Smart Contracts, Lawyers, Coders, and Blockchain
Recently, I attended a panel discussion in Manhattan with experienced law professionals who have spent decades working in and around technology in the field of electronic contracts, electronic signatures, and who are now keeping pace with blockchain and the concept of smart contracts. The panel discussion was titled “Tech Talk: Smart Contracts as Legal Contracts.”
Regarding the Smart Contract Discussion
Observations: The panel conversation was from the perspective of what I’m beginning to refer to as the “old economy” which I define as the pre-distributed ledger businesses, not the “new economy” which are distributed ledger businesses. That is, conversations were through the lens of current business models where the idea of contracts as code was not predominantly different from electronic contracts or code that you would implement on a traditional non-blockchain or centralized architecture to enforce contract terms and conditions. Some key points discussed were:
- The idea that in the blockchain future, contracts would be coded directly into computer language and not first written in the traditional human language and then converted to a machine language was the opinion of all the panel participants. This was a surprise to me. The entire panel seemingly behind this idea left open how quality, requirements etc. would be gathered, tracked and fed to smart software contract programmers of the future.
- Legal vehicles historically put in place to support today’s electronic records and signatures requirements is perceived to be broad enough to have substantially considered the ideas into which blockchain and their smart contracts will reside. More surprise here, as the idea that the architecture now inherently addresses Trust which was enforced through contractual terms is fundamentally different as now it is addressed 100% through blockchain.
- Regarding blockchain impact, the panel discussion had a flavor of a technology that enables “improved” business processes like traditional technology innovation brings to business rather than an impact that will fundamentally change businesses models, therefore disrupting and challenging today’s businesses survival. I speculate this is due to the customers of the panel which are “old economy” customers and is a gap in how most people are looking at blockchain. See my articles Why the Blockchain Future Will Kill Today’s Businessesand Blockchain: The Next Extinction is Upon Us
- Discussions revolved around “Smart Contracts” and how they were more advanced than traditional “Electronic Contracts” but a clear definition as to why they are considered this way wasn’t clear. At one point, the fact that the term Smart Contract pre-dates blockchain was mentioned and was briefly highlighted. There was, however, a distinction between the term Smart Contract and Smart Software Contract which implied to me that they did consider them to be different. This is a detailed discussion that I’ve not seen explained from the context of this panel’s perspective. I published an article on the basic difference between “Smart Contracts” and “Smart Contract Code” titled Blockchain: Reinventing the Business of Contracts which puts some fences around the differences. The panel did bring to their discussion the difference between blockchain based smart contracts and traditional electronic contract implementations is still poorly understood and explained.
Overall, the discussion was excellent as it highlighted not only some of the perceptions outlined above, but drew attention to the fact that there is significant case law to support blockchain and also the interesting point that Common Law jurisdictions are far better suited for the world of “Smart Contract”/”Electronic Contract”/blockchain based business models than Civil Law jurisdictions. This is a very import point to consider when pursuing the implementation of new economy businesses.
Smart Contracts and The New Economy
The Elephant, which was noticeably present in the room, was the view of how written, contractual terms and conditions, as well as the implied terms like trust and relationship, will have the power to create a new economic paradigm in which large segments of the economy, those who currently exist to enforce and provide these terms through centrally implemented businesses models, will be eliminated from the economy. This shift, which is the most powerful, underlying capability of the distributed, trusted ledger model is the area of interest to those who do not make big corporate enterprises their place of employment or their customers. This fact was obvious to those paying attention as represented by the questions being peppered to the panel about this past years DAO failure. The questions focused on the contractual terms, the fork path taken, the legality of the model to begin with and the likelihood of how the legal system would handle a situation like this when it is brought before them; and their position was that law, as it has been known for millennia, will prevail.
As I’ve covered in other posts like Blockchain: The Next Extinction is Upon Us and Why The Blockchain Future Will Kill Today’s Businesses, the remake of the economy and all matter of business verticals with this new model is the only conversation. The technology and the improvement of today’s operations through blockchain are not the stories; the story is the complete rework of the economy and all business models. This is where discussions must be positioned. This is what the industry must and wants to talk about. This is where we all must be spending our time.
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