enforceability.
2.1.1.1. The establishment of enforceable agreements
Traditional legal contracts are commonly used in various industries where
formal, enforceable agreements are of the importance to protect the interests of all
stakeholders involved3. In the field of real estate, for instance, traditional contracts are
indispensable during transactions such as property sales or leases. These agreements
clearly outline terms such as the purchase price, property boundaries, and payment
schedules, ensuring both the buyer and seller understand their obligations. A real estate
purchase agreement is typically highlighted in this case where the contract specifies
terms like contingencies, closing dates, and financial details. Without such formal
agreements, real estate transactions could easily result in disputes over property

1
Alex Zhezherov, Everything you need to know about electronic vs traditional contracts, May 2023, Available at.
http://www.pandadoc.com/blog/difference-between-electronic-contracts-and-traditional-contracts/ (Accessed
date: 08 September 2024).
2
Kenneth W. Clarkson, Roger LeRoy Miller, Gaylord A. Jentz, Frank B. Cross, BUSINESS LAW, 11th Edition
TEXT & CASES Legal, Ethical, Global, and E-Commerce Environments, Publisher. South-Western, Cengage
Learning, 2009, page 217.
3
James Fyfe, What is an Enforceable Contract? Definition, Elements and Creation Guide, 2024, Available at.
https://www.portant.co/post/enforceable-contract, accessed: 08 September 2024.

3
ownership, payments, or missed deadlines, underscoring the need for clearly articulated
legal contracts.
Employment agreements also rely mainly on traditional contracts to protect both
employers and employees. These contracts formalize the terms of employment,
including salary, benefits, job responsibilities, and the conditions for employment
termination. For example, a corporation may present a new hire with a formal
employment contract that specifies work duties, remuneration, and length of
employment4. This contract establishes a binding agreement that sets precise
expectations, and prevents potential misunderstandings or legal disputes. In many
cases, these are adhesion contracts, which underlines that the employer sets the terms
with little room for negotiation; thus, the content must be comprehensive and fair to
both sides.
Traditional agreements play an important part in service contracts as well. When
businesses or individuals hire service providers, such as contractors or consultants,
traditional contracts ensure that the scope of services, payment terms, deadlines, and
responsibilities are explicitly defined. A homeowner, for instance, may engage a
contractor to remodel their kitchen, entering into a contract that specifies the materials
to be used, project dates, and payment terms. These service agreements are critical for
holding the service provider responsible to agreed-upon tasks, timetables, and quality
standards, reducing the possibility of incomplete or substandard work.
In complex business transactions such as mergers and acquisitions, traditional
contracts are indispensable in managing the intricacies of financial arrangements,
liabilities, and future obligations. When a company is sold, a purchase agreement
defines critical elements such as the price, transferred assets, or any warranties
provided by the seller. Such contracts safeguard both parties, providing legal recourse

4
The Different Types of Contracts: What You Need To Know, available at:
https://www.axiomlaw.com/guides/types-of-contracts, accessed: 10 September 2024.

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if one fails to meet their obligations. Given the significant financial stakes in these
transactions, traditional contracts assist in mitigating risks, ensure transparency, and
secure the legal enforceability of the terms.
Insurance contracts represent another vital application of traditional agreements.
When an individual decides to purchase health or life insurance, the contract between
the insured and the insurer outlines the terms of coverage, detailing what medical
services are covered, claim conditions, and payment obligations. These contracts
ensure that both parties acknowledge their rights and responsibilities, which is essential
in an industry where disputes over claims can be common and complex. For instance,
if a policyholder makes a claim, the insurance contract will dictate under what
conditions the insurer is required to pay. This precision can prevent misunderstandings
and ensure legal accountability.
Similarly, traditional loan agreements provide essential legal frameworks for
both lenders and borrowers. These contracts specifically state the loan amount, interest
rates, repayment schedules, and penalties for default. For example, when a borrower
takes out a mortgage to purchase a property, the loan agreement outlines repayment
terms, including the interest rate as well as the repercussion of missed payments. The
consistency of these agreements guarantees the clarity and enforceability of every
contract term, which is utmostly important in financial transactions involving huge
sums of money and long-term responsibilities.
In addition, traditional contracts control intellectual property agreements in
industries like technology, entertainment, or publishing. These agreements protect
intellectual property rights and establish licensing terms. For example, a software
company may engage into a licensing agreement with a client that allows them to use
its software under specific constraints, such as time and usage limitations. With such
agreements, intellectual property is ensured not to be misused or unlawfully

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distributed, while also offering both parties legal protection and explicit guidelines for
usage.
In summary, traditional contracts are crucial in a variety of different contexts,
from real estate transactions to intellectual property agreements, since they provide
legal clarity and enforceability while safeguarding the interests of all involved
stakeholders.
2.1.1.2. Elements of traditional contracts
Traditional contracts are composed of several key elements, each of which plays
a crucial role in forming a legally binding agreement.
The first element is the offer, which serves as the foundation of any contract. An
offer is a formal proposal made by one party, known as the offeror, to another party, the
offeree5. In the offer, the specific terms and conditions of the proposed agreement, the
details of the obligations each party will undertake are specifically outlined. For
example, a business offers to sell a specific quantity of goods at a set price. Therefore,
to achieve the effectiveness, the offer must be clear and plain, with no ambiguity about
the nature of the agreement, allowing the offeree to fully comprehend and decide
whether or not to accept.
Acceptance is the next essential element, which occurs when the offeree agrees
to the terms set out in the offer. This can be done verbally, in writing, or with actions
that announce the agreement6. However, for acceptance to be valid, it must mirror the
original offer without any modifications. A buyer agreeing to purchase goods at a
specified price is a common example of acceptance. This mutual consent between both

5
Kenneth W. Clarkson, Roger LeRoy Miller, Gaylord A. Jentz, Frank B. Cross, BUSINESS LAW, 11th Edition
TEXT & CASES Legal, Ethical, Global, and E-Commerce Environments, Publisher. South-Western, Cengage
Learning, 2009, page 232.
6
Kenneth W. Clarkson, Roger LeRoy Miller, Gaylord A. Jentz, Frank B. Cross, BUSINESS LAW, 11th Edition
TEXT & CASES Legal, Ethical, Global, and E-Commerce Environments, Publisher. South-Western, Cengage
Learning, 2009, page 242.

