Cryptocurrency, blockchain and smart contracts are possibly the most revolutionary technological innovations of our time. This mantra is already well-known amongst people in the crypto industry who have fully embraced and invested in the technology.
Even so, governments and regulatory agencies have been taking a cautious approach on the matter. However, just recently the prominent US regulatory agency, the Commodity Futures Trading Commission (CFTC), has shown a deep understanding and interest of blockchain-based smart contracts.
The CFTC released a 32-page primer detailing the use cases, risks, and challenges of blockchain-based smart contracts. The primer is to provide a well-thought out and researched document about smart contracts to accelerate the learning curve for US regulators, investors, and policy makers.
Smart Contracts Defined by the CFTC
The CFTC defined smart contracts as a set of coded computer functions that can automatically execute the outcomes of a contract based on specific criteria being met or not met. They clarified that smart contracts do not have to be a legally binding contract, and therefore have more use cases.
The report also laid out 3 main attributes of a smart contract:
- Can authenticate (counter-) party identities, the ownership of assets, and claims of right
- Can access or refer to outside information or data to trigger action(s)
- Can automate execution processes
Further on, the report detailed the interconnected nature of smart contracts and distributed ledgers (blockchains). It explained how blockchains are platforms which store smart contracts and distribute them through a decentralized network. It also explained that the decentralized aspect of the blockchain helps to ensure the viability of the smart contract.
If the report’s recognition of decentralized blockchain technology isn’t enough for you, they even cited the viewpoints of Vitalik Buterin, the co-founder of Ethereum.
“A smart contract is a mechanism involving digital assets and two or more parties, where some or all of the parties put assets in, and assets are automatically redistributed among those parties according to a formula based on certain data that is not known at the time the contract is initiated.”
They also cited computer scientist Nick Szabo and others to provide context from brilliant minds on what smart contracts are.
CFTC Recognizes the Benefits of Smart Contracts
In the report, the CFTC lists everal potential benefits of smart contracts along with extensive details and examples.
The key benefits of smart contracts listed by the CFTC are:
- Economy and speed
- Business innovation
- Regulatory innovation
Importance of the CFTC Primer on Smart Contracts
The CFTC is a well-respected regulatory agency in the US with a mission to foster open, transparent, competitive, and financially sound markets. Therefore, now they have formally released a primer on smart contracts and acknowledged their potential benefits, it’s a sign of what’s coming.
Now, regulators, policy makers, and investors have a trusted source of information that details important information regarding blockchain technology and smart contracts. You can read the full report here.