Tag: laws

Smart Contracts: Mission Possible

In the last article for 2021, I shall touch on one of the exciting topics in technology for the last decade. For sure, with its novel approach, blockchain technology managed to change and shape our technical landscape during that period. These days crypto is brutally adopted, and many people use cryptocurrencies every day. Additionally, we could see the mass adoption of NFT and how it changed the art industry. We saw many platforms making ICO as a replacement for IPO. All of these would not be possible without blockchain.

But what is blockchain? Essentially, blockchain is an append-only database system in which every transaction is cryptographically signed. Your digital identity is presented by a pair of public/private keys. The algorithms use these keys to encrypt/decrypt and sign/verify the data coming into and out of the database. These same keys are used to identify your wallet in the standard crypto-currencies world. However, a traditional key/value database system is not enough for real-world usage, which is why almost all blockchain networks now offer smart contracts. 

Every smart contract is a programming object with a lifecycle happening in the blockchain network. Additionally, every interaction with it is recorded and cryptographically signed with the same set of public/private keys used for your digital wallet. With such capabilities and a way for sending money, the blockchain networks offer pretty exciting opportunities:

You can see a standard workflow of using a smart contract on the diagram. The seller and buyer provide data to the code deployed in the blockchain, and it is executed to fulfill the contract
  • Replacement of standard contracts: In one ideal World, crypto would dominate people’s legal operations. It has all the tools for doing that, and many platforms, including IBM’s Hyperledger, offer such capabilities. Instead of signing on paper, people use digital signatures, and the system’s distributed nature ensures that no malicious modification can happen.
  • E-voting: Many people believe that we could replace the standard paper-based voting system entirely with the progress of zero-knowledge proof protocols. Indeed, the technology is promising and could offer genuine authenticity during the voting experience in the future. However, its current state (aka not supporting actual programming language experience) is hardly helpful for anything other than checking a simple boolean expression.
  • Decentralized Economy: In our current capitalism-based world, the parties issuing the money control the market. With the rise of crypto, that’s no longer true because now everyone can start issuing tokens and dictating how the market operates. And this is extremely helpful for smaller communities, which can detach themselves from the centralized issuing authority.

In conclusion, blockchain is quite existing technology, but unfortunately, it is still not mature enough for mass adoption. The main concern is that it is still possible to track the money transfers and identify the real people behind the public/private key pairs despite being anonymous. The same is true for smart contracts and e-voting – for sure, no one is going to be happy if people have access to her/his real estate’s notarial act or know for whom he/she voted. 

Legal pitfails for Start-Ups – part 2

In the last part discussed the difference between an idea and a patent and how the proper judgment of whether something is in breach of the intellectual property is a gray area. Additionally, we spent some time analyzing the way software companies make an idea to product. We pointed out that all companies usually use already established algorithms and design patterns free of copyright. In this part, we shall discuss some techniques and pain points Start-Up founders must be aware of.

First – this advice is more oriented towards every entrepreneur – please make sure you hire a good lawyer before you do a single step of your Start-Up journey. And by good, I mean a lawyer with good work etiquette and a moral compass between wrong and right. Additional experience in the field is a bonus, but it must not be the main reason you start working with someone. Additionally, a skilled lawyer can help you set up your company in a way, which can save you many troubles in the future.

Second – make sure that you have at least one technical person with legal knowledge. This person will work closely with your lawyer when you have to make a legal decision regarding your technical product and will clear technical details regarding your contract templates, customer complaints, and, in the worst case, if someone decides to attack your organization legally. Ideally, this person must be part of your founding team but not hired.

On the diagram you can see a standard legal contract workflow. After the initial contract you have actions and finally the contract must end with one of the exits

Third – be paranoid. Contracts are invented for both sides to have the worst-case scenarios covered. And by that, we mean the worst-case scenarios indeed. Some examples are death, theft of intellectual property, not honoring the deal from one of the sides, etc. I can give you some tips: make sure you have every exit situation covered; the contract must have a period and if there is a penalty rule, make sure that there is an upper limit for it.

Fourth – make sure you don’t make enemies. A significant percent of legal arguments are because of personal reasons. The most common cause is that someone’s ego is hurt so much that this same person decides to take legal action. From a business perspective, usually, the main reason is that one of the sides chose not to honor their deal and pay some money. Sometimes the cheating side could even fabricate a whole story to get away from court action.

In conclusion, please make sure you treat your customers, partners, and employees well. Not honoring a deal must be triggered only by terrible reasons, which are out of your control. It is the only way your reputation will stay intact, and you will not make yourself a bad name. From my experience, I can give you an example where not honoring the initial deal led to the company losing all of its technical team and a delay of at least two years. Eventually, the company bankrupted.

Legal pitfails for Start-Ups – part 1

During the years, I have seen many Start-Up team members lacking the necessary legal knowledge to make effective decisions about what is wrong and what is not wrong to do when working in that field. Many company owners have a too dark and or too light perception regarding the legal requirements when building a new technology-based company. At the same time even more significant number of company owners directly ignore some laws or try bending them to their benefit. As always, the truth is in the middle, and reality is more grayish. 

But let’s start with a simple example regarding copyright laws. I am amazed how many people in technology still neglect them and even have no idea how they work. So let’s give them a ride. In their essence, these laws state the following:

On the diagram you can see a standard diagram included in patent papers. It is On the diagram, you can see a standard chart included in patent papers. This diagram is too general, and systems such as computers, smartphones, etc., could be categorized as devices implementing it
  • Ideas: Ideas are free from copyright. However, here come two questions regarding that statement. First – how do we distinguish an idea from something else? We usually use already established design patterns and algorithms in technology and try to model our ideas using these tools. So, in short, the standard approach of making your concept alive is to use something someone has already invented, but it is not under copyright. Second – having in mind the last sentence, where is the line between an idea and something which must be under copyright? Should we claim the collection of algorithms and design patterns needed for one idea’s implementation to be under copyright?
  • Patents: For anyone reading patent papers, patents describe the design patterns and logic implementing the idea defended by the patent. At the same time, we could ask the following questions: What happens if we change one of the boxes used in the patent and implement it another way, but not the one described in the patent? Will this invalidate the patent? Will this be enough legally to claim that our Start-Up does not use the patent?
  • Programming code: By default, every programming code is under copyright. The idea of this setup is to defend the employer legally. However, there are some exceptions for that – what happens if the employee is an outsourcing company or freelancer? What happens if the employee uses a code or skills acquired before starting working with the employer? What happens if the employer has permitted the employee to operate its own company and projects in the same industry? What happens if there was a verbal agreement for partnership between the employer and the employee, but the employer decides not to honor the deal?

In conclusion, the answer to these questions usually is – It depends. Every situation is different, and that’s the reason we have courts for making decisions. Laws typically try following the community’s moral compass; unfortunately, this is not always possible. It is a good idea for us as entrepreneurs to be prepared for any situation using that knowledge. And the list of bad situations includes legal, financial problems, and even personal vendetta from ex-partners and ex-employers. People change with age, and sometimes these changes are for the better, which is why contracts were invented.