There is a higher chance that ‘Smart Contract’, which is the main function of second generation blockchain Ethereum, will be used within public sectors in couple years. Positive results have come out from research done by South Korean Government. It is expected that South Korean Government may start discussing about revising its laws so that written contracts can be recorded into blockchain nodes.
According to industries, Presidential Committee on the Fourth Industrial Revolution recently received results from research that indicated that it is possible to apply Smart Contract to public sectors.
Smart Contract indicates a contract that is automatically signed off according to an algorithm if it satisfies conditions.
In October of 2018, Presidential Committee on the Fourth Industrial Revolution started on blockchain-related research for the first time. It gave an order to KISDI (Korea Information Society Development Institute), which gave its results to Presidential Committee on the Fourth Industrial Revolution this month. Presidential Committee on the Fourth Industrial Revolution is a presidential organization that was established by South Korean Government.
From this research, KISDI gave a definition of Smart Contract and looked into advantages and disadvantages of Smart Contract when it is applied to public laws.
First, KISDI defined ‘Smart Contract’ as a ‘contract that is automatically processed according to an algorithm if it satisfies conditions’. It defined Smart Contract as a main function of blockchain and considers a contract based on Smart Contract as a ‘Smart Contract-based contract’.
When replacing public procurement contract with Smart Contract, KISDI looked at establishment of plan, announcement, bidding, selection of business operator, negotiation, conclusion of a contract, implementation of a contract, and evaluation of performance.
KISDI predicts that it is possible to utilize Smart Contract for ‘bidding’ and ‘selection of business operator’. It considered paying security deposit during bidding process through blockchain network. It predicts that there will not be any particular legal problem since detailed form of biding and payment method of security deposit are not regulated separately by State Contracts Act.
Regarding selection of business operator, KISDI believed that it will be useful to utilize Smart Contract considering strengths of blockchain. Because Smart Contract can be processed automatically, it believes that it is possible to eliminate ‘negotiation’ step depending on a type of procurement.
Regarding conclusion of a contract, it suggested that there needs to be legal examination on how to replace seal and signature and how to draw up a contract. Because there is no regulation where a written contract can be replaced if existence of a contract is guaranteed by a blockchain node, presidential legislator need to consider this issue.
Because it is not possible to modify something that is already recorded into blockchain, there needs to be a solution on how to process a contract once it is voided. Rather than cancelling a contract itself, developing an effect that is identical to cancellation of a contract is mentioned as an alternative.
“It is meaningful to attempt Smart Contract technology even if it is not commercialized yet from the fact that it improves transparency, involves participation from the public, and diversifies administrative measures.
Staff Reporter Ham, Jihyun | goham@etnews.com