Practical digital business contracts

When entering into a contract with a customer, it is no longer necessary (at least in Finland) to physically transmit signed copies of a paper copy.

While convenient, given how easy digital images are to counterfeit, this raises a question of how to make sure the digital copy is not later modified by either party of an agreement. It would be easy to for example a buyer to replace the price of the contract with a lower figure by a simple Photoshop operation.

Of course, a prudent organization keeps copies of all digital contracts. So any changes made later can be detected by comparing the copies. However such checks can be time-consuming; a large contract can be dozens of pages. On first thought, checking that the file sizes match sounds like a good idea, too. However it’s also easy to add (or remove) some data from a file transparently so that file sizes match.

So, how to reliably compare an original and a copy that’s been received afterwards? There is a solution: one can generate a so-called cryptographic hash string that serves as a fingerprint of the original file. The way these hashes are generated ensures that any changes to the file will result in a different hash. So one can later easily check that the copy is a faithful copy of the original, by checking whether their hashes match.

A even better solution is to use digital signatures enabled by public key cryptography: First, a key pair is created, consisting of a private key that’s kept secret, and a public key that can be distributed or published freely. The two keys are created from a common “origin” in a way that makes it possible to use them together in a very smart way.

What happens when digital signatures are created  is that the secret private key is used to “stamp” the hash. The public key can then be used to later verify that the stamp was indeed created using the private key – in other words, by the party that gave us the digital signature.

So as a result, by using digital signatures, we can make sure that the contract copies both parties possess are the same, and also that the copy was sent to us by the contractual other party.

Here’s a simple Python module providing a command-line utility to create and verify digital keys and signatures.

For more details, see for example the blog post by Laurent Luce, describing the use of PyCrypto.


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