Trakti Smart "Legal" Contracts Blog

5 Steps to Sign and activate a Smart Legal Contract

on October 8, 2021

Contracts are fundamental for all transactions in the business world. But the recent market turmoil has highlighted the importance of digitalization of processes and adequate risk management. This is especially true for dealing with exposure to counterparties.

In “conventional” physical legal contracts, parties usually know each other, and sign them with a handwritten/digital signature, depending on the form and legal requirements of the contract. Contracts are static and a lot of back-office work is needed to make things happen.

But as far as smart contracts go, how do parties sign and validate them? How can part B show its consent in adhering to part A’s smart contract?

Signing contracts is fundamental to activate digital transactions. The main property that contract signing protocols must achieve is fairness for both parties and should activate smart contracts only after achieving the electronic proof of committing to that specific course of action.

We know smart contracts provide a new way to address classic problems like automation, transparency, fairness, and double-spending but how we do make sure we activate them under the right conditions?

In this article, we look at 5 Steps to Sign and activate a Smart Contract using the Trakti Smart Legal Contract framework with integrated advanced electronic signature!

Trakti’s approach to smart legal contracts shows how those tools are ready to use and how smart contracts can work as an alternative platform to the use of traditional contracts. The programmable nature of smart contracts improves previous solutions for contract execution and monitoring in terms of cost, efficiency, and security.

Our CEO Luigi Telesca
will be speaking at Legal Innovators about Smart Legal Contracts
on the 22nd of October 2021!!!

Trakti, @Legal Innovators, Check it out

A smart contract can be created by programming it so that it holds all funds in Escrow until a certain goal has been reached or condition fulfilled. Also, since smart contracts are stored inside a blockchain everything is completely distributed, with this technique no one is in control of the money or the asset.

The signature is important as its function is to activate the smart contract. It’s like saying “Yes, I agree to this and therefore the procedure can be activated!”.

This approach begs the question of what are the rest of the 5 steps to sign a contract on the blockchain.

5 Steps to Sign a Smart Legal Contract and activate a Smart Contract


Integrate your smart contract in your legal template

Because a smart contract is embedded inside a blockchain it inherits certain properties from the blockchain meaning they are immutable and distributed. Being immutable means that once a smart contract is deployed it can never be changed again. So as soon as you start drafting a smart legal contract, you need to have in mind the connections between the smart contract and your legal clauses and parameters. In most of the platforms you need coding skills but with Trakti you don’t. We offer a no-code platform that simplifies the modeling and testing of your smart legal contract so you are ready to publish it in a dash.


Smart Legal Contract negotiation

The next step is to set up your contract using the smart legal contract model just published and invite your counterparties to negotiate with you. That means that until everyone accepts the contract terms and the fact that the smart contract execution logic will govern the next steps the contract will be still pending signature. A single person cannot force the contract to activate if all the signatures are not correctly collected.


Sign the contract

The final step to sign a contract is to apply an electronic or digital signature. A digital signature is a cryptographic technique that binds a person to digital data. That means provide verification that message was created by a known person and the message was intact and not altered in transit.

Apart from providing message authentication and data integrity, advanced electronic signatures also provide non-repudiation of messages. Since it is assumed that only the signer (sender) has the knowledge of the signature key (or One Time Password).

It’s very important to remember that you have to collect all the signatures of all the parties involved in a unique end-to-end process that will activate the smart contract. Breaking the process will block the activation and execution of the contract.


Push the information to the blockchain

The next step is to register/notarise the smart legal contract in the blockchain and release/activate the smart contracts. That means that all the parties agreed to activate the smart contract and that the hash of the document is now registered in the blockchain and can’t be modified by anyone. It also means that the smart contract is now governing the execution of all the processes that in the contract have been modeled to be monitored and automated. In some cases, the smart contract is already published and can be used in that case you will have to push the result of the negotiation as parameters to the smart contract.


Successfully execute your contract

The smart contract is now in self pilot mode and follows the rules agreed in the smart legal contract as a neutral player. As an example, until everyone on the network has validated the output of the contract, no funds can be released. A single person cannot force the contract to release the funds because other people on the network can spot this attempt and mark it as invalid.

Many smart contract-proposed use-cases assume that the smart contract will receive information or parameters from resources that are not on the blockchain itself—so-called off-chain resources. But smart contracts do not have the ability to pull data from off-chain resources. That information needs to be “pushed” to the smart contract. Trakti can do that for you either by calling oracles or integrating data sources via APIs.

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