Conceptualizing Smart Contracts
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Conceptualizing Smart Contracts Stanford Law Workshop Computable Contracts Aaron Wright Cardozo Law School January 21, 2016
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Transcript of Conceptualizing Smart Contracts
Conceptualizing Smart Contracts
Stanford Law Workshop Computable Contracts
Aaron WrightCardozo Law School
January 21, 2016
What’s a blockchain?
Database maintained by a network of computers.
It’s not owned by any one entity or person. It’s collectively managed by a peer-to-peer network through software.
Data about transactions are stored in a series of “blocks” which are organized in a sequential “chain.”
Enables transactions involving that data to be processed and validated in a way that does not require parties on the network to trust one another
Why do blockchains matter?
Secure
Traceable
More Resilient Data
Self-executing
New part of the Internet stack
“Decentralised systems, such as the blockchain protocol, threaten to disintermediate almost every process in financial services”
What can I do with a blockchain?
Virtual Currencies
Manage access to records with greater certainty and security
Build Self-Executing “Smart” Contracts
What is a “Smart Contract”?
Use of code and a blockchain to execute logic if certain conditions are met.
Universe of Smart Contracts
Legal Code
Universe of Smart Contracts
LegalCode Group Rules
Universe of Smart Contracts
Universe of Smart Contracts
LegalCode
GroupRules
Device Interactions
Universe of Smart Contracts
Device Interactions
LegalCode
GroupRules
Legal Code
Code → less ambiguous than wordsSelf-executing → harder to breach
Group Rules
Digital Identities & Signatures
E-Voting*
*where public voting is not a concern
Uncertificated Digital Securities
With identity, voting records, securities, you can begin to use smart contracts to digitize corporate/LLC formations, equity allocation, and distributions
Device Interactions
Easier for machines to process code, as opposed to human readable language
Easier to enter into commercial arrangements using a virtual currency, as opposed to traditional hand-to-hand currency
Machines arguably need greater degree of precision
What smart contracts are being built?
LEGAL CODE
Securities
Derivatives
Capital Markets
Exchanges & Markets
Music Licensing and Royalty Payments
GROUP RULES
DEVICE INTERACTIONS
GROUP RULES
AUTONOMOUS “LAWLESS”CONTRACTS
What are limitations/problems with smart contracts?
#1 Self-Enforcement
• Unless provided for in the code, smart contracts lack the ability to be breached and can be hard to amend
• Code immutably binds parties/devices without leaving them the possibility of unwinding the agreement, by virtue of nature of smart contract
• Challenging questions for machine-to-machine commerce and legal code and unintended consequences
#2 Enforceability
• Courts have not yet affirmed the enforceability of legal code
• Without absolute certainty, risk averse parties may be justifiably reluctant to enter into such agreements
• Questions of agency with machines and devices—i.e., manufacturer or owners
Will need to back-up any legal code with a human-readable version or wrapper (known in financial cryptography circles as a “Ricardian Contract”)
#3 Privacy
• Blockchains/smart contracts are semi-private
• Raises challenges for use cases, where privacy can be a valuable
• Be careful when storing sensitive information on a blockchain
#4 Autonomy
• Smart contracts, on systems like Ethereum, can run autonomously without human intervention, becoming hard to stop
• They are viral in nature, which raises questions as to what intermediaries will be able to be leveraged to halt their execution (miners, information intermediaries, and/or programmers).
