CRYPTO AND ART GALLERIES Understanding your smart contract...
Smart contracts are code-fueled, digital contracts that are executed automatically when predetermined conditions are met. If there are terms specific to your NFT, they are executed according to the smart contract included with it. Understanding how Algorand’s smart contracts work will give you a way of navigating through the code.
Unalterable transactions...
Regardless of the blockchain, smart contracts all commonly share variations on these two characteristics: they are unalterable, and they have the ability to send and receive transactions. While there are certainly caveats to these rules, this is essentially what a smart contract is accomplishing. It is actionable through code alone, applicable to the parties engaging in the contract, and leaves an indelible record of the transaction.
The second characteristic is not actually specific to smart contracts but to blockchains as a whole: all records are stored on a public ledger for all to see.
What we’re left with is not a contract in the legal sense, but a series of transactions (and potentially other code-driven actions) that is instantly findable on a given blockchain. In short, an immutable, decentralized, autonomous exchange recorded as a public record of transaction.
This is a truly revolutionary concept.
Why are smart contracts special?
One of the more interesting societal changes taking place is a shift from human-centered exchange to code-backed commerce.
The reason we find this so interesting is that transactions between two people using paper money or barter requires an extra step to record the transaction. Someone has to either enter a record of the transaction on a database (which is subject to the physical frailty of centralized server systems), or write it down on a piece of paper.
Smart contracts are not technically executed by humans, so there is zero ambiguity as to what they represent. The bound certainty of storing records across a decentralized network and infinite record-building along that network provides a form of trust (through trustless verification) superior to anything seen to date.
While it is true that the greater context of the items being exchanged is still left up to some amount of future speculation (as selling a house with a smart contract may or may not be attached to any records of the house itself), the record of the transaction itself is indisputably superior to other forms of accounting.
This is where we feel many synopses downplaying the future use case of smart contracts go wrong – they underestimate the value of exchange executed by code. An NFT is simply a token representing the exchange of a non-fungible object, backed by executable code, forever secured as a record. When you do the mental math required to understand what is actually taking place, the future use case of smart contracts becomes clear.
It’s superior, human proof, code-backed accounting.
Smart Contract = Smart Wallet
For those more technically minded, it may be helpful to think of a smart contract as a smart wallet. Smart contracts essentially run their own wallet on a blockchain, with their own private/public key pair for reading and storing data. When interactions take place within a smart contract, they’re taking place within the wallet of the smart contract.
These interactions can include anything from the number of tokens someone is sending, the address of the receiver, or anything else people find important to include as executable code or notes about the transaction. There’s actually more wiggle room here than people may realize.
Legal ramifications...
Although it is unclear what long term ownership laws will come out of the use of NFTs, it is clear to the gallery that NFTs will be a new form of ownership for multiple asset classes. It’s important to understand that smart contracts have not yet been accepted as legally binding contracts. But they may be automatically covered by copyright laws.
Smart contracts, as encoded programs, are protected by copyright. This much is clear. But what specifically is protected will ultimately be determined by the blockchain being used as well as the evolving law surrounding such use cases.
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