"Smart contracts...guarantee a very specific set of outcomes. There's never any confusion and there's never any need for litigation."
"If the blockchain promise comes to a reality...most goods, labor and capital will be allocated through decentralized global platforms. Disputes will certainly arise."
~ Clément Lesaege and Federico Ast
Blockchain-based "smart" contracts may characterize much of the future of exchange as they expand the scope of potentially efficient bargains through restructuring and reducing transaction costs relative to traditional contracts. This Article analyzes the changes in transaction costs and execution efficiencies as contractual "distance"-the number of intermediaries required to make an exchange, weighted by the rational level of actual agreement between parties-increases between bespoke contracts, template contracts, contracts of adhesion, and algorithmic contracts housed on platforms like Ethereum and arbitrated on platforms such as Kleros. This framework shows that smart contracts have the potential to lower the contractual distance required to make an exchange by (1) overcoming trust issues that require intermediaries, (2) lowering the incentive to write certain kinds of boilerplate, and (3) increasing the incentive to understand contractual terms. As a result, wide implementation of smart contracts may return contract law closer to the legal ideal of mutual understanding as the basis for exchange. At the same time, these auto-executing agreements risk making the future of contract law a return to the era of sealed instruments, enforcing themselves regardless of impossibility, fraud, and other legal safeguards. As examples of these costs and benefits, the Article focuses on smart contracts in two industries: the environmental public goods sector and the film industry. These industries illustrate the potential for smart contracts as well as steps that can be taken to ensure that as code becomes law, it will retain the doctrinal wisdom applied to contracts before they became "smart."
This document was originally published in the University of Missouri-Kansas City Law Review by the UMKC Law Review. Copyright restrictions may apply.
Lingwall, Jeff and Mogallapu, Ramya. (2019). "Should Code Be Law?: Smart Contracts, Blockchain, and Boilerplate". University of Missouri-Kansas City Law Review, 88(2), 285-322.