Crypto Impact Litigation

Why DLT Devs May Need to Take “Smart Contracts” to Court

The debate around “smart contracts” is raging at the moment. If DLT devs are unwilling, unable, or unready to put out the fire they started, it might make sense to take some of these fights to court.

Debates On “Essence” of “Smart Contracts”

Proponents and opponents of this technology are going head to head debating whether “smart contracts” can ever really be trustless, secure, how they should be Oracled, whether they actually give utility, and so on.

At this level, these debates are really about the current capabilities of different technology platforms that call themselves “smart contracts.” Jimmy Song’s The Truth About Smart Contracts is a great example of this type of intervention. He asks the key question all of us should be asking:

“What the heck is a smart contract, anyway?”

But the answer then goes in a technical direction. There are some valuable comparisons to how “normal contracts” are supposed to function in several idealized versions of legal systems for resolving contract disputes. By and large, the debates above do not engage with the legal essence of “smart contracts” — which is where we think the real action is.

To Get Smart Contracts, You Must Engage Law

A small, but growing slice of the “smart contract” debate concerns whether “smart contracts” are even legal — and, if so, what that means, who gets to decide, and what’s next.

We think the legal status, limits, functions and potential of so-called “smart contract” distributed ledger technologies (DLTs) is the most consequential front in the battle over the New Internet.

Our position on the term “smart contract” should be very clear. What we think of as “smart contracts” today is a brilliant technology and a genius marketing ploy. However, from strategic and legal perspective, the “smart contract” banner is a very dumb choice.

By lumping complex private directives, machine processes, and operational logics together with existing law on contract formation, interpretation, choice of law, choice of forum (and thousands of other quintessentially legal issues) DLT devs are only heightening their legal risk profiles.

In Law, As In Life, Words Matter

Even the mere usage of the “smart contract” term spells trouble: it sows conceptual chaos, it adds transactional costs, and it hinders innovation.

Thinking instrumentally in terms of longer term development strategy, and in terms of actionable takeaways, “smart contract” a needlessly risky and dangerous term.

Our most recent bit of analysis walks you through these risks by going beyond headlines to actually look at so-called “smart contract legislation.”

In our piece, Against “Smart Contracts,” we actually parse Tennessee Senate Bill 1662, which was signed into law several months ago by Tennessee’s Governor.

What we find is dissonance and a recipe for legal troublemaking. A clearer map of the minefield allows us to see safer next steps.

Taking “Smart Contracts” By Their Horns

Because of the CleanApp Foundation’s experience with law and legal institutions, we see multiple ways that the legal aspects of the “smart contract” debates will get somewhat clarified (note: “clarified” not “resolved” — because these legal issues will never be conclusively resolved):

(1) we can wait until many small disputes (e.g., such as when swindled investors start suing token mints and coin exchange) start percolating up different judicial dockets, globally, and we receive judge-made “common law” or “doctrinal/interpretive guidance;”

(2) we can wait until a high profile dispute arises between or within DLT platform development teams that changes the post-dispute paradigm in a material respect for the entire industry;

(3) we can wait for “negotiated rulemaking”-type work product from venues like Stanford’s Center for Blockchain Research or other inter-DLT think tanks;

(4) we can make the law we want to be adopted;

(5) etc.

Crypto Impact Litigation?

As a nonprofit incorporated in Tennessee, our ability to raise crypto resources through simple appeals like the one below is directly affected by new laws like Tennessee’s “smart contract law.”

This means we have standing to sue to get the clarity we need to do the work we must do … to save the world in our view of how the world needs saving. Right now, we’re not actively prepping for a legal challenge to SB 1662, though one might become warranted.

The on-the-ground reality of crypto crowdsourcing is changing so rapidly that we might need to revisit our own legal exposure; at that point, it might be worthwhile to sue or pursue other direct legal risk mitigation strategies.

The reason we’re sharing this publicly is simple: if you’re reading this, it means you care about “smart contracts,” conceptual rigor, DLT, and lowering risk.

And if crews are considering going to court on home turf to start getting judicial clarity on the meaning of “smart contract” in light of existing precedent —then you should see the situation is pretty dire. Before it gets better, unfortunately, it will get a lot worse.

DLT devs should be spending their resources studying economics, incentive structures, and innovating. Because of the nature of CleanApp’s projects, studying legal risk mitigation is innovation. But we know that’s not the case for many other teams.

You know what to do if you want to protect yourself in a so-called “smart contract” world. You gotta go back to basics.