Ricardian Contracts: A Comprehensive Guide For Beginners
In our previous article, I discussed Smart Contracts and their functionalities in detail. Now in this article, we'll discuss a type of digital contract that holds a definite significance in the Blockchain world i.e., Ricardian Contracts. Today we'll learn What are Ricardian Contracts, their history, and how does it work? In our last newsletter, we learned about Hash functions in Blockchain that you can check out here. Let's get started with our today's topic of "Ricardian Contracts".?
What are Ricardian Contracts: Quick Overview?
The Ricardian contract is a human-readable legal agreement that is signed by both parties to be agreed upon the terms mentioned in the same. It was first introduced by a well-known programmer, Ian Grigg in 1995 and is cryptographically signed & verified. The best feature about such contracts is that they can be ready by both humans and machines that serve a dual purpose. This characteristic enables it to get hashed and signed by blockchain platforms. This legally binding document merges two worlds; the Judicial system and Blockchain technology.?
History of Ricardian Contracts?
Although Ricardian Contracts seem like a significantly new concept in the blockchain world, it is three decades old and was introduced as part of the Ricardo Payment System back in 1995 by one of the renowned pioneers of financial cryptography, Ian Grigg. Therefore, Ricardian Contracts are also known as "Ian Grigg Ricardian Contracts". But back in time, the technology was not advanced enough to implement this concept in the best possible way but in today's time with the introduction of Blockchain technology, this concept got new wings.?
Characteristics of Ricardian Contracts
Ricardian Contracts have the following characteristics.?
How do Ricardian Contracts Work??
As discussed, Ricardian Contracts are legally binding contracts that are similar to smart contracts and can be used as an actual legal agreement with its terms & conditions agreed upon by the legal team. Let's understand it with the help of a simple example.?
If there is a need for a contract on buying/selling a vehicle, one clause of the contract can be about the original owner of the vehicle and once the information is verified by the buyer, it can be added to the contract leading to a new version of the same. In this way, Ricardian contracts execute a certain order of events and come up with a logical conclusion based on the outcome of a previous event.?
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Ricardian Contracts Vs Smart Contracts?
The pointers explained further clearly state the differences between Ricardian Contracts and Smart Contracts.?
Merits of Ricardian Contracts
The most significant merit of Ricardian Contracts is that they facilitate the legal transfer of assets through blockchain and act as a legally valid agreement. Another crucial advantage of the Ricardian Contract is that it cannot be interpreted by anyone to their advantage including legal experts because the contracts get converted with no room left for misinterpretation.?
Demerits of Ricardian Contracts?
The only demerit of Ricardian Contracts is that it has not been widely accepted in the mainstream till now. There still is an ongoing development in the blockchain world trying to reap the best possible version of the same. But there are plenty of industries making use of Ricardian Contracts to streamline their legal matters.?
Use Case of Ricardian Contracts?
As of now, the best use case of Ricardian Contracts is an online marketplace, OpenBazaar that uses Ricardian Contracts to enable scam-free and secured asset transfers. The scope of such contracts lies in the tabloid of the future and we are quite hopeful for it.?
Final Words
In this newsletter, we learned what are Ricardian Contracts, their characteristics, how they work, and their respective merits & demerits, along with a detailed comparison between Ricardian Contracts and Smart Contracts.?