Smart Contracts: Legal Considerations

Abstract

In this paper, we analyze the value of smart contracts and blockchains as an alternative to traditional contractual obligations. In particular, we start by exploring some of the advantages of these technologies, specifically the immutability of blockchains and automated contract remittance. We also discuss two critical shortcomings of decentralized smart contracts, namely regulatory uncertainty and a lack of confidential execution. With these issues in mind, we next explore how American legislators have begun to address smart contracts and blockchains. Though quite limited, there have been a few provisions clarifying the status of these technologies. We break down some of the language expressed in these bills so as to understand the current legal status of smart contracts and blockchains. Given this foundation, we consider the next steps that should be taken as smart contracts mature. This pertains to both the continued improvement of the underlying technology as well as the progress taken by regulators. Finally, assuming a futuristic scenario where there are no technological or regulatory barriers to smart contract adoption, we discuss how the process of contract remittance can be expedited in a world fully committed to the use of smart contracts.