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ABSTRACT
Smart contracts continue to formulate the backbone of blockchain transactions. After the foundation of the Ethereum protocol, the Initial Coin Offerings, Security Token Offerings, and Non-Fungible Tokens have all relied on smart contracts, with enormous market volume. The broad scope of smart contracts’ (potential) application is undisputed, yet many countries have been silent on the regulation of smart contracts. These same countries, however, have already set some standards regarding crypto assets and crypto asset service providers. We can include Switzerland and the European Union, that has already prepared a draft Regulation for Markets in Crypto Assets, in this first group. Some jurisdictions, such as the UK and the US, have already concluded that common law principles suffice to tackle with smart contracts. The third group, including Italy, has defined smart contracts but has no comprehensive regulatory framework. There is a final group of countries that have chosen not to regulate any aspects of the distributed ledger technology (yet). It is without a doubt that the use of smart contracts will cause problems regarding formation, contract performance, applicable law, jurisdiction, protection of consumers, and personal data.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 N Szabo, ‘Smart Contracts’ (1994) <https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart.contracts.html> accessed 25 January 2023.
2 Ni Szabo, Smart Contracts: Building Blocks for Digital Markets (1996) <https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html> accessed 25 January 2023.
3 Chamber of Digital Commerce, ‘Smart Contracts: 12 Use Cases for Business & Beyond: A Technology, Legal & Regulatory Introduction – Foreword by Nick Szabo’ (2016) <https://d3h0qzni6h08fz.cloudfront.net/Smart-Contracts-12-Use-Cases-for-Business-and-Beyond_Chamber-of-Digital-Commerce.pdf> accessed 25 January 2023, 3.
4 A Ferreira, ‘Regulating smart contracts: Legal revolution or simply evolution’ (2021) 45 Telecommunications Policy 1, 4.
5 M Durovic and F Lech, ‘The Enforceability of Smart Contracts’ (2019) 5 Italian Law Journal, 493, 498; S Green and A Sanitt, ‘Smart Contracts’ in PS Davies and M Raczynska (eds), The Contents of Commercial Contracts: Terms Affecting Freedoms (Hart 2020) 191.
6 M Kaulartz, ‘Herausforderungen bei der Gestaltung von Smart Contracts’ (2016) 4 Zeitschrift zum Innovations- und Technikrecht 201, 203; JM Sklaroff, ‘Smart Contracts and the Cost of Inflexibility’ (2018) 9 Prize Winning Papers 263, 275; K Werbach and N Cornell, ‘Contracts Ex Machina’ (2017) 67 Duke Law Journal 313, 335; O Borgogno, ‘Smart Contracts as the (new) Power of the Powerless? The Stakes for Consumers’ (2019) 26 (6) European Review of Private Law 885, 888; K Kasprzyk, ‘The Concept of Smart Contracts from the Legal Perspective’ (2018) 34 Review of Comparative Law 101, 104.
7 DeFi allows non-sophisticated parties to easily participate in otherwise inaccessible financial transactions using decentralised applications. Dapps are pieces of software stored on the blockchain and run by smart contracts. DApps can be used to lend money, pool money to invest in assets, or get insurance.
8 Global X Research Team [2022] <https://www.globalxetfs.com/exploring-the-disruptive-potential-of-smart-contracts/> accessed 25 January 2023.
9 M Durovic and F Lech: ‘The Enforceability of Smart Contracts’ (2019) 5(2) Italian Law Journal 493–512; M Raskin ‘The Law and Legality of Smart Contracts’ (2017) 301(1) Georgetown Law Technology Review 305–41; Clifford Chance and European Bank for Reconstruction and Development, Smart Contracts: Legal Framework and Proposed Guidelines For Lawmakers, p. 11.
10 ‘The legal status of smart contracts still remains to be defined’ OECD, The Tokenisation of Assets and Potential Implications for Financial Markets (2020) OECD Blockchain Policy Series at 20, www.oecd.org/finance/The-Tokenisation-of-Assets-and-PotentialImplications-for-Financial-Markets.htm.
11 OECD, ‘Regulatory Approaches to the Tokenisation of Assets’ (2021) <www.oecd.org/finance/Regulatory-Approaches-to-the-Tokenisation-of-Assets.htm> accessed 25 January 2023, 32. According to Sir Geoffrey Vos the use of smart contracts would increase if there is legal clarity about the legal enforceability of contractual provisions expressed in code, about how such provisions will be interpreted, and about what parties can do when things go wrong with the code. G Vos, ‘End-to-End Smart Legal Contracts: Moving from Aspiration to Reality’ in J Allen and P Hunn (eds), Smart Legal Contracts: Computable Law in Theory and Practice (Oxford Academic, 23 June 2022) 57.
12 GC Polemidiotis, ‘Smart Contracts and the New Reality’ [2022] <https://www.llpolawfirm.com/2022/02/21/smart-contracts-and-the-new-reality/> accessed 25 January 2023.
