Smart contracts: between freedom and strict legal regulation

Abstract

ABSTRACT This paper aims to show that computer software known as ‘smart contract' can help achieve various goals. First, the software can be used as a means of executing a traditional contract. Second, smart contracts may help enforce the law. Third, the software can act as a means of concluding and executing a contract. In this case, a smart contract can replace a written one. Consequently, the entire contractual practice moves into cyberspace, and we observe total ‘dematerialisation' of contractual relations. Fourth, a smart contract can be used to enforce a court decision. Since the paper focuses on the contractual aspect of this technological innovation, the authors believe that a smart contract should be understood as a computer program serving as an external form for any type of contract. Such a contract can only be blockchain-based, because the blockchain technology ensures commencement, automatic execution, and termination of civil obligations in cyberspace. Based on the authors’ concept of a smart contract, this paper offers recommendations to eliminate legal and operational risks that arise when users of digital financial services conclude and execute smart contracts. The paper suggests ways to improve customer supervision of activities performed by operators and administrators of operating platforms.