Smart Contracts are familiar to those of us who have a rudimentary understanding of blockchain. But now is the time to brush up on your Ricardian Contract knowledge. In this post, we'll look at a new sort of contract that was just added to the blockchain, as well as Ricardian clauses.
What are Ricardian Contracts?
A Ricardian Contract is a legal contract that was initially created in 1995 by Ian Grigg, a well-known programmer. The notion has now been included in the blockchain. The following is a simple definition:
"It's a type of digital document that serves as a contract between two parties outlining the rules and conditions of their engagement."
It is cryptographically signed and confirmed, which makes it unique. Even though it is a digital document, it is available in a human-readable text format that is simple to comprehend (not only for lawyers).
It's a one-of-a-kind legal agreement or document that can be read by both computers and humans at the same time.
Simply explained, it is made up of two components or provides two functions. First and foremost, it is a simple-to-understand legal agreement between two or more parties.
It's simple enough for your lawyer to grasp, and it is simple enough for you to read and comprehend the Contract's main elements.
Second, it is a contract that can be read by machines. These contracts may now be readily hashed, signed, and kept on the blockchain thanks to blockchain platforms.
Overall, Ricardian Contracts combine legal contracts with technology, namely blockchain technology. They bind the parties to a legal agreement before the acts on the blockchain network are carried out.
The Origins of Ricardian Contracts
Even though Ricardian Contracts are new to the blockchain, the principles are three decades old. The Ricardian Contract isn't the only word from the 1990s that has something to do with blockchain.
Many newly applicable concepts like Smart Contracts and Proof of Work were also introduced at the same time but were not applied until blockchain became ubiquitous.
Ian Grigg: The Man Behind the Ricardian Contracts
Ricardian Contracts were first launched in 1995 as a component of the Ricardo Payment System. Ian Grigg, the creator of this new sort of legal document, is regarded as a pioneer in the field of financial cryptography.
The intriguing part is that he was still in school when he created Ricardian Contracts. This is why these contracts are also known as Ian Grigg Ricardian Contracts.
Anyone who reads his work can see how far ahead of his time he was. He came up with a novel idea for digitising a legal contract or any other financial instrument or asset.
However, in the 1990s, the technology needed to put his ideas into action based on their merits was unavailable. But since the advent of blockchain technology, this constraint has vanished.
How Do Ricardian Contracts Work?
Ricardian Contracts are human-readable legal agreements between two parties. This agreement can be used in a court of law since it binds you and the other party in a legal agreement.
It's possible that you'll require attorneys to draft the legal agreement, following which both parties may read, comprehend, and sign it. After that, it must be digitalized or hashed in order for the programme to execute on the blockchain network.
An issuer can construct a legal framework to ensure the legal Contract's validity. Both parties and holders must complete that legal structure and sign it.
Keep in mind that Ricardian Contracts are a subset of Smart Contracts and employ the same code. They are also active contracts that may be modified after an event has taken place.
For example, in a contract involving the purchase and sale of an automobile between two parties, one provision may require the parties to contact an entity that can validate whether the seller is the true owner of the vehicle.
Once you have the information, you may update the Ricardian Contract by adding it to a new version. The Ricardian Contract works in this manner, executing several events and progressing to a logical conclusion based on the outcomes of each.
So, from its history to its workings, here’s hoping that this article has made you a Ricardian Contract expert among your group of biztech enthusiasts. Happy (legally sound) investing!
Written By – Devika Mishra
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