Smart Contracts

Abstract

This chapter sets out a conceptual, semantic and economic framework for the analysis of ‘smart contracts’, with a focus on blockchain-based smart contracts. It seeks to achieve this by tackling three interrelated areas. First, it delineates smart contracts’ defining attributes and places them within the taxonomy of (‘legal’) contracts. In doing so, it examines smart contracts’ history, highlighting a number of entrenched misconceptions. Second, the article compares conventional contracting (ie, within a contract law system) and smart contracts through the lens of new institutional economics. In particular, it considers settings in which each of these contracting methods, or combinations of both, can facilitate the exchange of value by reducing transaction costs. Third, it evaluates smart contract designs comprised of different combinations of code and natural language. As part of this, it highlights a number of trade-offs arising from these designs and considers the impact of pseudonymity on transaction costs. In recognition of the emerging field’s multidisciplinary underpinnings, the discussion throughout the chapter is supported by legal, economic, and technical insights.