The Law Commission has begun work on reviewing English law to ensure its accommodation of the digital revolution. Its work will focus on both smart contracts and digital assets. Last week, we wrote about digital assets here.
Turning to smart contracts, the Commission defines them as “technology which runs on blockchain and by which legal contracts may be executed automatically, at least in part.”
Blockchain allows currencies such as Bitcoin to use a specific scripting language for transactions, smart contracts use a more complex language, and allows one to programme into any digital transaction certain conditions, rights, permissions and/or restrictions before or after it allows a transaction to occur. To this extent, these are not necessarily "contracts" but the fact they are automated is why they are called smart!
There is a desire to ensure that smart contracts are used efficiently and with confidence as they offer huge flexibility in the face of various events. More and more, we come across smart contracts which are increasingly popular and give rise to interesting questions of law. However, treating smart "code" as "contracts" can create uncertainties including how legally binding they may be, how the "contracts" are interpreted and the legal consequences of code not being performed.
Law Commissioner Sarah Green says “smart contracts, digitised assets and electronic documents promise to revolutionise the way we do business, digitising existing processes and in some cases introducing entirely new concepts. There are, however, lingering uncertainties about whether and how English law can accommodate these.”
Any legal uncertainty surrounding emerging technology may impede English law’s prominence in the digital revolution. Enjoying a reputation around the globe for sophistication and efficiency, English law can be an attractive choice for the emerging technology market. However, in order to ensure that it remains competitive, the Commission’s review of the law applicable to smart contracts comes not a moment too soon.
To find out more about smart contracts, email email@example.com
English contract law has developed with natural language contracts in mind. The development of technological capacity to engage in smart contracts gives rise to a range of questions.