Smart Contracts & Blockchain Technology - The New Reality

More and more, the legal tech scene is riddled with terms such as smart contacts and blockchain. But what do these terms entail and how do their technologies impact the legal arena?

Looking at blockchain first, it is a database that is specifically protected against subsequent changes to its content. Falsifications or manipulations of data are thus virtually impossible to accomplish. On a technical level, this is made possible by storing a hash value of a previous data set in the new data set when the data is changed. Applying blockchain technology is particularly relevant when used as a distributed database (peer-to-peer). This eliminates the need for a central server system of a third party that needs to be trusted (such as money transfers to the server of a bank).

This kind of application is generally known as Bitcoin, which was established in 2009, making it the oldest blockchain application in a peer-to-peer network. Smart contracts are independently monitored in real time and automatically enforced according to previously defined terms between contract partners.

Smart contracts can independently monitor contracts in real time and automatically enforce previously defined rights of contract partners. When combined with blockchain technology, they can ensure that all transactions are legal and self-monitoring. This is particularly important when the contract parties are not familiar with each other and therefore have a trust issue.

There are currently very few legal applications for smart contracts for blockchain technology. However, this will change over time, since “smart” is gaining ground (just consider smart homes and the Internet of Things). The advantages of the combination of smart contract and blockchain technology is obvious: it can not be manipulable, and it is autonomous, decentralized and anonymous. The legal language in the future will become more and more a programming language - Code is Law.

Will the Lex Heineken Come Into Force?

The Hungarian government is cracking down on the commercial use of Nazi or communist symbols such as swastikas, hammer and sickles, or a red stars. The reason given is respect for the victims of the Holocaust and communism. Heineken’s red start has therefore seen as “an obvious political meaning”. Under the “Lex Heineken”, the Dutch brewery is looking at a fine of 6 million euro.

As with most laws and regulations, it has an interesting back story. For starters,  Hungarian restaurants like to promote local wines and beers. The consumption of beer is around 80 liter per person. The most consumed beers are from SAB Miller and Heineken. The ban could be a clever attempt to block foreign competition (which is not allowed under EU law).

Furthermore, Heineken won an infringement court case against a Hungarian-owned small brewery in Romania. Heineken sells a Csiki Premium beer, while the Rumanian brewery produces Csiki Sör (Csiki Beer). The court ruled in favor of Heineken, and the name Csiki Sör cannot be used anymore. The nationalistic Hungarian government likes to stick up for its minorities across its borders. The ban could be seen as a revenge act.

Last but not least, the government of Viktor Orbán is against the presence of international companies in Hungary. The central and local authorities believe that those internationals sell inferior quality of EU products in Eastern Europe, while Western Europe enjoys top quality.

The “Lex Heineken” is currently being discussed in parliament. Even if it passes, it is unlikely that it will stand up. Chasing strategic partner and tax payer Heineken out of Hungary is not a smart move.