This document discusses smart contracts and blockchains. It begins by defining a blockchain as a database maintained by a network of computers not owned by any single entity that stores transaction data in blocks organized sequentially in a chain. It then discusses how blockchains enable secure, traceable, and resilient transactions without requiring trust. The document outlines some uses of blockchains like virtual currencies, managing access to records, and building self-executing smart contracts using code on a blockchain. It also discusses some types of smart contracts being developed and limitations around self-enforcement, enforceability, privacy, and autonomy of smart contracts.

1. Conceptualizing Smart
Contracts
Stanford Law Workshop Computable Contracts
Aaron Wright
Cardozo Law School
January 21, 2016

2. What’s a blockchain?

3. Database maintained by a network of
computers.

4. It’s not owned by any one entity or person.
It’s collectively managed by a peer-to-
peer network through software.

5. Data about transactions are stored in a
series of “blocks” which are organized in a
sequential “chain.”

6. Enables transactions involving that data to
be processed and validated in a way that
does not require parties on the network to
trust one another

7. Why do blockchains matter?

8. Secure

9. Traceable

10. More Resilient Data

11. Self-executing

12. New part of the Internet stack

13. “Decentralised systems, such as the
blockchain protocol, threaten to
disintermediate almost every
process in financial services”

14. What can I do with
a blockchain?

15. Virtual Currencies

16. Manage access to records with greater
certainty and security

17. Build Self-Executing “Smart”
Contracts

18. What is a “Smart Contract”?

19. Use of code and a blockchain
to execute logic if certain
conditions are met.

20. Universe of Smart Contracts

21. Legal Code
Universe of Smart Contracts

22. Legal
Code
Group Rules
Universe of Smart Contracts

23. Universe of Smart
Contracts
Legal
Code
Group
Rules
Device Interactions

24. Universe of Smart
Contracts
Device
Interactions
Legal
Code
Group
Rules

25. Legal Code

26. Code → less ambiguous than
words
Self-executing → harder to breach

29. Group Rules

30. Digital Identities & Signatures

31. E-Voting*
*where public voting is not a concern

32. Uncertificated Digital Securities

33. With identity, voting records,
securities, you can begin to use
smart contracts to digitize
corporate/LLC formations, equity
allocation, and distributions

34. Device Interactions

35. Easier for machines to process code,
as opposed to human readable
language

36. Easier to enter into commercial
arrangements using a virtual
currency, as opposed to traditional
hand-to-hand currency

37. Machines arguably need greater
degree of precision

38. What smart contracts are
being built?

39. LEGAL CODE

40. Securities

42. Derivatives

45. Capital Markets

47. Exchanges & Markets

50. Music Licensing and Royalty
Payments

52. GROUP RULES

55. DEVICE INTERACTIONS

57. GROUP RULES

58. AUTONOMOUS
“LAWLESS”
CONTRACTS

61. What are
limitations/problems
with smart contracts?

62. #1 Self-Enforcement

63. • Unless provided for in the code, smart
contracts lack the ability to be
breached and can be hard to amend
• Code immutably binds parties/devices
without leaving them the possibility of
unwinding the agreement, by virtue of
nature of smart contract
• Challenging questions for machine-to-
machine commerce and legal code
and unintended consequences

64. #2 Enforceability

65. • Courts have not yet affirmed the
enforceability of legal code
• Without absolute certainty, risk averse
parties may be justifiably reluctant to
enter into such agreements
• Questions of agency with machines
and devices—i.e., manufacturer or
owners

66. Will need to back-up any legal code with
a human-readable version or wrapper
(known in financial cryptography circles
as a “Ricardian Contract”)

67. #3 Privacy

68. • Blockchains/smart contracts are semi-
private
• Raises challenges for use cases,
where privacy can be a valuable
• Be careful when storing sensitive
information on a blockchain

69. #4 Autonomy

70. • Smart contracts, on systems like
Ethereum, can run autonomously
without human intervention, becoming
hard to stop
• They are viral in nature, which raises
questions as to what intermediaries
will be able to be leveraged to halt
their execution (miners, information
intermediaries, and/or programmers).

71. Thanks!
aaron.wright@yu.edu
@awrigh01