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parties solidifies the contract, establishing a binding agreement. Without clear
acceptance, no contract can be formed, making this element essential to the process.
Another key component is the promise, which represents the commitment made
by each party to perform a specific action or refrain from a certain behavior. In most
contracts, both parties make reciprocal promises. For instance, in a sales contract, the
seller promises to deliver goods, and the buyer promises to make a payment. These
promises are the core of the contract's obligations, ensuring that both parties understand
what they are required to do under the agreement. This exchange of promises is what
gives the contract its enforceability.
The subject matter of a contract refers to the specific focus of the agreement,
whether it involves the sale of goods, the provision of services, or the transfer of
property. The subject matter is critical because it defines what the contract is about and
what each party is agreeing to. For example, in a contract for the sale of goods, the
subject matter might involve the delivery of a specified number of products by a
certain date. A well-defined subject matter ensures that both parties are on the same
page regarding the nature and scope of the agreement, minimizing the risk of
misunderstandings or disputes.
Finally, consideration is the exchange of something of value between the parties
involved in the contract7. This can be in the form of money, goods, services, or any
other legally valued things. In a standard sales contract, the buyer's consideration is the
payment, while the seller's consideration is the delivery of the goods. Consideration is
essential because it ensures that each party is offering something of value in return for
the other's promise, creating a reciprocal exchange. Without consideration, there would
be no legal basis for enforcing either party to take binding responsibilities; hence, the
contract would lack the foundation required for legal legitimacy.
7
Kenneth W. Clarkson, Roger LeRoy Miller, Gaylord A. Jentz, Frank B. Cross, BUSINESS LAW, 11th Edition
TEXT & CASES Legal, Ethical, Global, and E-Commerce Environments, Publisher. South-Western, Cengage
Learning, 2009, pp. 250.

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 The fundamental components of traditional contracts are offer, acceptance,
promise, subject matter, and consideration. The perfect combination of these key
elements ensures mutual consent, clarity, and enforcement. Each element plays a
distinct yet interdependent role that makes it possible to create legally binding
agreements protecting the rights and interests of all parties.
2.1.1.3. The role of the legal system in enforcing traditional contracts.
A legally binding contract is valid and enforceable by courts, ensuring that both
parties adhere to their obligations. Ensuring validity is the first step in this process,
where the legal system examines whether the essential elements of a contract are
present. These elements include offer, acceptance, consideration, legal capacity, and a
lawful purpose. If any of these components are missing or defective, the contract may
be deemed invalid. For example, if a party lacks the legal capacity to enter into an
agreement, such as in cases involving minors or individuals without mental
competence, the courts will not enforce the contract. Similarly, if the contract’s purpose
is illegal or against public policy, it will not hold up in court. By ensuring that these
foundational elements are intact, the legal system guarantees that only valid
agreements are recognized and enforced.
In situations where disputes arise over the meaning or interpretation of contract
terms, the courts play a crucial role in interpreting contract terms. Contracts can
sometimes contain ambiguous language or unclear obligations, leading to
disagreements between the parties. The courts, in these cases, step in to interpret the
language, the intentions behind the contract, and the context in which the agreement
was made. The goal is to enforce the contract in a way that honors the original intent of
the parties. For example, if two parties disagree on the delivery date for goods, the
court would examine the wording of the contract and any surrounding circumstances to
determine what was originally intended. By doing so, the courts ensure that the

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contract is enforced in a manner that reflects the genuine agreement, protecting both
parties' interests.
When one party fails to meet their contractual obligations, known as a breach of
contract, the legal system provides remedies to address the breach and compensate the
injured party. One of the most common remedies is damages, where the breaching
party is ordered to provide monetary compensation for any losses incurred. For
instance, if a contractor fails to complete a construction project, the client may be
awarded damages to cover the cost of hiring a replacement. In some cases, specific
performance may be required, where the court orders the breaching party to fulfill
their obligations, especially in situations where monetary damages are inadequate. This
is often seen in real estate transactions, where the uniqueness of the property makes
financial compensation insufficient. Other remedies include rescission, which cancels
the contract and releases both parties from their obligations, and injunctions, where
the court prevents a party from engaging in behavior that violates the contract. These
remedies ensure that breaches of contract are addressed, and the injured party is made
whole.
The legal system also plays an active role in enforcing legal obligations,
ensuring that court rulings in contract disputes are followed. When a court rules in
favor of one party, it can use legal mechanisms such as wage garnishment, property
seizure, or other enforcement actions to compel the breaching party to comply with the
judgment. For instance, if a party fails to pay a court-ordered settlement, the court may
garnish their wages or seize assets to satisfy the judgment. This enforcement
framework is crucial for maintaining the integrity of contracts, ensuring that parties
cannot simply ignore their legal obligations without facing consequences.
Moreover, courts have the authority to intervene when they find that a contract
is unfair, unconscionable, or illegal. Preventing unfair contracts is a critical aspect of
the legal system’s role in contract law. If the terms of a contract are so one-sided that