13 S Nakamoto, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ <https://bitcoin.org/bitcoin.pdf> accessed 25 January 2023.
14 Global X Research Team [2022] <https://www.globalxetfs.com/exploring-the-disruptive-potential-of-smart-contracts/> accessed 25 January 2023.
15 Today there are approximately 256,730 smart contracts tracked across all protocols. The total number of dapps tracked across all protocols is 13,275. When the total number of unique active wallets interacting with the smart contracts per category in the specified period is observed, games have the highest number followed by DeFi. The world’s Dapp store: Discover, track & trade everything DeFi, NFT and gaming <https://dappradar.com/industry-overview> accessed 25 January 2023.
16 Global X ETFs [2022] <https://www.nasdaq.com/articles/an-investors-guide-to-smart-contract-blockchains> accessed 25 January 2023.
17 J Cieplak and S Leefatt, ‘Smart Contracts: A Smart Way to Automate Performance’ (2017) 1 Georgia L & Tech Rev 417.
18 R Prabucki and others, ‘Algorithmisation and Tokenisation of Law’ in D Szostek and M Załucki (eds), Legal Tech Information technology tools in the administration of justice (Nomos 2021) 44.
19 Depending on the standard used in the smart contract protocol, a token can be fungible or non-fungible. See P Çağlayan Aksoy and Z Özkan Üner, ‘NFTs and copyright: challenges and opportunities’ (2021) 16(10) Journal of Intellectual Property Law & Practice 1115.
20 Prabucki and others (n 18) 44.
21 Among the challenges before the wide adoption of asset tokenisation lies the legal status of smart contracts. Technology-related challenges, governance risk arising especially from AML/CFT requirements, digital identity and data protection and privacy. OECD (n 10) 7.
22 Goldman Sachs, ‘Digitizing Bonds on the Blockchain’ (2021) <https://www.goldmansachs.com/insights/pages/from_briefings_10-june-2021.html> accessed 25 January 2023.
23 ‘Automation introduced in the issuance, distribution, management of securities but also around securities servicing and corporate actions may reduce costs throughout the securities transaction lifetime, benefiting issuers and investors alike’ OECD (n 10) 16.
24 EU Blockchain Observatory and Forum, ‘Smart Contracts 2022’ at 6, <https://www.eublockchainforum.eu/sites/default/files/reports/SmartContractsReport_Final.pdf> accessed 25 January 2023.
25 B Bodó, D Gervais and JP Quintais, ‘Blockchain and Smart Contracts: The Missing Link in Copyright Licensing?’ (2018) 26(4) International Journal of Law and Information Technology 333.
26 European Insurance and Occupational Pensions Authority (EIOPA), ‘Discussion Paper on Blockchain and Smart Contracts in Insurance’ (2021) <https://www.eiopa.europa.eu/sites/default/files/publications/consultations/eiopa-discussion-paper-on-blockchain-29-04-2021.pdf≥ accessed 25 January 2023.
27 UK Law Commission, ‘Decentralised autonomous organisations (DAOs) Call for evidence’ (2022) 1.
28 Decentralised Autonomous Organisations, <https://ethereum.org/en/dao/≥ accessed 25 January 2023.
29 UK Law Commission (n 27).
30 See COALA Model Law for Decentralised Autonomous Organisations (2021), https://coala.global/wp-content/uploads/2021/06/DAOModel-Law.pdf accessed 4 May 2023.
31 ‘Statement of CFTC Division of Enforcement Director Ian McGinley on the Ooki DAO Litigation Victory’ (CTFC, 9 June 2023) https://www.cftc.gov/PressRoom/PressReleases/8715-23, accessed 13 June 2023.
32 DHK Trend Research, ‘Blockchain in Logistics – Perspectives on the Upcoming Impact of Blockchain Technology and Use Cases for the Logistics Industry’ (2018) 12–18 www.logistics.dhl/content/dam/dhl/global/core/documents/pdf/glo-core-blockchain-trend-report.pdf accessed 25 January 2023.
33 EU Blockchain Observatory and Forum (n 24) at 25–26.
34 Chamber of Digital Commerce (n 3).
35 Swiss Federal Council Report, ‘Legal framework for distributed ledger technology and blockchain in Switzerland: An overview with a focus on the financial sector’ (14 December 2018) 11 https://www.newsd.admin.ch/newsd/message/attachments/55153.pdf> accessed 25 January 2023.
36 In the insurance sector, smart contracts can increase efficiency in underwriting, pricing and claims processing, reduce the risk of errors and disputes, streamline information exchange and payments between insurers and reinsurers, automate a large part of the claims-handling process, and facilitate the client onboarding process. A Prebble, ‘Blockchain and Smart Contracts in Insurance, The advantages of a coordinated approach’ (9 July 2021) https://www.cliffordchance.com/insights/resources/blogs/talking-tech/en/articles/2021/07/blockchain-and-smart-contracts-in-insurance.html accessed 5 May 2023.
