Smart Contracts – Minimum Standards

In the weeks to come, we are going to discuss various aspects of smart contracts on this blog. All our posts are built upon a set of basic hypotheses. And they all boil down to the requirement for smart contracts to comply with certain standards – both legal and technical.

It is worth noting that the term smart contracts means different things to different people. Usually, a person’s background influences his or her understanding of a term. Therefore, we would like to share the definition of the term on which we base our articles:

Definition

As you can see, our definition of the term is clearly influenced by the fact that we are attorneys. As attorneys, we cannot disregard the requirement that a ‘real’ legal contract must fulfil certain requirements. But we will discuss these requirements in a separate post. For now, the above definition should be enough background to understand our hypotheses in the right context.

Hypothesis # 1

A smart contract is a computer code which (partially) automates various elements of a legal contract. As such, it must comply with applicable legal and technical standards.

Hypothesis # 2

The algorithm used in a smart contract must be transparent, reasonable and secure.

Hypothesis # 3

The parties to a transaction must be identifiable and both parties to a transaction must know the content of the transaction.

Hypothesis # 4

The design of smart contracts must ensure that they can be executed and enforced in compliance with applicable laws and that they can be reversed if needed.

Hypothesis # 5

The parties to the transaction, the transaction and its execution must be logged in a reliable manner, the parties must have access to these logs and the logs must be preserved for the required period.