The buzz of bitcoin hitting a high over $19000 USD this year brought cryptocurrency to the mainstream. People have may have previously heard of bitcoin or maybe even blockchain. However, it may not be clear to the casual observer what differentiates bitcoin, cryptocurrency, or blockchain technology. Part of what may have been overshadowed in the cryptocurrency boom is the underlying technology. Believe it or not, blockchain has more uses than just making the Winklevosses digital billionaires outside of a social network.
One particular aspect of the technology that mints cryptocurrency is the distributed ledger technology itself, or “blockchain”. Amongst other things, blockchain technology can help streamline transaction processes. For example, “smart contracts” may be used by parties to exchange money, property, or anything of value.
Smart contracts work by creating code including certain conditions then a following action when the condition is satisfied. For example, a purchase of a number of stock shares at a certain price can be a parameter for execution for a sale. Once the shares hit a certain price, the sale of is executed. Because the blockchain ledger is not supposed to change, is public, and meeting the conditions and the execution of the resulting action can be publicly verified. Indeed, some believe that smart contracts may eventually obviate the need for lawyers, leaving the parties (and a coder) to reduce the parties’ intentions to code.
But, issues with creating smart contracts and what happens when they go awry have yet to be addressed. For example, how would the rules and canons of contract interpretation by a court need to change to construe a smart contract if there is a dispute? Who is considered the drafting party? The parties to the transaction? Any involved lawyers negotiating the deal? The smart contract vendor or the smart contract coder? How would courts have to adapt to construe different coding languages? Will disputes arise on how to select the appropriate coder and language? What happens if a dispute arises about whether the underlying code appropriately captured the parties’ intent? Will special canons of code interpretation need to be developed? Are there any jurisdictional issues with interpreting and enforcing smart contracts?
These issues have prompted some to take a proactive approach. For example, Colorado Governor John Hickenlooper commissioned a Colorado Blockchain Council comprising stake holders, legislatures, and industry leaders to proactively address regulatory, legal, and industry questions raised by blockchain and distributed ledger technology. The Council will be addressing topics including token generation, whether cryptocurrency and ICOs are considered securities, tax, and smart contracts and the issues that arise with using blockchain technology.
Until these /* issues are hashed out */ , the rumors of the lawyer’s death have been greatly exaggerated (for now).
The above article was written by Justin Cruz, Senior Counsel at Michael Best.