37 ‘How to Make a Smart Contract Work for the Insurance Industry’ (18 January 2022), <https://intellias.com/how-to-make-a-smart-contract-work-for-the-insurance-industry/#:~:text=With%20smart%20contracts%2C%20insurers%20will,and%20smart%20contracts%20in%20particular> accessed 25 January 2023.
38 EIOPA (n 26) 29.
39 In the same stance see, J Arcari, ‘Note, Decoding Smart Contracts: Technology, Legitimacy, and Legislative Uniformity’ (2019) 24 Fordham J. Corp. & Fin. L. 363, 395.
40 A Borselli, ‘Smart Contracts in Insurance: A Law and Futurology Perspective’ in P Marano and K Noussia (eds) InsurTech: A Legal and Regulatory View. AIDA Europe Research Series on Insurance Law and Regulation (Springer 2020) 112: ‘It is nevertheless possible to predict a world where smart contracts, combined with future developments in artificial intelligence and machine learning, might challenge traditional views and change contracting practices, automating the entire contractual relationship of the parties.’
41 W Lehr, ‘Smart Contracts: Myths and Implications for Economics and Financial Regulation’, 31st European Conference of the International Telecommunications Society (ITS): ‘Reining in Digital Platforms? Challenging monopolies, promoting competition, and developing regulatory regimes’, Gothenburg, Sweden, 20th–21st June 2022, International Telecommunications Society (ITS), Calgary, 36.
42 Solidity Academy, Combining Smart Contracts with Artificial Intelligence in Solidity (30 April 2023) https://medium.com/coinmonks/combining-smart-contracts-with-artificial-intelligence-in-solidity-c88fa25d059> accessed 5 May 2023.
43 The most widely used platforms to develop and execute smart contracts can be listed as, Ethereum, Hyperledger, Polkadot, Solana, Cosmos and Stellar. EU Blockchain Observatory and Forum (n 24) at 8.
44 CoinDesk Indices (13 May 2022). Market capitalisation data is based on 30 April 2022.
45 ‘Report on Insights, Inputs and Recommendations to EU Blockchain Regulatory Efforts’ (2022) <https://b-hub.eu/wp-content/uploads/2022/03/B-HUB_Report-on-insightsinputsrecommendations-to-EU-regulatory-efforts.pdf> accessed 25 January 2023.
46 L Lessig, Code and Other Laws of Cyberspace (Basic Books 1999).
47 A Savalyev, ‘Contract Law 2.0: ‘Smart’ contracts as the beginning of the end of classic contract law’ (2017) 26 Information & Communication Technology Law 116, 132.
48 C Lim, TJ Saw and C Sargeant, Smart Contracts: Bridging the Gap Between Expectation and Reality (11 July 2016) https://blogs.law.ox.ac.uk/business-law-blog/blog/2016/07/smart-contracts-bridging-gap-between-expectation-and-reality accessed 25 May 2023.
49 C Poncibò and L DiMatteo, ‘Smart Contracts: Contractual and Noncontractual Remedies’ in L DiMatteo, M Cannarsa and C Poncibò (eds), The Cambridge Handbook of Smart Contracts, Blockchain Technology and Digital Platforms (Cambridge University Press 2019) 121.
50 A Guadamuz, ‘All watched over by machines of loving grace: A critical look at smart contracts’ (2019) 35 Computer Law and Security Review 11.
51 Clifford Chance and EBRD, ‘Smart Contracts: Legal Framework and Proposed Guidelines For Lawmakers’ (2018) 30; J Erbguth, ‘Transparenz von Smart Contracts’ in M Fries and B Paal (eds) Smart Contracts (Mohr Siebeck 2019) 25, 33.
52 Algorithms are kept by the organisations that created them or are so complex that even their creators cannot explain how they work. AI’s ‘black box’ problem can be described as the inability to see through what is inside an algorithm. WD Eggers and M Turley, ‘The future of regulation: Principles for regulating emerging technologies’ <https://www2.deloitte.com/us/en/insights/industry/public-sector/future-of-regulation/regulating-emerging-technology.html> accessed 25 January 2023.
53 For the consumer protection issues regarding smart contracts see, M Durovic and C Willett, ‘A Legal Framework for Using Smart Contracts in Consumer Contracts: Machines as Servants, not Masters’ (2023) 86 Modern Law Review 1309; L Forbes, ‘Consumer Protection in the Face of Smart Contracts’ (2022) 34(1) Loyola Consumer Law Review 45; O Borgogno, ‘Usefulness and Dangers of Smart Contracts in Consumer Transactions’ in DiMatteo, Cannarsa and Poncibò (n 49) 288.
