In 2016 “The DAO” was established, a digital decentralised autonomous organisation intended to act as an investor directed venture capital fund. Users pledged Ether, the cryptocurrency of the Ethereum blockchain platform on which The DAO was built, in return for tokens which gave them authority to vote on projects to fund. Within weeks, over $150 million of Ether had been committed.
When users signed up they did so on the basis (as expressed in the terms of service) that the code on the Ethereum blockchain which established The DAO was the controlling legal authority. Any human readable documents were expressly stated to be for educational purposes and were not to modify the express terms of the code on the blockchain.
A few weeks after it began, $60 million worth of Ether was siphoned off by a hacker, who took advantage of an issue with the code to transfer the cryptocurrency in a manner which was entirely within the rules of The DAO. This left the leaders of the project with a dilemma, the hacker had not broken the coded terms, but had breached the intent of those who had established the arrangement. Ultimately they chose to “fork” the Ethereum blockchain, effectively ending The DAO and arguably damaging the credibility of Ethereum, but enabling the return of the funds.
The DAO is the most infamous example of one definition of a smart contract, one which purports to be the entire legal agreement. It established a rich vein of legal questions for scholars to mine and is used by the contributing authors to Smart Contracts: Technological, Business and Legal Perspectives, to support a variety of different points and perspectives on smart contracts.
Unfortunately, the repeated references to The DAO across the chapters of this book highlight that this volume is not a consolidated and continuous group of chapters which establishes concepts and ideas and builds on them in order to ultimately draw a coherent set of conclusions or comments. It is instead a collection of separate papers grouped within a single hardcover with no interrelationship, except that they are on the theme of “smart contracts”.
Even the use of the term “smart contracts” is not consistent across the chapters, as the editors leave the authors of each chapter to use their own definitions. In Kevin Werbach’s and Nicolas Cornell’s chapter analysing smart contracts from the perspective of US contract law, “Smart contracts are distinct from pre-existing forms because the digital code is not just a representation of the agreement; it is the agreement”. Meanwhile in Stefan Wrbka’s (one of the editors) chapter exploring the regulation of uses of smart contracts, “Smart contracts are – despite their name – not real contracts, but special, digital tools that are based on computer codes or protocols that translate a contract into automated terms and conditions.”
For a legal audience, this is a crucial distinction. The lack of engagement by the editors with the different uses of the terminology further enhances the sense that this is a collection of separate papers with little to justify grouping them into a single volume.
That of course is not to say that as individual papers, the chapters are not worth reading. For SCL members, Werbach’s and Cornell’s section provides a very well written summary of the key technologies and applies legal concepts to them carefully and thoughtfully, albeit from a US perspective. W Gregory Voss provides a clear analysis of the data protection issues associated with smart contracts, with a focus on GDPR which many members may find insightful. Unfortunately for SCL members there is no chapter providing an English law perspective and there is a lack of signposting as to the expertise and focus of the authors. One could be well into Matti Rudanko’s chapter “Smart Contracts and Traditional Contracts: Views of Contract Law”, before you discover it is analysing smart contracts primarily from a Finnish law perspective.
As many of the contributors persuasively argue, smart contracts could be an important part of the future of commercial contracting and/or the implementation of contracts (depending on the definition they choose), and if they are not, then they offer a useful lens through which to examine and better understand contract law itself. It is therefore easy to recommend dipping into chapters of this collection, but it is not a book to be read cover to cover. As some SCL members head off on well-earned summer holidays, I suggest finding another book to take to the beach.
Louis Wihl is a Senior Associate in BCLP’s Technology and Commercial practice in London. He has over nine years of experience advising both customers and suppliers on a broad range of technology, IT, outsourcing and commercial services transactions.
About the Book
Smart Contracts: Technological, Business and Legal Perspectives
- Editor(s): Marcelo Corrales Compagnucci, Mark Fenwick, Stefan Wrbka
- Price: £85
- Published: 03-06-2021
- Format: Hardback
- Edition:1st
- Extent: 216
- ISBN: 9781509937028