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they exploit one party, or if a party was coerced into signing the agreement, the court
may declare the contract void or modify its terms to make them fairer. This protects
individuals and businesses from entering into exploitative agreements. For example, a
contract that takes advantage of a party’s lack of bargaining power by imposing
unreasonable terms can be invalidated by the court to prevent unjust outcomes.
Finally, the legal system ensures that contracts comply with public policy. If a
contract involves illegal activities or violates public interest, it will not be enforced,
even if both parties willingly agreed to the terms. This prevents contracts from being
used to facilitate unlawful behavior, ensuring that they align with societal values and
legal standards. For instance, a contract that requires one party to engage in criminal
activity, such as smuggling goods, would be void under the law. By upholding public
policy, the courts ensure that contracts are not only private agreements but also
instruments that promote lawful and ethical conduct.
In sum, the legal system provides the structure and enforcement necessary to
ensure that contracts are valid, fairly interpreted, and enforced, while also preventing
the use of contracts for illegal or exploitative purposes. This framework protects the
rights of individuals and businesses, ensuring that contracts are both fair and aligned
with public policy.
2.2.1. Smart Contracts
2.2.1.1. An overview of smart contracts
First coined by Nick Szabo in 1997, a smart legal contract is defined as a piece
of code stored on a blockchain that self-executes contract terms when certain
conditions are met. A smart contract follows a condition-based structure, and if, or
when certain conditions have been met, a new action will be completed. Contractual
clauses that are embedded in smart contracts will be enforced automatically when a

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certain condition is satisfied (e.g., one party who breaches the contract will be punished
automatically).8
The code can contain as few or as many conditions as are necessary to complete
a certain transaction, and this is usually built and implemented by programmers rather
than conventional lawyers.
In a smart contract, the terms of a legal document are written directly into lines
of code and stored within a distributed and decentralized blockchain network.
However, the code can also be stored as part of a different distributed ledger
technology, too.
This blockchain is essentially a public database, with no single owner. Instead,
the transactions are automatically processed by the blockchain without the need for
third-party involvement. As the transactions are stored and linked in this way, the
exchange cannot be edited by either party, making them extremely secure.
2.2.1.2. Contexts where smart contracts are used
With the insurance industry plagued with inefficiency, long waiting times, and
fraud, some insurance groups have welcomed smart contracts to add more certainty and
security to the process. A prime example of this use case of smart contracts is AXA’s
use of blockchain smart contracts to offer insurance against delayed flights. When
launched in 2017, the insurance company used smart contracts to provide automatic
flight delay payments to their customers through the self-executing code contained in
their insurance policy.
Smart contracts have also been used in real estate since the digital
ownership/management of property and documents can be tied directly to blockchain.
This is a popular use case for smart contracts since real estate transactions are
notoriously stressful and risky, and the features of smart contracts can minimize this

8
Zheng, Z. et al, An overview on smart contracts: Challenges, advances and platforms, Future Generation
Computer Systems, no. 105, 2020, pp. 475–491.

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risk substantially. In real estate deals, for example, one party can feel hesitant to
transfer the ownership of a property before a fee has been paid by the other, and vice
versa. To resolve this, you might rely on third-party involvement to ensure both parties
keep to their promises. However, this can delay the process and increase costs over
time. To work around this, smart contracts can execute the terms once each condition
has been met by both parties automatically instead - hence their popularity.
They have various different use cases in the healthcare industry, too. The main
example of this is the use of smart contracts for securing and sharing patient health
records in a reliable way that is free from tampering and human error. One example of
smart contracts in practice is to accurately transfer patient data between doctors and
hospitals without the need to manually share and complete health record forms.
Smart legal contracts have also been recommended for use in voting systems by
governments and by different groups, for example. This is because they are
tamper-proof, and eliminate any risks of forgery - which ensures that voting systems
are less susceptible to manipulation and mistakes. Smart contracts present a more
efficient approach to voting entries and tallying since they are digital and automated,
which reduces the need for masses of paperwork and manual document completion.
2.2.1.3. Legal implications
Interestingly, smart contracts are actually more like business rules than
conventional legal contracts. This is because, at a basic level, smart contracts
automate business transactions and spend little time discussing the roles, duties, and
responsibilities of each party, and what liability they incur if they fail to meet these.
Instead, a smart legal contract executes the business rules automatically, unlike
in conventional contracts which include intricate and detailed clauses that offer
protection in the event that complex legal issues occur. Smart contracts are focused
solely on achieving simple outcomes, whilst other contracts are designed to offer
guidance in the event that those outcomes don’t come to fruition. However, the

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LawTech panel recently decided that, despite this, smart contracts could still be legally
binding provided that they include the typical elements of a contract.
There are a wealth of legal issues surrounding smart contracts that we are yet to
see the full effect of, so there is no guarantee of how transactions using smart contract
technology will play out in the future when these pressing legal questions do arise. This
lack of certainty can be unsettling for businesses and legal teams, which is why so
many have been reluctant to adopt the intelligent, new technology. However, in doing
so, smart contracts can remove the more human aspect of contracts that typically help
businesses foster and nurture better and longer-lasting relationships with their
employees, partners, and customers.
2.2. Similarities between Traditional Contracts and Smart Contracts
First, both traditional contracts and smart contracts are legally binding
agreements. In traditional contracts, these are agreements between parties, often in
written or verbal form, that are legally binding once the involved parties agree to the
terms. Meanwhile, smart contracts also serve as legally binding agreements, but they
are executed through code. Once conditions are met, the contract enforces itself
automatically. Blockchain technology overlaps traditional contracts by including the
terms of agreements between two or more parties, but surpasses them thanks to smart
contracts by automating the execution of agreements in a distributed environment when
conditions are met.9
Second, when examining the basic elements that exist in both traditional
contracts and smart contracts, it becomes evident that both types of agreements share
fundamental principles, despite their differing formats and execution methods. At the
core, both traditional and smart contracts rely on the concept of mutual consent, where
all parties involved agree to the terms laid out in the agreement. This mutual agreement

9
Zheng, Zibin, et al, An Overview on Smart Contracts: Challenges, Advances and Platforms, Future Generation
Computer Systems, vol. 105, no. 105, 2020, pp. 475–91.

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is essential for establishing the legal binding nature of the contract. Additionally, both
types must clearly define the obligations of each party; in traditional contracts, this is
often done through detailed clauses, while smart contracts encode these obligations in
code that automatically executes when certain conditions are met.
Another critical element is the presence of consideration, which refers to
something of value exchanged between the parties. In traditional contracts, this might
be money, services, or goods, while in smart contracts, it could involve cryptocurrency
or digital assets. Furthermore, both types of contracts require a clear understanding of
the terms and conditions to ensure enforceability. In traditional contracts, this is
typically achieved through legal language, while smart contracts utilize programming
languages to define and enforce conditions.
Moreover, the concepts of performance and breach apply universally. Both
contracts specify how and when parties will fulfill their obligations, and what
constitutes a breach should one party fail to meet their responsibilities. Lastly, legal
enforceability remains a critical element, as both traditional and smart contracts aim to
provide a framework that can be upheld in a court of law or through automated
mechanisms in blockchain environments. These shared elements highlight the enduring
principles of contract law, even as technology evolves the ways in which agreements
are formed and executed.
Also, the legal system plays a crucial role in enforcing both traditional and smart
contracts, ensuring that agreements are honored and disputes are resolved fairly. In the
realm of traditional contracts, the legal system provides a well-established framework
for enforcement through courts. When one party fails to fulfill their obligations, the
aggrieved party can seek legal remedies, such as damages or specific performance, by
presenting their case before a judge. This process relies on established laws and
precedents that guide the interpretation of contractual terms, ensuring consistency and
predictability in outcomes.

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 In contrast, the enforcement of smart contracts introduces new complexities, as
these agreements are executed through code on a blockchain. While smart contracts
can automate transactions and reduce the need for intermediaries, their enforceability
still hinges on the legal system. Courts are increasingly tasked with determining the
validity of smart contracts, assessing whether they meet the essential legal
requirements of contract formation, such as mutual consent, consideration, and lawful
purpose. Additionally, the unique nature of blockchain technology raises questions
about jurisdiction and applicable law, as smart contracts can span multiple legal
territories.
Moreover, the legal system must adapt to address challenges specific to smart
contracts, such as identifying responsible parties in decentralized environments and
resolving disputes arising from coding errors or unforeseen circumstances. As the use
of blockchain technology continues to grow, there is a pressing need for legal
frameworks that recognize and accommodate these innovations. Ultimately, the legal
system serves as a vital mechanism for upholding the integrity of both traditional and
smart contracts, fostering trust and stability in commercial transactions while
promoting innovation in contractual practices. Blockchains assure the trust of the
whole system by distributed consensus mechanisms without going through a central
broker or a mediator. Smart contracts stored in blockchains can be automatically
triggered in a decentralized way. Consequently, the administration and services costs
due to the intervention from the third party can be significantly saved.10
3. Analyze the differences between Traditional Contracts and Smart Contracts
3.1. Form
a. Traditional contracts

10
Zheng, Zibin, et al, “An Overview on Smart Contracts: Challenges, Advances and Platforms.”, Future
Generation Computer Systems, vol. 105, no. 105, 2020, pp. 475–91.

15
- Format: Traditional contracts are normally paper-based, in written form. They can
be in various formats, including formal documents or informal handwritten notes.
Traditional contracts can be scanned or converted into digital formats like PDFs for
easier storage and sharing.
- Language: Traditional contracts are written in natural language (eg. English,
Vietnamese,...)
- Signatures: Traditional contracts require signatures from all parties involved,
indicating mutual consent. Handwritten signatures are the most common form,
where individuals sign their names manually.
b. Smart Contracts
- Format: Smart contracts are purely digital. They exist as lines of code written in
programming languages (e.g., Solidity for Ethereum) and are executed on a
blockchain.
- Language: Smart contracts are written in programming languages tailored for
blockchain, such as: Solidity, Vyper, Rust, and Chaincode. They specifies the terms
and conditions in a machine-readable format using code. Logic is defined through
conditional statements, loops, and other programming constructs.
- Signatures: Smart contracts do not require traditional signatures like those found in
paper contracts. Instead, they use cryptographic methods to ensure authenticity and
authorize actions. Each participant (e.g., users, contract creators) has a unique
cryptographic address derived from their public/private key pair. When a user
interacts with a smart contract (e.g., calling a function), they sign the transaction
using their private key. This signature proves that the user authorized the action
without needing a traditional signature.
3.2. Execution process
a. Traditional contracts

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- Negotiation: Parties often engage in negotiation to finalize terms, which may
involve back-and-forth discussions, amendments, and clarifications. The
complexity of the contract plays a significant role in determining the duration of
this negotiation phase; for complicated contracts, which may encompass numerous
terms—such as payment schedules, delivery timelines, performance metrics, and
liability clauses—the discussions can become particularly exhaustive. As a result,
this elongated negotiation process can significantly delay the overall contracting
timeline, potentially impacting subsequent steps such as execution, compliance
monitoring, and dispute resolution.
- Signatures: Traditionally, contracts require signatures from all parties involved to
indicate acceptance. This may involve physical meetings or the exchange of
documents via email or postal services. In situations where face-to-face meetings
are not feasible—due to geographical distances, scheduling conflicts, or other
logistical challenges—the exchange of documents may occur through electronic
means, such as email, or through traditional postal services. However, in some
cases, physical attendance is required to ensure the eligibility and security of the
contracting process.
- Witnesses and Notarization: Certain contracts may require third-party witnesses
or notarization to enhance their legal validity, adding another layer of human
involvement. The involvement of these third parties is instrumental in enhancing
the legal validity and credibility of the agreements, ensuring that all parties are
protected and that their intentions are clearly documented.
b. Smart Contracts
- Negotiation: Negotiations for smart contracts typically occur before the contract is
coded. Parties must reach a consensus on the terms, which is then reflected in the
smart contract code. In traditional contracts, negotiations can take place throughout
the process, often involving multiple rounds of revisions.

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- Signature: Smart contracts utilize digital signatures, which are created using
cryptographic algorithms. Each party involved in the smart contract has a unique
pair of keys: a private key for signing and a public key for verification. This allows
parties to sign the contract digitally without needing to be physically present.
However, one disadvantage of smart contracts is limited amendments. Once a smart
contract is deployed, making changes requires creating a new contract or modifying
the existing one, which can be complex. Traditional contracts allow for easier
amendments through mutual agreement, often documented through written
amendments or addendums.
- Pre-Programmed Conditions: Smart contracts are programmed with specific
conditions that dictate how and when they are executed. Once the conditions are
programmed into the smart contract and deployed on the blockchain, the contract
operates autonomously. This means that when the specified conditions are met, the
contract automatically executes the actions outlined in its code without the need for
human intervention. Smart contract utilizes conditions for automation, thus
reducing the risk of human error and speeding up the execution process.
- No Need for External Monitoring: Since the contract's execution is automated
and verified on the blockchain, there is no need for external monitoring or
enforcement by the parties involved. Unlike traditional contracts, smart contracts do
not need third party involvement for witness or notarization.
3.3. Transparency
The transparency of contracts is determined by how the terms and conditions
can be easily viewed and understanded by the involved parties. Part of the contract are
terms and conditions that help to make sure parties understand their contractual rights
and obligations. The legal contract which shows parties’ rights and obligations, also

18
called a legal agreement, in accordance with local, state, and federal contract laws.
They set important boundaries that all contract principals must uphold11.
In traditional contracts, terms and conditions are written in language on physical
documents. It heavily depends on human involvement12. Lawyers or legal professionals
draft, review, and negotiate the terms and conditions of the contract. Parties involved in
the contract may consult with legal experts to ensure that the contract is legally sound
and meets their requirements. Therefore, the transparency of the contract depends
significantly on how clear and concise language is used in the terms and conditions.
Even explicit terms within a contract can present interpretation challenges if the
language is imprecise or open to multiple meanings13. Where the contract itself is not
under question, the judiciary aims to attribute the most sensible interpretation to such
vague or ambiguous terms. Additionally, if the contract was prepared by one party, any
ambiguity in it is typically resolved in favour of the opposing party. This is grounded in
the notion that the party who drafted the contract should assume the risk of any lack of
clarity in its language. Moreover, traditional contracts are typically paper-based,
requiring physical document access. For example, in consumer contracts, if a company
requires customers to visit a physical location to review the terms of service or
conditions, many may not take the time to do so, resulting in a lack of awareness about
key provisions14. This physical limitation can create an imbalance, where the consumer

11
‘Terms and Conditions: Definition, Key Terms, Examples’, available at:
https://www.contractscounsel.com/t/us/terms-and-conditions#:~:text=Terms%20and%20conditions%20are%20pa
rt%20of%20a%20contract,important%20boundaries%20that%20all%20contract%20principals%20must%20upho
ld, accessed: 15 September, 2024
12
‘Smart Contracts vs Traditional Contracts: Bridging Automation Gap’, available at:
https://blog.carret.in/smart-contracts-vs-traditional-contracts/, accessed: 14 September, 2024
13
Roberts & Obradovic Law, The art of contract clarity: Navigating express terms and legal interpretations,
2024,
https://blog.firstreference.com/the-art-of-contract-clarity-navigating-express-terms-and-legal-interpretations/,
accessed: 5 September, 2024
14
Omri Ben Shahar, ​The Myth of the Opportunity to Read in Contract Law, available at:
https://home.uchicago.edu/omri/pdf/articles/The_Myth_Of_Opportunity_To_Read.pdf, accessed: 5 September,
2024

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is bound by terms they haven't properly reviewed, which could be considered a barrier
in transparency.
On the other hand, the visibility of terms and conditions in smart contracts is
different from traditional contracts. Firstly, smart contracts are written as code and
executed on blockchain networks, often using programming languages like Solidity
(for Ethereum) or Vyper. Unlike traditional contracts, which use natural legal language
like English, smart contracts rely on a computer-readable format, where the contract’s
rules are embedded in code. This ensures the automatic execution of agreed-upon terms
without human intervention. However, it can be difficult for non-technical users to
understand the logic behind the implementation. Secondly, since smart contracts are
stored on a blockchain, they are not able to be changed after being deployed. This
enhances transparency because all parties involved can review the contract anywhere
anytime, and every action taken under the contract is recorded on the blockchain15.
This public accessibility prevents unwanted changes and ensures transparency.
3.4. Security
Security in traditional contracts usually depends on legal enforcement and
document security practices, such as physical safes. Confidential information can be
kept private through confidentiality clauses and secure storage methods, though these
documents are not inherently encrypted unless stored digitally using secure platforms​.
Traditional contracts incorporate several security measures to ensure the protection of
the parties involved and the integrity of the agreement. One key aspect is the
authentication of identities, which ensures that both parties are who they claim to be.
This can be achieved through physical signatures, witnessed by a third party, or
through secure digital signatures in modern contracts. Another important factor is the
confidentiality of the terms, often safeguarded by limiting access to the contract and
using non-disclosure agreements (NDAs). In today's digital world, contracts can be
15
Blockchain Smart Contracts: Implementation & Best Practices, available at:
https://binariks.com/blog/smart-contracts-blockchain-examples/, accessed: 6 September, 2024

