But the two biggest legal problems of smart contracts lie in their blockchain provenance. The first one is the enforceability of smart contracts. Blockchain came into mainstream prominence as a decentralized and permission-less system that can be used to speedily conduct business transactions between multiple geographies. Current dispute resolution of contracts differs between countries and is settled in courts.
But blockchain works in the opposite manner. Consensus for a transaction is a function of agreement between multiple nodes in a network that, in a complex system, may reside in multiple geographies. How will a decentralized system arrive at a consensus regarding disputes among stakeholders? Permissioned blockchains have a line of authority that helps resolve disputes. But they typically operate within private enterprises. For permission-less blockchains, which operate within the public realm, the problem is still there.
There is also the problem of jurisdiction. How will disputes involving smart contracts for international transactions that span multiple geographies be resolved? More specifically, will the different jurisdictions involved have to work in concert with each other to piece together a judgment or resolution to disputes? The problem becomes further complicated when you consider the legal status of blockchain. Some states have taken the lead in recognizing smart contracts while others are still arriving at an understanding of the technology and its application to their society. The varying interpretations of contract laws with respect to blockchain could also present their own set of problems.
What Is The Solution?
The complexity of the problem notwithstanding, blockchain startups are already tackling the problem. In addition to this, reputable law firms have Some common themes from their planned products. Crowdsourcing of jury members from across the world is one. Once an arbitration clause is inserted into a smart contract, judgments to resolve disputes can be crowdsourced by appointing arbiters, who quote a price for the task, from across the world. Using the framework for Electronic Data Interchange (EDI), already used by banks for messaging between different jurisdictions, is another. This approach may be effective for smart contracts that distribute responsibility between humans and code. EDI was developed in the 1970s with the same goal as smart contracts: to enable seamless transactions between borders. As such, their scope of operations – international technology-based exchange of funds – has an overlap with that for smart contracts.
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