Levy critiques the viability of using smart contracts to replace contracts that are backed by a centralized authority. She argues that contract law has historically served the larger purpose of societal relationship management and not just contract enforcement, by allowing for contract enforcement to be handled flexibly with social mechanisms rather than automatic inflexible decisions, as offered by smart contracts.
This article is well balanced by not being overly biased against the implementation of smart contracts. Levy explores why there is a tremendous amount of hype surrounding the transformative potential of smart contracts, by presenting multiple exciting use cases, such as smart contract’s role within the land title process of corrupt countries. She balances this excitement against her argument that, to build a new and effective contract system, there needs to be a combination of automatic technical process, smart contracts, with an overseeing human element.
She effectively argues that smart contracts alone are not the solution to a better contract system. The first problem she presents is that they only combat against ex ante problems (preventative) rather than ex post problems (corrective). An example she gives is that a smart contract may put a smart lock on your car to prevent against theft, but would not be able to provide a solution if the car was broken into. She compares this to somebody losing their private key, where would not be a system in place that would allow for recovery, because there would be no human third party that could help with system manipulation.
She also argues that there are some general societal necessities that normal contracts, backed by centralized authorities address, but smart contracts do not. Normal contracts allow for contract temporality, such as when there is a mutual problem with a created contract that needs to be rectified, but hardcoded smart contracts do not. Normal contracts also allow for general contract standards to be put in place even if they are not explicitly laid out in the contract. An example of this is the concept of ‘good faith’ which would be difficult to program into a smart contract. Because of these shortcomings, she argues that the replacement of normal contract based systems with smart contract based ones would have some large social ramifications.
Her arguments are effective especially when presented alongside some blockchain horror stories, such as the Ethereum theft that led to the Ethereum Classic fork. Human factors associated with contract use must be more extensively considered before we get too excited about replacing huge current contract-based systems with an untested technology.
Link to Article:
Levy, K. E. (2017). Book-Smart, Not Street-Smart: Blockchain-Based Smart Contracts and The Social Workings of Law. Engaging Science, Technology, and Society, 3, 1-15.