Isn’t it amazing that blockchain jargon as Proof of work, consensus, smart contracts, Ricardian Contracts, and others are becoming so commonplace? A while back, these terms were esoteric and spewed by nerds interested in merging “incompatible” disciplines—at least they said.
Today’s progress is attributed to the tireless work of the Cypherpunk movement and work of pioneers like Nick Szabo and Ian Grigg. Their work, though 30 years old or more, demonstrates that technological progress is not immediate but executes in lock steps, is iterative, full of trial and errors and entrants can be fooled into thinking that blockchain phenomenon is a result of 2015 to early 2017 work.
A level deeper and it’s easy to see that today’s conversation circling on terms as smart contracts and EOS’s Ricardian contracts have been dormant but in existence since the 1990s. With the advent of blockchain technology and later initial coin offerings, there seemed to be a revival of development as well as applicability.
Smart Contracts Versus Ricardian Contracts
As we have said, financial cryptography is complex. It’s a face-off between two diverse fields of finance—the engine of economies–and cryptography—a home of libertarians, maximalists, and futurists. One field advocate for status quo and stability while the application of cryptography often leads to anonymity and behind-the-scene acting. That’s why in the eyes of a neutral, they are incompatible.
However, despite the clash between central bankers and programmers, there is progress. Smart and Ricardian contracts now have real-world usage. A smart contract is a digitalized contract between two entities but operating from the blockchain. It is self-executing once certain conditions are right.
On the other hand, the Ricardian contract goes ahead and store contract details in a machine and human readable format. As such these contracts—unlike Ethereum’s smart contracts—has a level of interweaving, complex yet understandable filling the gap between the gaps of legislation and computers via cryptography.
Why Ricardian Contracts
Undoubtedly, smart contracts utility is the basis of several applications worth millions of dollars. However, even with widespread use, these blockchain based machine readable contracts are not legally binding.
They are cheap, self-executable and cost-effective—end of story. In case of damage, you can’t prove malice in a court of law, and worse still, smart contracts are often immutable meaning if there is a software error and conditions are verifiable, recourse will be hard. It’s a weakness for blockchain based solutions, and that’s why due diligence and thorough tests are mandatory before launch.
However, we are not saying Ricardian contracts are mutable. Unlike Smart contracts, these new forms are legally binding and resolving conflicts is fast as they are in machine and human readable formats. Ricardian contracts are so reliable that OpenBazaar use them to bind transacting parties thanks to the storage of extra details of the agreement and the ability to digitally append signatures.