Smart Contracts Don't Necessarily Disrupt Traditional Contract Law, Expert Argues

Blockchain-based smart contracts indubitably fall subject to private international law, a legal expert has argued in a post published to Oxford University's Business Law Blog today, Jan. 23.

Giesela Rühl - a professor of Private International Law and co-director of the Centre for European Studies at the Friedrich Schiller University in Jena, Germany - entitled her analysis "The Law Applicable to Smart Contracts, or Much Ado About Nothing?" As the title implies, the report argues that the presumed friction between smart contracts and established legal precedent may be over-exaggerated.

"[T]he initial hopes that smart contracts will free the exchange of goods and services from national laws do not seem to come true.

The classic questions of contract law arise also when parties enter into a smart contract.

Just like all other contracts, smart contracts demand that the law answers them.

The decisive question is not whether smart contracts are subject to the law, but rather to which law they are subject.

Professor Rühl focused on the European context, contending that "There can be little doubt" that the EU's core legal provision for civil and commercial contractual obligations - the 2008 Rome I Regulation - does in fact apply to smart contracts.

Noting that smart contracts are typically "Merely a piece of software or programme code that controls, monitors, or documents the execution of a contract that has been concluded elsewhere," Rühl argued that Rome I applies instead to the contract which the code facilitates.

Only in instances where the smart contract itself is hard-programmed to be legally binding - i.e. where "The contract is comprehensively and exclusively embodied in a software code," or where software is used for the contract's actual conclusion - would Rome I directly apply to the smart contract as such, she added.

Last fall, the United States Commodity Futures Trading Commission commissioner Brian Quintenz critiqued the well-known crypto adage "Code is law." Quintenz argued that even though smart contracts may complicate existing frameworks and question of accountability, they nonetheless fall subject to regulations and particular existing legal precedents.