Smart Contracts 101 - Coding the Contract
With the buzz word of 'smart contracts' flying around in the current blockchain space, it was refreshing to hear from both the tech and legal perspective what exactly is a smart contract and how it compares with a legal contract.
Hannah defined smart contracts as a self-executing contract that is compressed into a hash and stored on the blockchain. The terms of how and when the smart contract should be executed are defined precisely by the code.
A legal contract however requires certain elements to be established for it to be valid. This includes the need for an offer, acceptance, consideration, intention, capacity and formality.
When comparing the two, we should keep in mind that smart contracts need to precisely define the terms for every possible use case. Its weakness lies in its lack of discretion when scenarios outside of the defined terms arise.
Additionally, there is an issue of certainty in a smart contract where the language used may be confusing and easily misinterpreted. An understanding for both parties to act good faith and good will is a fundamental concept in contract law that can be difficult to program as they are communicated during the negotiation process.
Hannah proposes that smart contracts be adopted as a hybrid inclusion to the current legal system, recognising its current limitations but also its potential to disrupt the legal industry.
Hannah Glass - Biosnap:
Hannah Glass is a solicitor, specialising in financial services and fintech at Herbert Smith Freehills. Hannah’s fascination with blockchain began as a pursuit outside her traditional career in early 2014, and as blockchain morphed from bitcoin to ethereum and beyond, it has become an integral part of her career.
She has experience advising banks and fintech companies on Australian licensing requirements and contractual issues, in both the traditional financial services and blockchain space. Recently Hannah has been involved in reviewing the government’s proposed regulatory sandbox initiative on behalf of an industry body. She is also the editor of Herbert Smith Freehills’ Money & Payments website.
Chris believes that smart contracts are not new in its inception but rather, one of many evolutions in this modern society that follow the reoccurring pattern of automation, disruption and disintermediation.
There are many organisations and individuals in the World today that actively promote the adoption of smart contracts. These include Ethereum (Vitalik Buterin), the DAO, Common Accord, Legal Markdown, Nick Szabo and Imogen Heap.
However, the recent scandal regarding the exploit of the DAO which led to the loss of millions of dollars has shone controversy in whether written code on the blockchain should be considered law. With a lack of jurisdiction and accountability, many investors were left without cause as the hacker drained a large portion of the DAO's funds.
Despite the DAO's failure, smart contracts have proven to be successful in other areas such as marginal activity, war-torn regimes, micro contracts, international collaboration and hyper digital or experimental projects.
- Get Chris' slides here
Chris Mountford - Biosnap:
Chris Mountford has deep experience developing software, hands-on and leading teams, across many industry sectors and technology stacks and has been a full time developer at Atlassian since 2005.
Since 2012, mostly in his spare time, Chris has focused on blockchain technology research. He is a regular speaker at international technology conferences and local Sydney meetups on bitcoin, blockchain, agile software development and other technical topics. In 2016 Chris presented at South by Southwest in Texas on Blockchains as the Next Application Platform.