54 A recent article in CoinDesk points out that ‘tokenization and smart contracts – two vital components of the blockchain ecosystem – are also witnessing increased integration of AI. However, the black box problem can obscure the logic behind AI-generated tokens or smart contract execution.’ See S Jagati, AI’s black box problem: Challenges and solutions for a transparent future (cointelegraph, 5 May 2023) https://cointelegraph.com/news/ai-s-black-box-problem-challenges-and-solutions-for-a-transparent-future accessed 5 June 2023.
55 SA Elvy, ‘Contracting in the Age of the Internet of Things: Article 2 of the UCC and Beyond’ (2015–2016) 44 Hofstra L. Rev. 839.
56 S Green, ‘Smart Contracts: Interpretation and Rectification’ (2018) Lloyd’s Maritime and Commercial Law Quarterly 234, 238; E Théocharidi, ‘La conclusion des smart contracts: révolution ou simple adaptation?’ (2018) 161 Revue Lamy droit civil 48, 52.
57 Also see UK Law Commission: A solely code smart contract is a smart legal contract in which all the contractual terms are defined in, and performed automatically by, the code of a computer program. UK Law Commission, ‘Smart Contracts Advice to Government’ (2021) https://lawcom.gov.uk/project/smart-contracts/.
58 Clifford Chance (n 51) 12; F Möslein, ‘Smart Contracts im Zivil- und Handelsrecht’ (2019) 183(2–3) Zeitschrift für das gesamte Handelsrecht und Wirtschaftsrecht 254, 264; M Demeyer, ‘Blockchain Technology and Smart Contracts from a Financial Law Perspective’ (LLM thesis, University of Gent 2018) 84 https://pdfs.semanticscholar.org/0109/b04d3115a126340acb8ffd74dc0e92fdea00.pdf, accessed 25 January 2023.
59 J Lingwall and R Mogallapu, ‘Should Code Be Law: Smart Contracts, Blockchain and Boilerplate’ (2019) 88(2) University of Missouri-Kansas City Law Review 285, 299.
60 According to the results of the consultation carried out by the UK Law Commission, ‘natural language contracts with automated performance are most commonly used in practice. However, some consultees, expressed the view that the use of hybrid and solely code smart legal contracts have potential too. We believe that regulatory clarification would lead to the uptake of solely encoded smart contracts’. UK Law Commission (n 57) at 26.
61 UK Law Commission (n 57) 56.
62 ibid 104–05.
63 RH Weber, ‘Smart Contracts and What the Blockchain has got to do with ıt?’ in M DesStefano and G Dobrauz-Saldapenna (eds), New Suits Appetite for Disruption in the Legal World (Stämpfli 2019) 35 at 367; M Cannarsa, ‘Contract Interpretation’ in DiMatteo, Cannarsa and Poncibò (n 49) 111.
64 UK Law Commission (n 57) 139–40.
65 P Cuccuru, ‘Beyond Bitcoin: An Early Overview on Smart Contracts’ (2017) 25(3) International Journal of Law and Information Technology 179, 186;, Werbach and Cornell (n 6) 336; M Kaulartz and J Heckmann, ‘Smart Contracts- Anwendungen der Blockchain Technologie’ (2016) 32(9) Computer und Recht 618, 620; J Grimmelmann, ‘All Smart Contracts Are Ambiguous’ (2019) 2(1) Pennysylvania Journal of Law and Innovation 1, 14.
66 S Legner, ‘Smart Consumer Contracts – Die automatisierte Abwicklung von Verbraucherverträgen’ (2021) 1 Verbraucher und Recht 10, 15.
67 T Kuntz, ‘Konsens statt Recht? Überlegungen zu Chancen und Herausforderungen der Blockchain-Technologie aus juristischer Sicht’(2020) 220(1) Archiv für die Civilistische Praxis 51, 78.
68 E Mik, ‘Smart Contracts: Terminology, Technical Limitations and Real-World Complexity’ (2017) 8 LIT 1, 296.
69 B Ancel, ‘Les smart contracts: revolution sociétale ou nouvelle boîte de Pandore ? Regard comparatiste’ (2018) (7-8) Communication Commerce électronique 15, 17.
70 J Schrey and T Thalhofer, ‘Rechtliche Aspekte der Blockchain’ 2017 (20) Neue Juristische Wochenschrift 1431; T Hoffman and V Skwarek, ‘Blockchain, Smart Contracts und Recht, Smart Contracts als Risiko für Informatiker’ (2019) 42(1) Informatik Spektrum 197, 201.
71 Clifford Chance (n 51).
72 R Herian, ‘Legal Recognition of Blockchain Registries and Smart Contracts’ EU Blockchain Observatory and Forum (2018) 18 http://oro.open.ac.uk/59481/9/Legal%20Recognition%20of%20Blockchain%20Registries%20and%20Smart%20Contracts%20%28Final%20Draft%20Report%20%2B%20Appendix%29.pdf accessed 25 January 2023.
