Book-Smart, Not Street-Smart: Blockchain-Based Smart Contracts and The Social Workings of Law
Argues "smart contracts" miss some important features of regular contracts for the contracting parties, which are to some extent "socially self-executing", illustrated through three contracting practices:
- unenforceable terms: "Set expectations for future behavior, including behavior outside the formal purview of the contract"
- vague terms: "Facilitate stable and flexible long-term relations"
- nonenforcement: "strategic resource for operating 'in the shadow of the law'"
For social policy, expensive enforcement provides a "buffer" in which parties may operate, even with asymmetric power. However, in some cases smart contracts might provide more equitable access to justice.
Smart contracts make most sense where there is "computational verifiability of events surrounding the exchange", eg a stock trade.
- Blockchain-based contracts rely on careful prespecification of terms and automated enforcement of obligations. These contracts thus impose a degree of inflexibility on contractors’ relations that might short-circuit a number of alternative uses to which law is put.
- To realize their promise while mitigating against their potential disadvantages, ensuing discussion, development, and perhaps even regulation of smart contracts ought to attend explicitly to the relational contexts in which such contracts are deployed.
Theoretical and practical relevance: