The power of decentralization of the public ledger on the chain was the underpinning technology and philosophy of bitcoin which features a peer to peer verification system whereby records, secured by cryptography, are verified by consensus across all the nodes and members in the network. The technology eliminates the reliance on one centralised trusted third party often personified in banking or government institutions that control and manage information and value, as the default brokers of trust in society.
Although, at its inception blockchain was primarily developed to carry forth cryptocurrency transactions the potential goes far beyond. One such application falls within the definition of a “smart contract”. Despite the various competing conceptions of what smart contracts are, one can generally classify them as computer protocols, or algorithms, which can verify the negotiation process or performance of contracts, and whereby clauses are automatically enforced once the pre-programmed conditions are satisfied.
In a nutshell, a basic example of a smart contract would be an agreement translated in computer code, whereby a group of football enthusiasts agree on a wager on which team is going to win the Premier League. At the end of the season, the smart contract would retrieve the information from the official website of the Premier League, and automatically distribute the winnings to the person who successfully predicted the winning team. Therefore, this innovation eradicates the need to rely on a third party to enforce such a negotiation or record it. Nevertheless, such a rudimentary explanation does not do justice to the fundamental advantages that smart contracts can deliver.
Understandably, the legal community is exploring the issues and implications of smart contracts being the unstoppable force which automatically brings into effect contract law. In what way these self-executing and self-enforcing contracts will affect contract law and its implementers? Will Smart Contracts quickly take over and erase the traditional contract law considering their efficiency and cost-reducing abilities? The answer is an annoyingly ambiguous “yes and no”.
In order to take a stab at the opportunities that smart contracts offer, one must assess the fundamental precepts that the traditional written contract and the new technology brought to the table. The technology behind the traditional contract, which in its form has existed since ancient times, entails merely a written substitute to a verbal promise; a common meeting of the minds written on paper whereby each party regulates their interaction by laying down their intention for all those interested to see and to use against each other before an impartial adjudicator.
In the face of this timeless instrument, how do smart contracts fair, and where is the innovation? If one merely, had to look at smart contracts as being a digitized version of a normal written agreement, then we can state that this technology has gotten us no further than a change in the medium in which it comes. However, there is far more to smart contracts than meets the eye, because it is not the smart contract per se that carries its underlying value but rather its decentralized, immutable and distributed nature, deriving from the blockchain, which is the platform upon which smart contracts are built. Many of the disruptive enterprises in the future will be those that will be able to capitalize on these precepts and marry them to the eternal contractual need that commercial interaction dictates.
It is envisaged by many that in terms of popularity and future practicality, the use of blockchain technology will soon break out and revolutionise traditional methods of how we exchange data and value between each other. To quote the many evangelists behind the cryptocommunity, ‘Blockchain will do the transmission of value and wealth what the internet did to the transmission of information.’ We are now faced with an “internet of things”, where one can find a new platform transforming the business world and revamping the traditional order of human affairs for the better. This fast approaching outbreak of blockchain and smart contracts, where commercial players are now offered reduced operational and legal risk and no longer require third party validation, should act as a forewarning to the legal profession. That being said, members of the legal profession should not fret and scramble through the classified section just yet.
The legal profession is not in the process of being replaced and will exist so long as human beings have a slight chance of disagreement on the interpretation of one thing or another. Nevertheless, one can anticipate that the more simplistic and standard contracts would be subject to more standardisation and slowly slip into the clutches of the chain and automation.
Lawyers are notoriously conservative in nature but in order for them to remain relevant they need to embrace the technology and if possible, make it work to their advantage by staying ahead of the market. The legal profession stands at the altar with the digital age and for better or for worse the two will be forced to co-exist within an ever constricting space. The advocacy giants of the proximate future will be those that cater for the necessity of smart contracts and Blockchain technology and have appreciated the subtle nuances that make the legal and digital world work with synchronicity. In order for technical developers to create a successful smart contract and prevent auto-enforcement failure, the smart contract must be a legal one first; negotiation that is auto-enforced is futile when a party might refuse its credibility at law, or have a contract that fails to auto-enforce and would still need to be taken to court.
In relation to the current influx of the subject, now is the time to act and cover the grey areas that exist between the law and the computer science aspect of the revolution. In a ‘smart contract environment’ it might be difficult to enforce and limit any abuse without referring to a human arbitrator (for instance in cases of force majeure), therefore a correct and timely implementation will allow for a blend of the two roles in order to provide leverage to the hurdles of the adoption as well as securing a stable conversion from the traditional to the new. Students should be encouraged to master dual skills of both law and computer programming since bridging such a gap would allow for a considerable advantage in their demand.