73 Eggers and Turley (n 52).
74 J Ellul and others, ‘Regulating Blockchain, DLT and Smart Contracts: A Technology Regulator’s Perspective’ (2020) 21(209) ERA Forum 210: ‘Approaches have included outright bans of cryptocurrencies and Initial Coin Offerings (ICOs), using a case-by-case vetting and approval process of such activities, and clear guidelines regarding whether a particular activity can operate and eventually receive regulatory approval.’
75 J Teague, ‘Starting a DAO in the USA? Steer Clear of DAO Legislation A Primer on DAO Legislation in Multiple States’ https://thedefiant.io/starting-a-dao-in-the-usa-steer-clear-of-dao-legislation> accessed 25 January 2023.
76 According to a report newly published by the EU Blockchain Observatory and Forum, ‘efforts are underway to better understand how DAOs work when it comes to contract law and how to address contributor liability. In addition, jurisdictional banking, tax, and employment compliance requirements are unclear. Questions remain regarding the applicability of existing laws and corporate entity forms, versus the creation of entirely new and legally recognized forms.’ EU Blockchain Observatory and Forum (n 24) 24.
77 For an overview of possible regulatory approaches for DLT-based activities, see: M Finck, Blockchain Regulation and Governance in Europe (Cambridge University Press 2018) 11; G Gabison, ‘Policy Considerations for the Blockchain Public and Private Applications’ (2017) 19 SMU Science and Technology Law Review 327.
78 Finck (n 77) 14.
79 P De Filippi and S Hassan, ‘Blockchain Technology as a Regulatory Technology: From Code is Law to Law is Code’ (2016) 21(12) First Monday 1, 2.
80 ibid 15.
81 P De Filippi and A Wright, Blockchain and the Law (Harvard University Press 2018) 193.
82 ibid 197.
83 EU Blockchain and Observatory Forum (n 24) 27.
84 De Filippi and Wright (n 81) 196.
85 ibid 199.
86 D Roumpos, ‘Liability of The Smart Contract Developer. A Comparative Analysis in the light of US and EU Law’ (2020) 42 http://arno.uvt.nl/show.cgi?fid=152251 accessed 25 January 2023.
87 EU Blockchain Observatory and Forum (n 24) 27.
88 ‘Blockchain as a Regulatory Tool’ (October 2022) 22 https://www.cst.gov.sa/ar/research-innovation/Documents/BlockchainasaRegulatoryTool.pdf, accessed 25 January 2023.
89 World Bank Group, ‘How Regulators Respond to Fintech Evaluating the Different Approaches – Sandboxes and Beyond’ (2020) Finance, Competitiveness & Innovation Global Practice Fintech Note No. 538, 38.
90 ‘Fed’s Brainard sees Blockchain as Revolutionary, But Still to Prove Itself’ (Reuters, 7 October 2016) https://www.reuters.com/article/us-usa-fed-brainard-idINKCN1272BG accessed 25 January 2023.
91 Swiss Federal Council (n 35) 81.
92 On 24 September 2020 the European Commission published a legislative proposal for a regulation on markets in crypto assets (MiCA). The main aim is to clarify the application of existing EU rules to crypto-assets, and to allow operators authorised in one Member State to provide their services across the EU. MiCA lays down several safeguards including capital requirements, custody of assets, complaint handling processes, and common disclosure standards for the issuance of Initial Coin Offerings (ICOs). Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937, COM(2020). It is expected that MiCA will come into force in 2024 the latest.
93 EU Blockchain Observatory and Forum (n 24) at 23.
94 Swiss Federal Council (n 35) 43.
95 Herian (n 72) 30. According to Mouton, regulators should consider smart contract’s effects on the financial intermediary sector because doing nothing causes a gap in law and uncertainty for market participants. J Mouton, ‘Regulating Smart Contracts in the Domain of Financial Trading’(2021) 57 Cal. W. L. Rev. 441, 463.
96 World Bank Group (n 89) 38.
97 WA Kaal and C Calcaterra, ‘Crypto Transaction Dispute Resolution’ (2018) 73 BUS. LAW. 1, 45–46.
98 M Dell’Erba, ‘Demystifying Technology. Do Smart Contracts Require a New Legal Framework? Regulatory Fragmentation, Self-Regulation, Public Regulation’ (17 May 2018) 49, available at SSRN: https://ssrn.com/abstract=3228445 or http://dx.dxoi.org/10.2139/ssrn.3228445, accessed 25 January 2023.
99 Ellul and others (n 74) 210.
100 See (n 45).
101 EU Blockchain and Observatory Forum, ‘Legal and Regulatory Framework of Blockchains and Smart Contracts’ (2019) 10 https://www.eublockchainforum.eu/sites/default/files/reports/report_legal_v1.0.pdf accessed 25 January 2023.
102 De Filippi and Wright (n 81) 78.
103 Lehr (n 41) 18.
104 J Fairfield and N Selvadurai, ‘Governing the Interface Between Natural and Formal Language in Smart Contracts’ (2022) UCLA J.L. & Tech. 79, 117.
