Deconstructing Smart Contracts

Abstract

From a distance, smart contracts seem exciting: Unlike humans, who might opportunistically decide to deviate from the agreed terms, their code will execute “no-matter-what,” ensuring the terms are adhered to and the contract is performed. Smart contracts would thus seem like a valuable addition to conventional contracts. A perfect transaction technology, indeed! A closer analysis of the smart contract narrative and the relevant technical scholarship reveals a peculiar dissonance between how smart contracts are described and what smart contracts really are. Taking the unfortunate terminology at face value and analyzing smart contracts as if they were contracts in the legal sense might constitute a waste of academic time. Even if they constituted an improvement over existing transacting practices, would – or could – smart contracts still be contracts? Would they even belong to the same category of legal phenomena? Maybe the fundamental question is: what are smart contracts? To many, these questions may seem like unnecessary hairsplitting, typical of haughty academics. In practice, however, how something is defined and categorized has immediate practical implications. Sidestepping the overly optimistic narrative of “unstoppable legal innovation,” this chapter deconstructs the concept of smart contracts and aims to provide a more commonsensical and factual grounding for future legal analyses of this phenomenon.