What is Ricardian contracts?
The Ricardian contract is a legally binding digital contract that defines the terms of interaction between two or more parties that is cryptographically signed and verified, and is read by both man and machine.
Who and when created the Ricardian contracts?
- Creator: financial cryptography Ian Grigg.
- Creation date: in 1995 Grigg put forward the concept of payment system «Ricardo», which is one of the possible scenarios for the use of Ricardian contracts. Creating a «Ricardo», Grigg relied on the development of American cryptographic company Systemics.
In 1998, Grigg introduced the Ricardian contract in his work «Financial cryptography in seven layers».
Payment system and contracts were named in honor of the Ricardian contribution to the theory of international trade, which made living in the nineteenth century British economist David Ricardo.
In 2015, Grigg published a paper in which he introduced the concept of the integration of smart contracts and Ricardian contracts.
Why the need for Ricardian contracts?
Ricardian contracts allow you to use smart contracts in the field of business, to enter into legally binding agreements of all types.
What information will be included Ricardian contracts?
- Information about the parties to the contract: who they are, their number, their representatives.
- Information about the duration of the contract.
- Information about exceptions in the contract.
- Any conditions, exceptions and additions can be added to the contract at any time.
What are the features of Ricardian contracts?
The division of the subject of the contract and execution of
Through a hash function Ricardian contract forms the link between legal language and digital measurement. All terms of the agreement is integrated in the contract, the subject of the transaction and their implementation are strictly separated, which increases security. The contract says the agreement between the parties so that the parties controlled by the program can fulfill the agreement.
A reference to a hash
The offer on the conclusion of the transaction (contract) is signed with a digital signature. The contract shall, when given consent to the transaction reference the hash of the contract. In the case of the payment system guaranteed payment refers to the hash of the contract, as well as for payer and payee. Payment can be made through mutual transaction, as well as through a smart contract. In the case of smart contract transaction is made on the basis of the code of the smart contract.
The parties to the agreement sign the Ricardian contract with private keys. Is added to the document the signature of the provider contract that creates a legally binding and clearly written proposal in connection with the information (e.g., ownership) in the document.
If the parties to the agreement subsequently participate in the contract (for example, I want to make a payment), then a cryptographic hash method authentication rewritten from the original signed document. Using the hash of the agreement ensures that the contract attached hidden signature.
The BowTie Diagram
The Ricardian contract, the parts agreement of the parties at the time and the field and uses so-called BowTie diagram: scheme of a legally binding contract that shows all of his goals.
Than the Ricardian contract differs from the smart-contract?
A number of parameters exceed the Ricardian contracts, smart contracts:
A smart contract is not a legally binding document; the Ricardian contract is legally binding.
The purpose of the agreement
Smart contract automatically takes the terms of the agreement; the Ricardian contract in the form of a legal document sets out the intention of the parties to the agreement and actions of the parties that will happen in the future.
Smart contract cannot operate as a Ricardian contract, which can also be a smart contract, automating actions through blockchain applications.
Smart-the contract is available for read-only machines; the Ricardian contract is available for reading both people and machines.
The smart contract is limited to simple usage scenario (financial transactions); the Ricardian contract can be used for concluding legally binding agreements of all types.
Where the use of Ricardian contracts?
Ricardian contracts in various forms used in the work of OpenBazaar decentralized marketplace and the Corda system from R3.