Expertise: smart contracts

Dumb scripts, smart contracts?

Is a smart contract legally binding?

Yes – if it meets all the requirements for the conclusion of an agreement. It’s important to bear in mind that most types of agreements have no prescribed form, therefore an agreement can (in theory) be entered into by a smart contract. However, a smart contract is a piece of code and not every legal obligation can be easily converted into code. Therefore we recommend that you use smart contracts in conjunction with traditional contractual terms – e.g. a hybrid contract. This is particularly important when using “oracles” that provide the smart contract with real world information.

Can I undo transactions with a smart contract programmed on the blockchain?

As you probably know, it’s impossible to change or delete information on a blockchain. Therefore, in principle a transaction cannot be adjusted after it has been recorded on the blockchain. However, it is possible to undo a transaction by using a new transaction to reverse the original one. It’s easier to do this in a permissioned blockchain, as all the nodes are known (unlike in a permissionless environment). As always, you should protect yourself by ensuring that the smart contract is built in such a way that the representation on the blockchain can be aligned with legal actuality.

Can I distribute my own tokens?

You can, but as tokens can represent almost everything from money and goods to rights – and there are as wide a variety of regulations that apply to them – you need to assess your options carefully. The first step is to choose which kind of token you want to distribute – e.g. a payment, utility or security token. Aside from any applicable laws and jurisdiction, the regulations that will apply to your token issue will depend on the sort of token you want to distribute. These regulations may impose strict rules on the tokens itself, the issue and trade of the tokens, and your KYC procedures. Once you are aware of, and comply with, these regulations, make sure that any relevant contracts (such as Terms of Use) are in place and be aware that the content of your white paper may create certain expectations and rights with the token receiving parties. Finally, we recommend that you always conduct a security audit on the smart contract through which the tokens are to be issued.