The Minimum Hybrid Contract (MHC): Combining legal and blockchain smart contracts

TL;DR

This paper introduces the Minimum Hybrid Contract (MHC), combining blockchain smart contracts with traditional legal contracts to enhance transparency, auditability, and immutability in financial transactions, aiming to combat corruption and fraud.

Contribution

The paper proposes a novel hybrid contract model that links smart contracts with legal contracts to improve transparency and legal enforceability in financial dealings.

Findings

MHC enables secure, transparent peer-to-peer transactions.

It integrates blockchain transparency with legal dispute resolution.

The approach facilitates adoption of smart contracts in traditional legal frameworks.

Abstract

Corruption is a major global financial problem with billions of dollars rendered lost or unaccountable annually. Corruption through contract fraud is often conducted by withholding and/or altering financial information. When such scandals are investigated by authorities, financial and legal documents are usually altered to conceal the paper trail. Smart contracts have emerged in recent years and appear promising for applications such as legal contracts where transparency is critical and of public interest. Transparency and auditability are inherent because smart contracts execute operations on the blockchain, a distributed public ledger. In this paper, we propose the Minimum Hybrid Contract (MHC), with the aim of introducing 1) auditability, 2) transparency, and 3) immutability to the contract's financial transactions. The MHC comprises an online smart contract and an offline traditional legal contract. where the two are immutably linked. Secure peer-to-peer financial transactions, transparency, and cost accounting are automated by the smart contract, and legal issues or disputes are carried out by civil courts. The reliance on established legal processes facilitates an appropriate adoption of smart contracts in traditional contracts.