Smart contracts: Legal framework and proposed guidelines for lawmakers
Help for those seeking to promote or facilitate the use of smart contracts
18 October 2018
Smart contracts and distributed ledger technology have the potential to transform the way in which businesses enter into, perform and enforce transactions. Increased automation of these processes via smart contracts could increase efficiency and lower costs, particularly for sectors that use high volumes of standardised contracts. Use of smart contracts may also have other benefits, such as reducing the risk of human error, increasing transparency and potentially reducing the number of disputes that end up in court.
In conjunction with the European Bank for Reconstruction and Development (EBRD), we have produced a report that has been written specifically with a view to positively contributing to the existing literature and thinking on smart contracts. With this in mind, the purpose of this report is to provide guidance to lawmakers on some of the key areas of law that should be considered in the context of smart contracts.
To date, much of the discussion has centred around the possible use cases and practical benefits of this new technology. At the same time, lawyers and lawmakers have started to identify particular legal questions or concerns that arise in the context of smart contracts and distributed ledger technology. These include issues relating to consumer protection, liability allocation, fraud risks, enforceability and data protection.
In many cases, the existing legal and regulatory framework may already allow for the use of smart contracts. Courts are generally used to applying legal principles, tools and techniques to new situations. However, this may not always result in a desirable outcome from a policy perspective, or some laws may not be flexible enough to allow requirements to be fulfilled in an automated manner.
Therefore, in some cases it may be helpful or even necessary for lawmakers to clarify or amend the way in which existing laws can be applied to smart contracts, or to introduce new legislation; for example to recognise the use of distributed ledgers as records of ownership if existing laws would not allow such recognition.
This report is intended to provide a guide for lawmakers in considering these issues and seeking to create a legislative and regulatory environment that facilitates the appropriate use of smart contracts. It examines what smart contracts are and what functions they may perform. It then proceeds to consider some key areas of law that are relevant to the use of smart contracts, and seeks to provide practical guidance and recommendations for lawmakers when seeking to promote or facilitate the use of smart contracts.
Download the full report using the download link or click here.