Smart Contracts: Terminology, Technical Limitations and Real World Complexity

26 Pages Posted: 19 Sep 2017 Last revised: 27 Jan 2020

See all articles by Eliza Mik

Eliza Mik

The Chinese University of Hong Kong (CUHK) - Faculty of Law; TILT; Melbourne Law School

Date Written: August 17, 2017

Abstract

If one is to believe the popular press and many “technical writings,” blockchains create not only a perfect transactional environment but also obviate the need for banks, lawyers and courts. The latter will soon be replaced by smart contracts: unbiased and infallible computer programs that form, perform and enforce agreements. Predictions of future revolutions must, however, be distinguished from the harsh reality of the commercial marketplace and the technical limitations of blockchain technologies. The fact that a technological solution is innovative and elegant need not imply that it is commercially useful or legally viable. Apart from attempting a terminological “clean-up” surrounding the term smart contract, this paper presents some technological and legal constraints on their use. It confronts the commonly made claims concerning their ability to automate the transacting process and to ensure perfect performance. It also examines the possibility of reducing contractual relationships into code and the ability to integrate smart contracts with the complexities of the real world. A closer analysis reveals that smart contracts can hardly be regarded as a semi-mythical technology liberating the contracting parties from the shackles of traditional legal and financial institutions. While some of their technical features seem prima facie attractive, especially to non-lawyers, a closer analysis reveals their many shortcomings.

Suggested Citation

Mik, Eliza, Smart Contracts: Terminology, Technical Limitations and Real World Complexity (August 17, 2017). Available at SSRN: https://ssrn.com/abstract=3038406 or http://dx.doi.org/10.2139/ssrn.3038406

Eliza Mik (Contact Author)

The Chinese University of Hong Kong (CUHK) - Faculty of Law ( email )

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TILT ( email )

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Melbourne Law School ( email )

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