The Revolution Will Be Memorialized: Selected Blockchain-Based Smart Contract Use Cases

Document Type

Article

Publication Title

The Florida Bar Journal

Abstract

What happens when computer code autonomously performs contractual terms? This article addresses the legal ramifications of several novel-use cases for smart contracts, a specialized form of computer code that primarily operate on blockchain ledger systems. Blockchain-based smart contract systems offer potential cost savings for businesses, consumers, and public entities entering into certain digitally autonomous agreements by replacing traditional performance, enforcement, and dispute resolution mechanisms with automated computer algorithms. There is no generally accepted legal definition of “blockchain,” and we caution against a fruitless lexicological endeavor.1 We emphasize the importance of regulating behavior as it relates to the use of emergent technologies like blockchain, and not overregulating the underlying technology. A blockchain ledger is a type of distributed ledger with certain definable technological components. Abstractly, a distributed ledger is a self-verifying record of transactions kept chronologically, similar to traditional accounting systems.2 Blockchain’s revolutionary impact comes not from it replacing existing accounting systems, but from selected technologic features enabling the replacement of institutional and intermediary-backed trust systems. In application, a blockchain memorializes transactions similar to a common real estate chain of title. Title records are stored on a centralized ledger that is uniformly ordered, chronologically timestamped, and substantially immutable. 3 The chain of title is consistent and cannot be repudiated absent judicial orders validated by certification of the county recorder. Smart contracts are digital agreements encoded onto a blockchain.4 Upon occurrence of one or more deterministic5 conditions called “oracles,” the smart contract generates an output based upon acquired input data.6 This output can engage in predefined performance, issue executable commands to a third party to perform an act, cancel prescheduled actions, query information from an outside data source, or nullify party obligations. The drafted contract is converted into a programming language (e.g., Solidity).7 The counter-party must either reverse engineer the coded contract (thereby accepting its accuracy) or trust the blockchain programmer (e.g., IBM’s Hyperledger or other trusted service providers).8 Smart contracts allow institutional (and statutory) trust inherent in the county recorder’s office to be replaced with technological trust in the smart contract’s code. However, as smart contracts automate contractual performance, they impinge upon social normative values reflected in implied terms imputed under principals of legal realism.9 Replacement of traditional contracts with smart contracts requires a careful balancing of existing legal frameworks and the formalism of digital algorithms, as we explore the following use cases.

First Page

52

Last Page

56

Publication Date

9-2020

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