Building Smart Contracts Trust in 2017: Lawyer's Role
In 2016 we saw a flurry of discussion, a lot of interest, and a little bit of actual experimentation with smart contracts, the computer programs that automatically execute the terms of a contract on a blockchain. What do we need to firmly launch smart contracts into the mainstream and what is the lawyer’s role? A recent article in Coindesk by executives at Tezos argues that we need to conquer three remaining barriers: 1) implementation of formal verification of the smart contract code—a mathematical technique of verifying the integrity of software code; 2) enablement of transparency of the smart contract code by using interpreted code rather than compiled code (a concept meaningful to developers that permits them to more easily inspect code on the blockchain); and 3) development of clear governance mechanisms for the smart contract.
The first two barriers must be solved by software developers. It’s the last item—development of clear governance mechanisms—that will require joining the lawyer’s legal skills with the software developer’s coding skill. Software on the blockchain is immutable, but there has to be a mechanism for correction of the inevitable software error. Here is where the lawyer will tailor the governance processes learned so well in significant outsourcing transactions: governance and committee structure, issue escalation procedures, and change request process. Smart contracts are intended to be part of real contracts, and we lawyers already know the building blocks of well-crafted contracts. Here’s to 2017!