What are Ricardian Contracts?

A Ricardian contract is a type of legally enforceable digital contract that can be read by both humans and machines. It specifies the terms of an interaction between two or more parties, is cryptographically signed and certified, and can be read by the parties involved in the contact.

What are the Purposes of Ricardian Contracts?

Ricardian contracts make it possible for businesses to enter into legally binding agreements of any kind using the latest in blockchain and smart contract technologies.

Ian Grigg, a cryptographer specializing in financial matters, is the creator. 1995 is the year that Grigg first presented the idea of the Ricardo payment system, which is one of the many potential applications for Ricardian contracts. When Grigg was developing “Ricardo,” he relied heavily on the work that had been done by the American encryption corporation Systemics.

In his book Financial Cryptography in Seven Layers, published in 1998, Grigg presented the concept of Ricardian contracts.

In recognition of the significant contributions to the idea of international trade made by the British economist David Ricardo in the 19th century, the payment system and contracts were given the name “Ricardian.”

Grigg suggested the idea of combining smart contracts and Ricardian contracts in a piece of writing that was published in 2015 and titled “Integrating Smart Contracts and Ricardian Contracts.”

What kind of information can be found in Ricardian contracts?

Details regarding the parties to the agreement, including who they are, how many there are, and who their representatives are. Specifics on the span of time covered by the agreement.

Details regarding any deviations from the terms of the contract that may apply. The contract allows for the inclusion of any and all conditions, exceptions, and additions at any moment.

What are the Key Differences Between a Ricardian Contract and a Smart Contract?

Ricardian contracts are preferable to smart contracts in a variety of aspects, including the following:

Legal aspect

The Ricardian contract, on the other hand, is a document that can be considered legally binding, while a smart contract cannot.

The reason for entering into the arrangement

A Ricardian contract takes the form of a legal document and lays forth the intentions of the parties to the agreement as well as the actions of the parties that will take place in the future. A smart contract is able to automatically fulfill the provisions of an agreement that has already been finalized.

Flexibility

A Ricardian contract, which can also be considered a smart contract and automates actions through blockchain applications, is not compatible with the functionality of a smart contract.

Availability

The Ricardian contract, on the other hand, can be read by both people and machines, whereas the smart contract can only be understood by computers.

Application across a broad spectrum

A Ricardian contract, on the other hand, can be used to engage into any kind of legally binding agreement, whereas a smart contract can only be used for a specific sort of transaction (financial transactions).

Where Can You Use a Ricardian Contract?

Both the decentralized marketplace OpenBazaar and the Corda system developed by R3 make use of Ricardian contracts in a variety of guises to carry out their business.