105 EU Unfair Terms Directive 93/13/EEC, Unfair Commercial Practices Directive 2005/29/EC and Consumer Rights Directive 2011/83/EU.
106 In the EU for instance, it is important that the use of smart contracts fulfil the requirements for the protection of personal data laid down in the General Data Protection Regulation 2016/679. See, WG Voss, ‘Data Protection Issues for Smart Contracts’, in M Corrales Compagnucci, M Fenwick and S Wrbka (eds) Smart Contracts: Technological, Business and Legal Perspectives (Hart 2021) 79–100.
107 G Vos, ‘Cryptoassets as Property: How Can English Law Boost the Confidence of Would-be Parties to Smart Legal Contracts?’ (2 May 2019) Joint Northern Chancery Bar Association and University of Liverpool Lecture, https://www.judiciary.uk/wp-content/uploads/2019/05/Sir-Geoffrey-Vos-Chancellor-of-the-HighCourt-speech-on-cryptoassets-2.pdf accessed 25 January 2023.
108 UK Jurisdiction Taskforce, ‘Legal statement on cryptoassets and smart contracts’ (November 2019) <https://resources.lawtechuk.io/files/4.%20Cryptoasset%20and%20Smart%20Contract%20Statement.pdf≥ accessed 25 January 2023.
109 UK Law Commission, ‘Smart Contracts Call for Evidence’.
110 UK Law Commission (n 57).
111 Arcari (n 39) 379.
112 Ellul and others (n 74) 210.
113 Herian (n 72) 7.
114 EU Blockchain Observatory and Forum (v 1.0) 7 https://www.eublockchainforum.eu/sites/default/files/reports/report_legal_v1.0.pdf, accessed 25 January 2023.
115 According to Lehr, risks associated with finance and the challenges of addressing them existed long before smart contracts emerged and there are long-established regulatory institutions and approaches for managing these issues. Therefore, smart contracts do not need separate regulation. Lehr (n 41) at 26.
116 M Amaral, ‘Blockchain and smart contracts: regulatory challenges and regulatory approaches’ in OECD Case Studies on the Regulatory Challenges Raised by Innovation and the Regulatory Responses (OECD Publishing 2021)
117 ibid.
118 EU Blockchain and Observatory Forum (n 24) 10.
119 Amaral (n 116).
120 EU Blockchain and Observatory Forum (n 24) 12.
121 ibid 13.
122 Joint Statement in Response to State Smart Contracts Legislation https://esignrecords.org/wp-content/uploads/2018/04/Joint-Ltr-State-Smart-Contracts-Legislation.pdf accessed 25 January 2023.
123 For detailed information regarding the regulation of smart Contracts under (UETA), (ESIGN), and (UCITA), see Dell’Erba (n 98) 27.
124 Herian (n 72) 29.
125 Decree of the President of the Republic of Belarus No. 8 (21 December 2017), unofficial translation.
126 Law n.12/2019 published in the Gazzetta Ufficiale on February 12, 2019, Simplification Law, in article 8-ter paragraph 3.
127 For detailed information regarding the legislation, Ferreira (n 4) at 9-12.
128 ibid 12.
129 In the USA, there still needs to be a decision made: Will there be regulations on a state level or a uniform code? It should be mentioned that The Uniform Law Commission and the American Law Institute created a committee- investigating how smart contracts should be treated under the UCC. See E McDonald, ‘Smart Contracts’ (5 November 2021), <https://journals.library.columbia.edu/index.php/CBLR/announcement/view/445> accessed 20 May 2023.
130 For criticism of state-level legislation in the USA see M Orcutt, ‘States That Are Passing Laws to Govern ‘Smart Contracts’ Have No Idea What They’re Doing’ (2018) MIT Tech. R. https://www.technologyreview.com/s/610718/states-that-are-passing-laws-to-govern-smart-contracts-have-no-idea-what-theyre-doing/ accessed 25 January 2023; J Madir, ‘Smart Contracts’ in J Madir (ed), Fintech Law and Regulation (Elgar 2021) 177.
131 European Law Institute, ‘ELI Principles on Blockchain Technology, Smart Contracts and Consumer Protection’ (2023) 14 https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/ELI_Principles_on_Blockchain_Technology__Smart_Contracts_and_Consumer_Protection.pdf, accessed 25 January 2023.
132 The Chancery Bar Association and Commercial Bar Association (joint response) said that it may be necessary to impose legal limitations on who may have access to a private key or who may sign a transaction on a DLT system, to safeguard the interests of parties who lack capacity. UK Law Commission (n 57) 45.
133 L DiMatteo, M Cannarsa and C Poncibò, ‘Smart Contracts and Contract Law’ in DiMatteo, Cannarsa and Poncibò (n 49) 12.
