The “dark side” of smart contracts: A contract theory perspective

Abstract

Abstract Smart contracts govern transactions using the blockchain as the enforcing medium. They may be a cheaper form of governance of transactions compared to traditional contracts, the hierarchy of firms, and relational contracts. However, I argue that smart contracts do not eliminate transaction costs; rather, they can increase them, particularly when considering the issue of ex‐post efficiency‐enhancing adaptation. Thus, while smart contracts offer a new theoretical and practical way to govern transactions, they are not without challenges and limitations.