“Smart” contracts built on blockchain technology are in their infancy, but they will grow up to be “super” contracts that redefine commerce. Smart contracts are computer programs that self-execute terms according to whether conditions programmed into the contract are met. That simple rubric, applying self-executing computer code to relationships in a system built on immutable data, scales to allow creation of sophisticated agreements empowering contractors to define and govern themselves.
The blockchain is a human creation. Its users will be humans and their legal fictions (corporations and DAOs). As long as people use the blockchain in a way that touches traditional law, it is not enough to simply declare that one’s actions are not subject to its jurisdiction. A smart contractor wishing to avoid entanglement with traditional law is wise to learn from its successes as well as its failures.
In common-law derived jurisdictions, like the United States and United Kingdom, the principle of “freedom of contract” is a core theme. So long as parties are not contracting for an impermissible purpose, for example, human trafficking, they are free to make and self-govern any agreement they choose. Only when the agreement breaks does the law get involved. When the agreements affect society in an unmanageable way, regulation comes into play.
Common contract law works on fact patterns (predictable ways humans interact) and precedent. It develops in a decentralized network of courthouses. Common law is made by studying failures: lawsuits. Over time, patterns in lawsuits create rules of law for use in prediction when drafting contracts. Familiarity with a rule of law means ability to anticipate and avoid its legal consequences. Normative, model, legal code acts as a gap filler for parties who have not anticipated all contingencies. The depth of the law’s experience gives lawyers the ability to make predictions and advise clients.
As a lawyer thinking about my clients’ future needs in blockchain commerce, I need to anticipate the contingencies of potential relationships in the future by studying the patterns of the past. It takes imagination and issue spotting, but the law has many guides to help in the journey.
My plan for unlocking the power of smart contracts is not a regulatory code, but a set of “super” contracts that allows parties to import gap fillers crafted to keep as much of an agreement in the cryptolegal space as possible. Self-government by rock-solid contracts is what will allow the blockchain to live up to its disruptive potential.