• Roberto Pardolesi and Antonio Davola

What is wrong in the debate about smart contracts

Coining the notion “Smart Contracts”, Nicholas Szabo assumed as reference the typical “vending machine” – automatically providing goods and services after an adequate payment (Smart Contracts: Building Blocks for Digital Markets). Nowadays, though, smart contracts are deemed capable to subsume any aspect of an agreement within the technological realm (Weber , “Rose is a rose is a rose is a rose”- what about code and law?, in Computer L. & Security Rev., 2018): legal scholars evaluate the possibility to create “contractware” agreements, feeding informatic devices with terms and clauses, ultimately allowing a code to operate as a gatekeeper for the contracts’ diligent execution (Raskin, The Law and Legality of Smart Contracts, 1 Geo. L. Tech. Rev. 305 2017).

The debate is further stimulated by the developments of the blockchain (Dimitropoulos, Eich, Regulating Blockchain: Techno-Social and Legal Challanges, Oxford University Press, 2018), intertwined with the very own definition of smart contracts. Lastly, scholars start questioning the characteristics and meaning of the notion of contract, arguing in favor of a revolution of the role and functions of the legal professions (Susskind, The Future of the Professions: How Technology will Transform the Work of Human Experts, Oxford University Press, 2015; Fenwick, Kaal, Vermeulen, Legal Education in a Digital Age. Why ‘Coding for Lawyers’ Matters, 2018).

Against this bedrock, we argue that significant contradictions undermine the debate over smart contracts.

First and foremost, smart contracts are identified with codex operating in the blockchain, regulating the economic operations that take place on this platform and automatically executing the transactions mandated by their directives (Gans, The fine print in smart contracts, 2019). Accordingly, the legitimacy of the whole smart contract framework is based on the idea that the blockchain will redefine and pervade any aspect of individual relationships, originating a true “contract law 2.0” (Savelyev, Contract law 2.0: ‘Smart’ contracts as the beginning of the end of classic contract law, 36 Information & Communication Technology Law, 2017). On the contrary, these conjectures are doomed to fail if blockchain will struggle to find far-reaching applications (Higginson, Nadea, Raigopal, Blockchain’s Occam Problem, 2019).

In our view, the stringent ontological relation between blockchain and smart contract should be dissipated: the automatic execution of a contract is not ontologically derived from the use of the blockchain, being rather the result of the parties’ choice to devote an informatic technology the performance of the (previously concluded) arrangement. (Giancaspro, Is a ‘smart contract’ really a smart idea? Insights from a legal perspective, 33 Computer Law & Security Rev., 2017;).

Also, when the characterization of “smart contracts” as proper contracts according to private law (Surden, Computable Contracts, 46 U.C. Davis L. Rev., 2012; Stark, Making Sense of Blockchain Smart Contracts, 2016) is considered, we opine that a smart contract does not operate as a traditional one whenever the automated protocol administers specific parts of wider agreements: one step in the contractual iter does not encompass the whole contract. Whether, on the contrary, the code is used to gather and regulate the whole agreement, no existing provision of contract law prohibits the parties to express their obligations as data-oriented representations (Werbach, Cornell, Contracts Ex Machina, Duke L. J., 2017). Yet, someone who wants to launch a contractual initiative needs a software developer to transpose the instructions related to the agreement into the virtual architecture (Walch, In Code(rs) We Trust: Software Developers as Fiduciaries in Public Blockchains, 2018).

Hence, the possibility of radically disintermediating the contract is confuted and smart contracts unveil themselves as multi-level processes, entailing significant costs for the parties. Therefore it is reasonable to expect that smart contracts might diffuse only in scenarios where costs are lower, like standard forms (Filippi, Wright, Blockchain and the Law: The Rule of Code, Harvard University Press, 2018) or in ‘framework’ contracts where general obligations of a social group are collectively regulated (Cornelius, Smart contracts and the Freedom of Contract Doctrine, 5 J. Internet L., 2018). On the contrary, individual contracts shy away from this logic: heterogeneous needs of the parties are difficult to conciliate with the exigency of standardization that would make smart contracts economically viable.

Roberto Pardolesi, Luiss Guido Carli University, Rome

Antonio Davola, Sant’Anna School of Advanced Studies, Pisa

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