20
enhanced with encryption to keep those pesky unauthorized eyes away. Moreover,
having clear clauses about breach penalties not only helps ensure everyone plays by the
rules but also serves as a friendly reminder to stick to the agreement. A thoughtfully
designed contract also outlines ways to resolve disputes, like arbitration or mediation,
which offer a reassuring safety net if any disagreements come up. Lastly, staying
compliant with regulations, such as industry standards or data protection laws like
GDPR, brings an added layer of legal protection, keeping both parties safe from any
legal hiccups due to non-compliance. Each of these friendly elements plays a vital role
in creating a solid security framework that preserves the integrity, confidentiality, and
enforceability of our trusty traditional contracts.
The friendly security method known as blockchain is used to safely transfer data
and ensure the security of smart contracts through the SHA-256 cryptographic
algorithm. Any attempt to illegally alter information on this ledger would require an
enormous amount of computational power, exceeding 50% of all internet resources.
Hackers would have to compromise more than 51% of users to claim their hacking was
successful. They would also need to individually change the information on at least
51% of all computers to achieve the new outcome. This hacking includes changing the
list of historical data saved in sequence among those computers. Any traceback will
reveal the inconsistencies16. Using blockchain will be a great step toward enhancing
security and a great way of doing business. The technology can be used in many fields,
and predictions show enhancements in all aspects of the fields involved Encryption
plays a crucial role in safeguarding the data stored within these contracts, ensuring
confidentiality and integrity. The immutable nature of blockchain technology prevents
tampering with the contract's terms, providing a high level of security against
unauthorized modifications. Additionally, the transparency of public blockchains

16
F. Idelberger, G. Governatori, R. Riveret and G. Sartor, “Evaluation of logic-based smart contracts for
blockchain systems”, in Int. Symp. on Rules and Rule Markup Languages for the Semantic Web, cham: Springer,
2016, 167–183

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allows for public verification of contract execution, reducing the risk of fraudulent
activities. However, smart contracts are not entirely immune to vulnerabilities. Coding
errors can introduce unintended consequences or security loopholes, emphasizing the
importance of rigorous testing and code reviews. Oracle attacks can manipulate
external data sources used by smart contracts, potentially leading to incorrect
outcomes.
3.5. Cost
The cost of a traditional contract involves money paid to intermediaries such as
lawyers, notaries, and banks. Each intermediary charges fees for their services. As only
lawyers can understand the terms and conditions to draft the contract, they can charge
fee on this service. Legal fees for drafting, negotiating, and reviewing contracts are
significant, ranging from hundreds to thousands of dollars depending on the
complexity17.
When using smart contracts, the primary fee includes gas fees (the transaction
costs associated with executing a smart contract on a blockchain which is decided by
the blockchain platform, network congestion, and the complexity of the contract),
deployment fees (publishing a smart contract to the blockchain) and​ oracle fees (for
example, insurance or price feeds). Smart contracts, by contrast, are self-executing and
automated on the blockchain. Therefore, there is no need to hire intermediaries to draft
the contract or write terms and conditions. Once the initial setup (coding the contract)
is complete, the costs primarily come from blockchain transaction fees, which are
generally much lower than traditional legal fees.

17
How much do lawyers charge to draft contracts?, 2022, available at:
https://legalknowledgebase.com/how-much-do-lawyers-charge-to-draft-contracts, accessed: 15 September 2024.

22
4. Analyze the advantages and disadvantages of each type of contract
4.1 Procedures
4.1.1. A smart contract involves a 6-step process including:18
1. Parties negotiate the contract terms and conditions
2. The smart contract is created
3. The smart contract is deployed
4. Triggering conditions are met
5. The smart contract is executed
6. The contract result is recorded to the blockchain
4.1.2. A traditional contract involves a 6-step process including:
1. Parties negotiate the contract terms and conditions
2. The contract is drafted
3. The contract is signed
4. The traditional contract is executed
5. Contract performance and compliance is monitored
6. Contract is renewed or terminated
On the one hand, there are some advantages of smart contracts compared to
traditional contracts in terms of procedures, namely automation, speed, and accuracy:
Automation: Firstly, smart contracts automatically execute actions when conditions
are met, reducing the need for human intervention. As discussed in the previous
sections, there is no need for human involvement in the later steps of processing a
smart contract as it is automated based on the conditions previously set in the contract.

18
Garnett, Allie Grace, How smart contracts work with blockchain: A step-by-step guide, Encyclopedia
Britannica, 2023, available at: https://www.britannica.com/money/how-smart-contracts-work, accessed 15
September 2024.

