Chapter 3 Smart Contracts

Question 1

Explain the definition of smart contracts

Answer 1

Smart contracts are conditional transactions, because they refer to logic written in code that has IF this THEN that condtions.

Question 2

Which clauses are suitable for a smart contract?

Answer 2

Transactional clauses with IF this THEN that logic.

Question 3

What clauses are unsuitable for smart contracts? Explain 2 categories

Answer 3

1. Conditional clauses requiring a human assessment to be conducted, for example A party had to take an action in a commercially reasonable matter.
2. Clauses referring to governing law and jurisdiction, because they have no conditional logic in them.

Question 4

Which 4 elements need to be present to make a contract legally binding?

Answer 4

1. Offer & acceptance
2. Consideration
3. Intention to create legal relations
4. Certainty of terms

Question 5

How is an offer of a smart contract made?

Answer 5

By publishing the code of the smart contract on the distributed ledger and let other participants interact and execute the code.

Question 6

How can one accept a smart contract on a distributed ledger?

Answer 6

By signing the transaction with his private key.

Question 7

Click-wrap agreements are allowed in the UK, why are they not allowed in Australia?

Answer 7

Because there was no natural person involved.

Question 8

What does consideration in a smart contract mean?

Answer 8

Consider whether there has ben an exchange of value, or mutual benefit and burden.

Question 9

How is the condition of intention to create legal obligations fulfilled in smart contracts?

Answer 9

Where smart contracts act proactively in entering into a secondary contract, then this must be seen as a conditional offer and conditional acceptance.

Question 10

How is the condition certainty of terms fulfilled in a smart contract when the contract is written in binary code?

Answer 10

Making sure that there is also a contract in natural language, the risk is however that thing could get lost in translation. This is to make sure that all the parties to the contract understand the terms and conditions.

Question 11

Based on the Clifford chance and Jelena Madir’s article, there are 7 legal challenges related to smart contracts, explain.

Answer 11

1. Validating the authority of the parties
2. Requirement of statutory ‘in writing’
3. Requirement of statutory signature
4. Allocating liability for a glitch in the technology
5. Burden of proof in case of a dispute
6. Determining the applicable law
7. Maintaining confidentiality on the DL