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Smart Contracts as new laws? Better handle with care

Smart Contracts as new laws? Better handle with care


(Sole24Ore) “A contract is
an agreement”, this was the mandatory phrase for starting a private law exam
test after which we would discuss the conditions for its validity. Today, university
memories are coming back as contracts are revised in technological form; indeed
they’re called Smart Contracts. This brilliant intuition came from Nick Szabo who proposed them in 1994, even before Bitcoin and
the diffusion of the Internet.

Let’s start with
the definition:
“Smart Contracts are computer protocols that
facilitate, verify, or enforce the negotiation
or performance of a
contract, or that
obviate the need for a contractual clause. Smart contracts aim to provide
security superior to traditional contract law and to reduce other transaction
costs associated with contracting.” 
The words in bold about automatic performance of the
clauses is a source of opportunities and risks, questions and doubts. One thing
is certain: A Smart Contract isn’t a contract, but only the part related to
agreements performance.
Until now, when
one of the contracting parties feels the other party didn’t respect a clause of
the contract then a third party need to be called in order to settle the
conflict. This neutral authority has always been a human one. Now, we rely
increasingly on technology to facilitate relationships between humans, even if
this could seem an oxymoron. Maths (or should we say cryptography)
intends regulating any operation between each one of us, close or far, a known
or unknown stakeholder.
How do
technology and economy meet at this point?
If a contract
represents the formalization of an agreement, how can we make it secure between
parties that remotely agree and maybe don’t even know each other? The answer is
Smart Contracts based on Blockchain technology.
The contract
then becomes an instructions set. If it can be codified, it can also be
“computed”, i.e. if the conditions are satisfied, it ensures that performance
is automatic.
It sounds like
a futuristic scenario, but in reality the Internet of Things (IoT) includes this form of contracts for new services.
All is fine, in the end “equal justice for all”, not only for those who possess
the power. Eliminating all excess of human discretion which leads to long and
inconclusive civil lawsuits is actually one step forward.
But in which
direction?
If we choose
the one that leads to no human discretion at all, the risk may be even greater.
These systems
are fascinating, they open up incredible scenarios, but they also are
autonomous and immutable. This isn’t good, machines must remain instruments.
They mustn’t have the last word. Otherwise this will be the first step on a
slope in which decision power is given to machines. Instead, we would like
machines that assist us in the decision-making process. We must leverage them
but not be ruled by them. The variability of emotions remains a human factor
that we shouldn’t give up.
The third
party, not human, to which we entrust the performance of contract can’t always
be mathematics. We hope for a coexistence with the practitioners: the new
generation lawyer will have to know how to write a Smart Contract, for example translating the clauses into computer code as shown
in the figure.

All this to
emphasize the fact that Smart Contracts should be used to control the performance, and never to judge. New technologies require for behavioral models to adapt. .
We must use them according to their usefulness, without extremisms. We will use
these instruments but wisely, because we don’t live in a deterministic world. Not
yet.

Author: Massimo Chiriatti, technologist and member of Assob.it

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