Ricardian Contracts: Legally Binding Agreements on the Blockchain

Complexity in the global economy created the need for live contracts readable by both humans and machines. To this end, Ian Grigg, a cryptocurrency and blockchain expert successfully developed Ricardian contracts in the mid-1990s. A Ricardian contract is a legal document with two formats, a human-readable format and a machine-readable format.


Ricardian contracts can be used for any type of agreements. The contract has a broader possibility of application than smart contracts, which are more suitable only for the most basic financial transactions. A Ricardian contract is used to determine the responsibilities and liabilities of a party when transacting with another party. Once the agreement is signed, none of the binding parties can alter the terms of the contract unless all parties agree to do so.

Future Prospects of Ricardian Contracts

The Ricardian format uses both human language and computer language to write the contract. Machines read Ricardian contracts using dedicated software while people read it as a plain text document. This allows all the parties bound by the contract to accurately process the information in the agreement. This significantly lowers transaction costs through speeding up dispute resolution and easier execution of the contract.


An interesting feature of a Ricardian contract and its related ledger system is transparency. Just like blockchain, the contract significantly reduces the risk of fraud by using cryptographic hashes to protect data from illegal alterations. The global economy is quickly moving away from bulk paperwork towards digitization of documents. In the near future, records involving financial transactions, shipping manifests, and similar records requiring a ledger will be 100% digitally recorded.

A Legal Agreement in Digitized Form

A Ricardian contract can be described as an agreement in the form of a single document presented by an issuer to a property owner. Additionally, these agreements are digitally signed with cryptographic keys and server information. To maximize document security, Ricardian contracts are further protected by a unique and secure identification method.

Integrating Ricardian Contracts Into the Blockchain

Currently, smart contracts can be successfully integrated to almost any blockchain ecosystem. A smart contract is a digital agreement that has been agreed upon and can execute automatically. A Ricardian contract, on the other hand, is a contract model to record the “intentions” of a contract and all associated terms even before the contract executes.


Incorporating Ricardian contracts on the blockchain brings in much-needed details of a contract that smart contracts leave out, including the following questions:  


  • What is the intention of the contract?
  • What, if any, consequences may be applicable?
  • What is the defined scope of the contract?
  • Who are the involved parties, and their approved representatives?
  • Under which regulations would we resolve a dispute?


This gap has led to the loss of millions of dollars through the abuse of smart contracts. Ricardian Contracts are legally binding agreements, meaning they do hold up in the local courts of law. Merging smart contracts and Ricardian contracts will combine the best of the two protocols and significantly improve trade on the internet. Many blockchain infrastructures including EOS, a cryptocurrency with its own blockchain, are considering incorporating Ricardian contracts into their ecosystem.

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