134 U Bertram, ‘Smart Contracts, Praxisrelevante Fragen zu Vertragsabschluss, Leistungsstörungen und Auslegung’ (2018) 23 Monatsschrift für Deutsches Recht 1416, 1420; R Lupu, ‘Herausforderungen und Lösungsansätze bei der Gestaltung von Blockchain-basierten Smart Contracts’ (2019) 35(10) Computer Recht 631, 633.
135 World Bank Group (n 89) at 21.
136 S Farrell, H Glass, and H Wells, ‘Practice Makes... Pragmatic Designing a Practical Smart Contract Legal Architecture’ in Allen and Hunn (n 11) 353, 366. According to the authors ‘Building practical safeguards into the technology at the outset places control of the commercial arrangement in the hands of the parties, not the technologists. Safeguards allow parties to take advantage of smart contract technology, secure in the knowledge that the parties will be able to achieve the right commercial result, even if the technology does not operate as intended.’ at 367.
137 Also see T Schrepel, Smart Contracts and the Digital Single Market Through the Lens of a ‘Law + Technology’ Approach (Publications Office of the European Union 2021).
138 O Meyer, ‘Stopping the Unstoppable: Termination and Unwinding of Smart Contracts’ (2020) 9(1) Journal of European Consumer and Market Law 23.
139 ibid 24.
140 European Law Institute (n 131) 41.
141 Chainlink, What Is the Blockchain Oracle Problem? (Chainlink, 27 August 2020) https://blog.chain.link/what-is-the-blockchain-oracle-problem/ accessed 25 January 2023: ‘Financial smart contracts need market information to determine settlements, insurance smart contracts need IoT and web data to make decisions on policy payouts, trade finance contracts need trade documents and digital signatures to know when to release payments, and many smart contracts want to settle in fiat currency on a traditional payment network.’
142 Mik (n 68).
143 Giulio Caldarelli. 2020. ‘Understanding the Blockchain Oracle Problem: A Call for Action’ (2020) Information 11, no. 11 509.
144 UK Law Commission (n 57) 6.
145 ibid 22.
146 Roumpos (n 86) 44.
147 ibid 52.
148 In October 2018, Brian Quintenz, Commissioner of the Commodity Futures Trading Commission, suggested that smart contract code developers could be held accountable for aiding and abetting CFTC violations where they ‘could reasonably foresee, at the time they created the code, that it would likely be used by U.S. persons in a manner violative of CFTC regulations’. Remarks at the 38th Annual GITEX Technology Week Conference (16 October 2018) <https://www.cftc.gov/pressroom/speechestestimony/opaquintenze16> accessed 25 January 2023.
149 Clifford Chance (n 51) at 31.
150 SD Levi and AB Lipton, ‘An Introduction to Smart Contracts and Their Potential and Inherent Limitations’ (2018) https://corpgov.law.harvard.edu/2018/05/26/an-introduction-to-smart-contracts-and-their-potential-and-inherent-limitations/ accessed 25 January 2023.
151 Madir (n 130) 191.
152 Clifford Chance, (n 51) at 32.
153 Borselli (n 40) 121.
154 Smart Contract Libraries (15 August 2022), https://ethereum.org/en/developers/docs/smart-contracts/libraries/ accessed 25 January 2023.
155 ibid
156 ibid.
157 Clifford Chance (n 51) at 35.
158 According to Durovic and Willett ‘SCs do have potential to be more broadly used in B2C contracts’ (n 53) 1397.
159 UK Law Commission (n 57), para 6.33-6.34.
160 Durovic and Willett (n 53) 1392.
161 For the differences between the concept of electronic contracts and smart contracts, see Möslein (n 58) 261. For instance smart contracts allow for the application of more complex rules and enforcement mechanisms. They do not need intervention from humans to perform. Werbach and Cornell (n 6) 321; R De Caria, ‘The Legal Meaning of Smart Contracts’ (2019) 6 European Review of Private Law 731, 736.
162 M Kloth, ‘Blockchain basierte Smart Contracts im Lichte des Verbraucherrechts’ (2022) Verbraucher und Recht 214, 217.
163 EU Blockchain Observatory and Forum (n 24) 13.
164 R Brownsword, ‘Smart Contracts: Coding the Transaction, Decoding the Legal Debates’ in P Hacker and others (eds), Regulating Blockchain: Techno-Social and Legal Challenges (Oxford University Press 2019) 323.
165 ELI Principles (n 131) 40.
166 ibid 30.
167 Durovic and Willett (n 53) 1405.
168 ibid 1412.
169 Emphasis added.
170 ELI Principles (n 131) 51.
171 ibid 47.
172 Arcari (n 39) 394. If the parties to a smart contract have not made an express arrangement regarding their choice of law which location will be taken into account to decide about which law will govern the contract: The location of the participants to the transaction? The location of the relevant asset? The location of software? Madir (n 130) 194.
173 AJ Schmitz, ‘Resolving NFT and Smart Contract Disputes’ in N Geslevich Packin (ed), The Cambridge Handbook on the Law and Policy of NFTs (Cambridge University Press forthcoming).