23
Speed: Transactions are processed quickly, as there are no delays from intermediaries
or manual processes. Moreover, smart contracts streamline the overall process by
reducing the daunting process of paperwork and administrative duties. Besides, the
absence of intermediaries including lawyers or notaries also minimizes the time of
processing smart contracts.19
Accuracy: Smart contracts are executed based on code, thus eliminating human error
associated with manual interpretations and actions usually found in traditional
contracts. All of these codes are built on the same set of rules, allowing no room for
miscommunication among the parties involved.
On the other hand, smart contracts also have certain limitations compared to
traditional ones, as demonstrated by their complexity, irreversibility, and legal and
regulatory uncertainty:
Complexity: Developing smart contracts requires technical expertise, which may limit
accessibility for non-technical users. Since smart contracts are deployed on Blockchain
platform using programming language, not everyone has the expertise to code a smart
contract, which may be a trouble for non-expert users.20 Besides, the process of
deploying a smart contract involves not only coding but also rigorous testing to ensure
functionality and security. This testing often requires the use of development tools and
environments that may be unfamiliar to non-technical users.
Irreversibility: Once executed, smart contracts cannot be altered, which can lead to
issues if there are mistakes in the code.21 If a smart contract needs to be updated or
improved, this often requires creating a new contract and migrating data from the old
one, unlike traditional contracts where amendments can be made after the contract has

19
Taherdoost, H, Smart contracts in Blockchain Technology: A critical review, Information, no. 14(2), 2023, p.
117.
20
Smart contracts vs traditional contracts: The right way for business, 2024, Synodus, available at:
https://synodus.com/blog/blockchain/smart-contracts-vs-traditional-contracts/, accessed: 15 September 2024.
21
Ene, C, Smart contracts - the new form of the legal agreements, Proceedings of the International Conference on
Business Excellence, no. 14(1), 2020, pp. 1206–1210.

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been signed without recreating the contract. This process can be complex and may
involve additional technical challenges.
Legal and Regulatory Uncertainty: The legal status of smart contracts is still
evolving, and they may not be recognized in all jurisdictions. While a smart contract
can be a legally binding agreement, it is not necessarily always legally binding.22 The
acceptance and enforcement of smart contracts can vary widely between countries.
Some jurisdictions have established legal frameworks for digital contracts, while others
may not.23
4.2 Cost
Drafting, executing, and enforcing traditional contracts generally comes with
associated costs which is higher than those costs for smart contracts due to the
involvement of legal intermediaries, manual processes, and longer timeframes.
Traditional contracts require legal professionals to draft, review, and oversee
enforcement, often incurring substantial fees. Additionally, manual signatures and
administrative work is involved when executing these contracts , which increases costs.
If a breach occurs, enforcing a traditional contract requires litigation which can be
expensive and time-consuming​
Smart contracts, on the other hand, are delightful agreements that automatically
execute themselves and are securely stored on a blockchain. Their wonderful
automation removes the need for middlemen, which helps to lower the costs of drafting
and execution. Once the agreed-upon conditions are fulfilled, they spring into action
automatically, greatly speeding up the process and cutting down on administrative

22
Are smart contracts legal? how to make them enforceable?, 2024, Synodus, available at:
https://synodus.com/blog/blockchain/legal-smart-contracts/, accessed: 15 September 2024.
23
What are smart contracts, and how are they regulated and enforced?, LegalZoom, available at:
https://www.legalzoom.com/articles/what-are-smart-contracts-and-how-are-they-regulated-and-enforced,
accessed: 15 September 2024.

25
costs. Plus, enforcing a smart contract is often a breeze since it is unchangeable and
runs on pre-coded logic, which helps to reduce disputes and keep legal costs low​.
So, smart contracts provide a fantastic and budget-friendly option, especially for
simple transactions, while traditional contracts still hold a special place for more
complex or legally sensitive agreements.
4.3 Transparency
Both traditional contracts and smart contracts have different pros and cons. One
of the advantages of traditional contracts is natural language, which makes them more
accessible to people with support from legal professionals. Understanding what is
written in the contract allows parties to inspect the terms and conditions more easily.
Secondly, in traditional contracts, the details are only accessible to the involved parties
unless they share them with others. This characteristic ensures the privacy of the
contract, especially in the case where sensitive personal or business information is
involved. On the other hand, the problem is that traditional contracts generally lack
real-time transparency. Tracking the contract’s status or identifying updates requires
manual effort and the involvement of intermediaries like lawyers, who can understand
the contract's legality and ensure it is properly enforced.
One of the main advantages of smart contracts regarding transparency is the
ability to verify the contract's terms and monitor its execution in real time, which
reduces the need for intermediaries and enhances trust between parties. Unlike
traditional contracts, smart contracts do not have any physical limitations or legal terms
since they operate on a decentralized blockchain where all transactions and contract
executions are recorded in an immutable ledger. Therefore, hidden modifications are
unlikely to occur with the public nature of these contracts. However, this transparency
can also be a disadvantage, particularly in situations where privacy is required. All
contract details are visible on the blockchain, it is challenging to keep them private
unless privacy-focused technologies are used. In addition, smart contracts are reliable

26
on code, resulting in coding errors or vulnerabilities that can introduce unforeseen
risks.
4.4 Safety
Traditional contracts depend on legal systems and institutions to build trust and
uphold agreements. While these legal frameworks provide safeguards and options for
resolving disputes, they can also bring about challenges like human mistakes, legal
loopholes, or differences in jurisdictions.
On the bright side, smart contracts use blockchain technology to boost security
and trust in transactions. Smart contracts are incredibly secure because of their
blockchain foundation. The wonderful decentralized nature of blockchain means that
contract information is held across various nodes, making it quite tough for any single
entity to change the contract’s terms after it’s set up. Plus, the unchangeable nature of
blockchain records offers a clear and traceable log of transactions, which helps to lower
the chances of fraud.
4.5 Ease of Use
Traditional contracts are widely used in scenarios that require detailed
negotiations and human oversight, such as mergers and acquisitions. In these cases, the
ability to account for variables like changing market conditions or business valuations
is critical. For example, during the acquisition of a company, there might be complex
contingencies tied to the business’s future performance. A traditional contract allows
for flexibility through clauses that enable renegotiation or amendments based on future
developments. Moreover, if disputes arise, lawyers can argue over the intent of the
parties, and courts can make rulings based on established legal principles. However, the
downside to this flexibility is that such contracts often take weeks or even months to
negotiate and finalize, with significant legal fees involved. For companies with tight
deadlines or limited budgets, this process can be cumbersome and costly.

