In this episode of the Lawyers on the Block podcast we look at smart contracts and in particular ‘smart legal contracts’. At their most basic, smart contracts are coded agreements which do not require a middleman to monitor them. We discuss what they are, how they can be used, how they are being used now, their pros and cons, and what the future looks like for them.
A smart contract is not a contract in the sense of a document, or exchanges of words, letters, emails or other digital communications that evidence legally binding rights and duties. As the term is used in the context of today’s blockchain applications, a smart contract is a set of programmatic rules that can be fully or partly executed in response to user-defined independent input and without the need for further intervention from the parties, the outcome being achieved via computer code that has been deployed onto a blockchain network.
We talk about smart contracts which are currently adopted and used by most individuals out there and then go deeper to talk about how smart legal contracts could affect not only the legal industry but the industry sectors which are likely to be using them as normal everyday procedure in years to come.
There is discussion about the benefits of what blockchain provides in the ‘storage’ of the smart contracts and the immutability of the agreement by its placement on that system.
We then move on to discuss whether smart contracts are legally binding in English and Welsh law by applying the more traditional models of contracts, and what constitutes a valid contract, against the attributes of smart contract. While a smart contract has the capability to be self-enforcing, we consider that there may be a risk that the performance outcome of the contract could be undone by English and Welsh courts because of the factors present.
Once the factors which make up a smart contract have been thrashed out, the discussion then moves to the Law Commission advice to the government, released in November 2021, on smart contracts and their take on the matter. We look at what they recommend in terms of how the law should regulate and how much it should intervene.
Overall, we conclude that smart legal contracts will be prevalent in all of our lives in the future and that it is now time for professionals and businesses alike to consider their advantages and to get to grips with how they are and will be used.
