The Sense and Nonsense of Smart Contracts

Abstract

Smart contracts are supposed to reduce, or even eliminate, commercial uncertainty by technically ensuring that certain rules are followed. Translated into the sphere of contract law, they are supposed to preclude the possibility of breach and ensure perfect performance. Once contractual obligations are expressed in code, there is little room for opportunistic behaviour and the achievement of the agreed outcomes can be guaranteed. The problem with these claims is that smart contracts are computer programs - and computer programs are, by definition, unpredictable and unreliable. It is also difficult, if not impossible, to place computer programs  into a conceptual framework designed  to analyse contracts or, to be more precise, designed to establish whether the parties have reached agreement. Legal scholars and regulators must abandon their blind belief in nonsensical “crypto-newspeak” and focus on the facts. Smart contracts cannot be analysed as if they were contracts. Instead, they should be analysed as computer programs that can in some circumstances assist in automating the performance of specific contractual obligations.  Contrary to popular claims, smart contracts cannot ensure commercial certainty. Their common attributes, such as immutability and transparency, offer few benefits and may, in many instances, prove detrimental. To set solid foundations for future regulatory efforts and legal analyses, scholars, regulators and practitioners must refrain from proliferating misconceptions and adopt a more factual, technical perspective as to the attributes and practical operation of smart contracts. They must not skip over the question whether smart contracts create any legal problems and whether they provide any benefits at all. 

Keywords: smart contracts, smart contract regulation, contract law, law and technology