Why the Ricardian Contract Came About

Abstract

This chapter sets out some critical reflections on the creation of the ‘Ricardian Contract’, the most direct antecedent for the ‘smart legal contract’, and more recent developments in blockchain-based ‘smart contracts’. In the halcyon days of 1995, Ian Grigg looked for a way to capture the nature of financial agreements in order to create an instrument that could be traded on the Internet. By way of the zero coupon bond, he discovered that the legal prose contract is close to the semantic essence of all financial instruments; the way to issue any instrument reduces to the way to capture any contract, digitally and cryptographically. The Ricardian Contract emerged as the design pattern for that capture: a human-readable, contractually significant document, digitally signed and including sufficient but simple markup tokens such that a computer program could extract out the handful of important values including face, rates, issuer, etc. The document could then be hashed cryptographically, providing a secure, unique, and cost-free identifier. With Bitcoin’s drive to decentralize all of finance, the design pattern is now emerging as the way to efficiently tie a legal intent into a financial agreement.