27
 Smart contracts, on the other hand, excel in scenarios where speed, security, and
automation are prioritized. For instance, in decentralized finance (DeFi) applications,
smart contracts automatically execute financial transactions, such as lending and
borrowing, without the need for intermediaries like banks. A platform like Ethereum
can host a smart contract that triggers loan disbursements once specific collateral
requirements are met. This eliminates the need for third-party oversight and reduces
transaction times from days to minutes. Similarly, in the supply chain industry,
companies like IBM are using smart contracts to automatically verify and record each
stage of a product’s journey, ensuring transparency and reducing the risk of fraud.
While these examples show the efficiency and automation of smart contracts, they also
highlight the rigidity of such agreements. If an error occurs in the code or if unforeseen
circumstances arise, there's no way to modify the contract without deploying a new
one, making them ill-suited for complex deals where flexibility is needed.
In conclusion, the ease of use for traditional contracts is primarily driven by
their widespread understanding and flexibility, allowing for nuanced, complex
agreements that are adaptable to changing circumstances. Smart contracts, while
offering unparalleled efficiency and automation, pose challenges in terms of
accessibility due to the need for coding knowledge and their inflexible nature. The
choice between the two ultimately depends on the complexity of the agreement, the
need for human judgment, and the parties' technical capabilities. As legal frameworks
for smart contracts evolve, their adoption may increase, but for now, traditional
contracts remain the more accessible and flexible choice for many types of
transactions.
4.6 Legal Value
Traditional contracts hold significant legal value due to their established history
and widespread acceptance in courts worldwide. They are rooted in centuries of legal
precedence, making them enforceable in nearly every jurisdiction, provided they meet

28
basic legal requirements such as mutual consent, lawful consideration, and proper
documentation. This legal backing provides a high level of assurance for parties
entering into agreements, especially in complex deals. For example, in cross-border
mergers and acquisitions, traditional contracts are critical because they must comply
with the laws of multiple countries and can include clauses that account for varying
regulations, taxes, or dispute resolution processes. If disputes arise, traditional
contracts provide a clear path for resolution through established legal channels like
litigation or arbitration. However, while they offer strong legal protection, traditional
contracts can be costly and time-consuming to enforce. Parties may need to engage in
lengthy court battles, driving up legal fees, and adding uncertainty to when obligations
will be fulfilled.
On the other hand, smart contracts represent a relatively new frontier in legal
agreements, with their legal value still evolving. While they automatically execute once
predefined conditions are met, the question of enforceability remains a gray area.
Smart contracts operate on blockchain technology, making them secure and immutable,
but this same characteristic poses challenges. In jurisdictions that have not yet
recognized blockchain-based agreements, smart contracts may not be legally binding in
a traditional sense. For instance, if a dispute arises from a faulty or ambiguous smart
contract, there is often no clear legal framework for resolving the issue. This creates
uncertainty around enforcement, especially in countries without established blockchain
regulations. However, smart contracts do offer transparency and tamper-proof
execution, which can be valuable in industries where legal trust is essential but parties
seek to avoid costly intermediaries. To take an example, in international trade,
companies like Maersk use smart contracts to automate shipping agreements, with
terms like payments and delivery times hard-coded into the contract. While these
agreements streamline processes, their lack of legal recognition in some jurisdictions
means that recourse in case of disputes remains unclear.

29
 In conclusion, traditional contracts continue to dominate in terms of legal value
due to their deep-rooted acceptance, adaptability, and enforceability across global
jurisdictions. Their flexibility to account for complex, changing situations and reliance
on established legal systems make them indispensable for high-stakes deals.
Meanwhile, smart contracts offer automation and transparency but face significant
challenges in legal enforceability and adaptability, particularly in countries without
blockchain-specific legislation. As legal frameworks evolve, smart contracts could play
an increasingly important role, but for now, traditional contracts hold the stronger legal
standing in most complex or high-value transactions.

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5. Conclusion
In conclusion, both traditional contracts and smart contracts have distinct
characteristics, each offering unique advantages and drawbacks. Traditional contracts
rely on paper-based formats, human language, and manual processes such as
signatures, negotiation, and enforcement through legal systems. They excel in
flexibility, accessibility, and legal enforceability, making them ideal for complex
agreements that require human oversight and adaptability. However, there are some
disadvantages such as being time-consuming and expensive due to the need for
intermediaries like lawyers and notaries. Smart contracts, on the other hand, are digital
agreements written in code, executed automatically on a blockchain. They provide
unmatched speed, automation, transparency, and cost savings by cutting out
intermediaries and minimizing human error. However, their inflexibility, such as
dependence on coding skills, and the evolving legal framework pose several
challenges, especially for non-technical users or in regions without blockchain-specific
regulations. To fully harness the potential of smart contracts, improvements in their
legal framework are crucial. Governments and regulatory bodies should work to
develop clear, consistent guidelines for the enforceability of smart contracts across
jurisdictions. Legal standards for addressing disputes, handling coding errors, and
ensuring data privacy must be established to provide greater certainty and protection
for all parties involved. By bridging the gap between technology and law, smart
contracts can become more widely accessible and reliable in modern legal systems.

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Reference

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