Can smart contracts replace lawyers?

What are smart contracts? They allow you to exchange anything of value in a transparent way which cuts out the middleman (for example, lawyers). Take renting a holiday home for example. If the renter pays the landlord the required amount of cryptocurrency (e.g. Bitcoins), the smart contract will release a digital key to the renter on a certain day and for a certain period so the property can be accessed. If the renter fails to pay, no digital key will be released. If the renter fails to receive the digital key, the money will automatically be refunded. The code of the smart contract cannot be interfered by either party without the other one being notified. There is no agent involved. The digital ledger that records everything is stored in a decentralised location. The execution of a contract is automatic and transparent.

Use of smart contracts is gaining traction. According to Financial Times (26 June 2017) seven banks in Europe have engaged IBM to build a platform for small businesses to finance their cross-border orders. Payments for orders will be automatically released when an invoice is issued or delivery recorded.

Since smart contracts cuts out the middleman. As a lawyer, I’ve been eager to know if I’ll end up jobless. I think the short answer is no, but we shall see in due time if that’s just my wishful thinking.*

Smart contracts are not free of potential legal and ethical issues. Just because smart contracts have the word ‘contract’ in them, that does not necessarily mean they are legally enforceable as contracts. If the smart contract simply automates a process but does not contain essential contractual terms, it is questionable whether the smart contract is a contract at all.

Even when they form contracts, smart contracts are made up of computer code. The interpretation of a particular smart contract will likely be vastly different to a traditional natural language contract. Can we still apply the established contractual interpretation rules?

Smart contracts kick start a process when certain conditions are met, there is no simple answer as to whether they can be voided on grounds of duress, mistake or misrepresentation. It is unclear what happens when a digital ledger is distributed without permission. There is currently no governing body that oversees any disputes. Things will likely be even more complicated since a matter can traverse several legal jurisdictions.

In so far that smart contracts automate a process and make transactions more efficient (and cuts out the middleman), it is a good thing. But the new technology is not free of potential legal issues, and in certain instances may create even more complexities than traditional contracts.

However, although lawyers may still have jobs in the future, to be able to advise on any smart contracts, it will be helpful for lawyers to keep abreast of technological developments, understand the limitations of computer code, and consider how the existing law may apply in a new world of smart contracts.


* Although a millennial, my wishful thinking was I would still be employed.

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