Smart Contracts Demystified

So in 2016 The DAO showed us the hard way that “code is not law” because without jurisdiction nothing can be law.  But code does dictate our behavior in many cases more forcibly than law.  The “Smart Contract Symposium” sponsored by the Digital Chamber of Commerce is an attempt to clarify the emerging meaning of “Smart Contract”, with a keynote speaker that coined the term Nick Szabo.  

During my MIT FinTech course I concentrated on smart contracts, while still confusing to many they seemed to me a key and glue the success of blockchain technologies bursting on the scene.  Essentially a contract is a promise.  When this contract is recorded and agreed upon in a specific jurisdiction it is subject to the laws of that jurisdiction.  We are all familiar with contracts that are recorded on paper by lawyers and signed by both parties of the agreement or promise, but what about a contract that is otherwise recorded?  Will a handshake in the presence of  a third party suffice?  What constitutes a legally binding contract is a matter of law and again law is subject to jurisdiction.  shutterstock_323346611

As a business process / workflow specialist, I have been involved in helping organizations translate knowledge into computer code.  Within a company jurisdiction is the official power to make decisions and judgements.  Codifying business practice into a workflow system could be considered a limited smart contract.  Limited to the parties within the corporate structure, limited to the power base of that corporate structure, limited to the business policy in that corporate structure.  

When taken outside a single corporate entity, and codified on a blockchain the “contract” must conform to all the legal gravity that weighs on each company involved in the agreement.  There needs to be an agreed upon jurisdiction and that jurisdiction must recognize the binding nature of the blockchain contract.  Here is where most lawyers heads start to explode, and nerds look puzzled.  

My nerd has been codifying laws in a limited sense of workflow and artificial intelligence  heuristics for years.  My nerd sees no problem, so I took the nerd to a Harvard course on Contract Law and now the nerd knows, complexity becomes clear.  When the world of laws and the world of code come together there is an exponential explosion of ambiguity, uncertainty, and risk, just the sort of stuff a contract is intended to minimize.    


So how are we to make sense of all this?  Language.  The key to any body of knowledge is agreement on the meaning of words.  This is what the digital Chamber of Commerce with backing from Deloitte is attempting to do in their white paper.  By discussing Smart Contracts in the context of law and blockchain we will need to assign new meaning to old language to attain clarity.  

Take your lawyer nerd to computer school and take your computer nerd to law school.  I am talking about your inner lawyer and computer nerd.   shutterstock_25360123Yes if one is to make sense of this new and complex world we need to step out of our respective comfort zones and see blockchain smart contracts with new eyes.  There are so many unanswered questions going into 2017.  

Blockchain Smart Contracts have the potential to transform everyday life for billions of us if we get this right!  Imagine the automated workflow and heuristics involved in the hundreds of parts (companies) that support manufacturing an iPhone, or having your refrigerator order groceries and have them delivered by an autonomous Uber car?  How does the grocer know that your refrigerator placed the order and not mine, what determines identity when our things are acting on our behalf.   How do we represent legally irrefutable identity when both parties of a contract are machines?  

OK I have not demystified “Smart Contracts”, yet!  If you are looking for simple answers you going to be waiting a long time.  Or you could jump into the game and help us shape the future, it’s not the wheelhouse for just lawyers or just computer nerds, there is a place for everyone to play.  Code impacts everyone, legal contracts impact everyone, unless you live under a rock and plan to stay there your skill, your participation and opinion matter.  

Nerd UP!


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