174 Vos (n 11) 68.
175 JAMS, JAMS Smart Contract Clause and Rules (DRAFT), https://www.jamsadr.com/rules-smart-contracts accessed 25 January 2023.
176 UK Jurisdiction Taskforce, ‘Digital Dispute Resolution Rules’ (2021) https://resources.lawtechuk.io/files/2.%20UKJT%20Digital%20Disupte%20Rules.pdf accessed 25 January 2023.
177 Arcari (n 39) 395.
178 ELI Principles (n 131) 50.
179 Clifford Chance (n 51) 46.
180 OECD (n 10) 12.
181 ‘What is a smart contract audit’ https://hedera.com/learning/smart-contracts/smart-contract-audit#:~:text=A%20smart%20contract%20audit%20involves,and%20reliability%20of%20blockchain%20applications accessed 25 January 2023.
182 Roumpos (n 86) 38.
183 ‘What is a Smart Contract Audit’ (n 181).
184 EU Blockchain Observatory and Forum (n 24) 10.
185 V Salazar and R Alberto, ‘Unconscionability, Smart Contracts, and Blockchain Technology: Are Consumers Really Protected against Power Abuses in the Digital Economy?’ (2021) 9 International Journal on Consumer Law and Practice 74, 76.
186 ibid 92–93.
187 Another aspect with regard to formal requirements in smart contracts is the role of third parties taking part in transactions to validate and verify. According to Madir, ‘as a matter of public policy, lawmakers will need to consider whether the role of such third parties as notaries should be retained or may be automated. This will, to a large extent, depend on the role that such third parties play in the transaction process, that is, whether their role is limited to identifying parties or is broader and involves warning the parties about the implications of the contract they are entering into’. See Madir (n 130) 191.
188 A Veerpalu and others, ‘The Hybrid Smart Contract Agreement Challenge to European Electronic Signature Regulation’ (2020) 28 International Journal of Law and Information Technology 39, 78. The authors suggest to amend eIDAS to include ‘functional equivalence’ clauses to allow also decentralised protocol-based key generation and management, and various alternative ways to fulfil the identification function than just the CA-centric PKI model, at 83.
189 ELI Principles (n 131) 40.
190 Art 8-ter(2) DL 135/2018 of 14 December 2018, converted into law by Law 12/2019 of 11 February 2019.
191 Madir (n 130) 197.
192 Herian (n 72) 22.
193 JI-H Hsiao, ‘‘Smart’ Contract on the Blockchain-Paradigm Shift for Contract Law?’ (2017) 14 US-China Law Review 690; E Tjong Tjin Tai, ‘Challenges of Smart Contracts- Implementing Excuses’ in DiMatteo, Cannarsa and Poncibò (n 49) 80; L Efimova, O Sizemova and A Chirkov, ‘Smart Contracts: Between Freedom and Strict Legal Regulation’ (2021) 30 Information and Communications Technology Law 333, 345; T Xu, ‘Smart Contracts: The Limits of Autonomous Performance’ in Allen and Hunn (n 11) 23; C Morgan, D Livingston and A Moir, ‘Dispute Resolution for the Digital Economy’ in Allen and Hunn (n 11) 437.
194 H Nguyen and S Bailey, ‘Use of Artificial Intelligence for Smart Contracts and Blockchains’ (2018) 21 FinTech Law Report 1.
195 E Mik, ‘Blockchains-A Technology for Decentralized Marketplaces’ in DiMatteo, Cannarsa and Poncibò (n 49) 172.
196 Amendment No. 1 to HB2645.
197 Arcari (n 39) 394.
198 Z Zheng, S Xie, H-N Dai and others, ‘An Overview on Smart Contracts: Challenges, Advances and Platforms’ (2020) 105 Future Generation Computer Systems’ 475, 482.
199 World Bank Group, ‘Finance, Competitiveness & Innovation Global Practice Fintech Note, No. 6’ (2020) 21.
200 Chamber of Digital Commerce (n 3) at 40.
201 Ferreira (n 4) 15. Also see, Justice A Abdullah and Y Goh, ‘Making Smart Contracts a Reality: Confronting Definitions, Enforceability, and Regulation’ in Allen and Hunn (n 11) 78: ‘ … clarificatory attempts should not too radically change the law. After all, as we have briefly canvassed, traditional contract law can be applied to smart contracts with little modification. It would cause too much uncertainty if statutes were designed to upend that stability.’
202 EU Blockchain Observatory and Forum (n 24) 11.
203 Vos (n 11) 57.
204 Mouton (n 95) at 465.
205 T Kadour Aleinieh and L Zoboli, ‘Increasing Standardization for Smart(Er) Contracts’ (2021) Unif. L. Rev. 1, 13.
206 EU Blockchain Observatory Forum (n 24) 33.
207 Mouton (n 95) at 465.