Outsmarting classic contracts : an assessment of the achievability and legal implications of a new age of smart contracts

Abstract

The crux of this term paper is the exploration of the legal issues associated with the applicability of current classical contract law provisions to Smart contracts; which can be defined as being agreements assuming the form of software code which is stored on the blockchain platform, triggered by blockchain transactions and which read and write data on the same blockchain database. Such smart contracts, which may be regarded as an evolution of the classic form of contract, are autonomous, decentralised and selfexecuting and are triggered on the happening of a predetermined set of factors, clearly spelt out at the point in which parties enter into such contract. In the first section this paper will delve into the extent to which the blockchain can be regarded as a ‘paradigm shifter’ in the automation of both the performance and conclusion of contracts, particularly in the light of the current legal framework and different areas and principles of law. This will be interpreted in tandem with the extent to which these novel, complex, self-enforceable, decentralised, self-sufficient, anonymous, transparent, highly auditable and resilient contracts could reduce the requirements of a trusted intermediary and mitigate excess burdens from the present legal system; generating a more cost effective, time preserving and competitive apparatus when compared to traditional means that require the greater presence of the human element. The paper will attempt to be as pragmatic as possible by illustrating the various practical applications; such as in crowdfunding, insurance contracts, testamentary dispositions, transfer of immovables, and it will also demonstrate how ‘Smart’ contracts go far beyond the existing models of the contracting process and represent a new paradigm of interaction in cyberspace. It will be highly compelling to assess how and why Smart contracts can be regarded as being legally binding instruments; predominantly because such instruments may be used to govern relations associated with the circulation of digital assets (a matter in the realm of civil law), the presence of the will of the parties at the moment of entry into agreement of specified terms, and lastly the element of trust in place which in contrast to classic contracts is not vested into the personality of the other party to contract but in a tamperproof computer algorithm in place. Such observations will be analysed in relation to the tensions between the two formats and the viability or rather achievability in the local context (with particular emphasis on the recent Consultation document) with a cross analysis with method of applicability in foreign jurisdictions. The concluding part will set out the question for analysis of the viability of implementation of this technology by governments: ‘How to align the powers of the government with Blockchain if there is no central authority but only distributed technologies.’ It will delve into the current reality set against a backdrop of eminent proponents’ suggestions and a method for reaching a compromise between the flexibility and often useful ambiguities of classic contracts and the inflexibility of Smart contracting. The reverberating and puzzling question remains that of aligning the two realities; the offline realm and its remedies as well as the smart contract and its predetermined terms; in a manner that is acceptable by all stakeholders, is optimal, and is in balance with the national legal framework.