The Sense and Nonsense of Smart Contracts

Abstract

Regulatory efforts and disciplined legal analysis cannot blindly rely on stories concocted by crypto-enthusiasts. Such stories conveniently hide the fact that smart contracts, the technology supposed to fuel the crypto-driven Web3 economy, are inherently insecure and that their technical attributes are disadvantageous to commercial dealings, not to mention to the average user, who does not have technical expertise to safely transact by means of smart contracts. This chapter makes three simple points. Smart contracts cannot be analyzed as if they were contracts. Instead, assuming a more technical approach, they should be analyzed as computer programs that can in some circumstances assist in automating the performance of specific contractual obligations. Contrary to popular claims, smart contracts cannot ensure commercial certainty. Their common attributes, such as immutability and transparency, offer few benefits and may, in many instances, prove detrimental. To set solid foundations for future regulatory efforts and legal analyses, legal scholars and legal practitioners must refrain from proliferating misconceptions and adopt a more fact-based, technical perspective as to what smart contracts entail. They must not skip over the question of whether smart contracts create any legal problems and whether they provide any benefits at all.