This all sounds abstract, so let\u2019s turn to an example to help structure the sequence of events.\u00a0 An insurance company promises farmer Bob, in return for a monthly payment, a lump sum in the event the temperature exceeds 100 degrees for more than five days straight during the term of the agreement.[7]<\/a>\u00a0 The insurance company and Bob translate the provisions into software code, making sufficient funds available to fulfill their side of the agreement and digitally sign it.[8]<\/a>\u00a0 Bob\u2019s payments would automatically be deducted each month and credited to the insurance company\u2019s account, while the smart contract would also be checking the high temperature on Weather.com each day.[9]<\/a>\u00a0 If the temperature exceeded 100 degrees for six days, the lump sum payment from the insurance company would be transferred to Bob\u2019s account, and the smart contract would terminate.[10]<\/a><\/p>\n Smart contracts sound like they could be extremely useful in that they are self-enforcing and circumvent the need for judicial enforcement, but there are of course shortfalls to be analyzed.[11]<\/a>\u00a0 When there is contractual litigation, courts give great deference to longstanding principles such as good faith efforts, estoppel, or partial performance.[12]<\/a>\u00a0 However, those principles will be impossible to apply to an executed smart contract since the content is irreversible.[13]<\/a>\u00a0 The content is considered irreversible because the central idea of the smart contract is for parties to receive the predetermined outcome without altering the terms.[14]<\/a>\u00a0 Further, business people will rarely want performance and enforcement of contracts to be automatic because circumstances change in unpredictable ways.[15]<\/a>\u00a0 In practice, counterparties tend to only resort to the literal language in their contracts after<\/em> the relationship between the parties has broken down.[16]<\/a><\/p>\n While the efficiency possible with smart contracts is attractive, there is still much to be fleshed out with how contract law would apply to smart contracts and whether the two can be reconciled as is or whether new law would be needed to regulate smart contracts.<\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n [1]<\/a> Jake Frankenfield, What are Smart Contracts on the Blockchain and How They Work, <\/em>Investopedia (Mar. 24, 2022), https:\/\/www.investopedia.com\/terms\/s\/smart-contracts.asp.<\/p>\n [2]<\/a> Id.<\/em><\/p>\n [3]<\/a> Id.<\/em><\/p>\n [4]<\/a> Reggie O’Shields, Smart Contracts: Legal Agreements for the Blockchain<\/em>, 21 N.C. Banking Inst. 177, 180 (2017).<\/p>\n [5]<\/a> Frankenfield, supra<\/em> note 1.<\/p>\n [6]<\/a> O\u2019Shields, supra<\/em> note 4, at 178.<\/p>\n [7]<\/a> Kevin Werbach & Nicolas Cornell,\u00a0Contracts Ex Machina<\/em>, 67 Duke L.J. 313, 331 (2017).<\/p>\n [8]<\/a> Id.<\/em><\/p>\n [9]<\/a> Id.<\/em><\/p>\n [10]<\/a> Id.<\/em><\/p>\n [11]<\/a> See generally<\/em> O\u2019Shields, supra<\/em> note 4, at 185-93.<\/p>\n [12]<\/a> Rakhil Kalantarova, The Ongoing Speculation About Smart Contracts: Smart Enough to Replace Third Party Arbitrators, or Is “Smart” Just A Misnomer?,<\/em> 21 Cardozo J. Conflict Resol. 551, 567 (2020).<\/p>\n [13]<\/a> Id.<\/em><\/p>\n [14]<\/a> Id.<\/em><\/p>\n
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