Smart contracts which are based on blockchain technology or other distributed ledger technology are digital agreements, entered into a computer code that operate on the basis of blockchain or similar distributed ledger technologies and are automatically executed without the need for human intervention.
In order for a legal system to recognize legal validity and effectiveness of a smart contract, the latter must satisfy the contractual requirements for legal validity and effectiveness laid down by Slovenian law of obligations. These are requirements regarding the expression of will and concurrence of wills of the contracting parties, where the key dilemma concerns understanding the contracting party's will, which is written in a program code; requirements regarding legal entities and their capacity to have rights and obligations and capacity to contract, wherein the existence of the latter is questionable due to the anonymised or pseudonymized nature of blockchain transactions; requirements regarding the legal basis or the cause, which must necessarily exist and be admissible for the contract to be valid; requirements regarding the object of the obligation or the exercise behaviour that must also be admissible as well as possible and last but not least, requirements regarding the formality in so far as the respective contract requires it, wherein smart contracts, by its very nature, can hardly meet the strictest demands of formality.
Only under the condition of fulfillment of all of these requirements will a smart contract be considered legally valid and effective, and thus be able to represent an alternative to the existing “classical” contracts.
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