[version 1; peer review: awaiting peer review]
No competing interests were disclosed.
Smart contracts depending on blockchain technology have emerged as a transformative mechanism for the execution of contractual obligations in electronic commerce and digital transactions. Their growing adoption in commercial practice has generated significant legal debate concerning their compatibility with traditional contract theory and existing civil and commercial legal frameworks. Smart contracts raise complex questions relating to contractual consent, interpretation, defects of will, allocation of liability, electronic signatures, judicial intervention, and the enforceability of court decisions within decentralized and immutable blockchain environments.
This study adopts a doctrinal and comparative legal methodology to examine the legal nature of smart contracts as code-based agreements operating through blockchain technology. It analyses the relationship between smart contracts and classical contract principles by comparing traditional legal rules governing contract formation and enforcement with the technological characteristics of blockchain systems, including automation, decentralization, immutability, and self-execution. The study further evaluates selected legislative and regulatory approaches relating to electronic contracts, electronic signatures, and digital transactions in comparative legal systems.
The study demonstrates that smart contracts should not be regarded as mechanisms existing outside traditional contract law, but rather as hybrid instruments combining legal commitment with automated execution through computer code. It further finds that the traditional elements of contract formation, including offer and acceptance, lawful subject matter, contractual intention, form requirements, and electronic signatures, may generally be satisfied within smart-contract environments. Nevertheless, the research identifies several legal and practical challenges associated with smart contracts, particularly coding errors, security vulnerabilities, informational asymmetries, immutability, defects of consent, difficulties of contractual interpretation, and obstacles to judicial enforcement on decentralized ledgers.
The paper concludes that smart contracts can be effectively integrated into existing legal frameworks through hybrid contractual documentation, targeted legislative regulation, and adaptive judicial interpretation. Such integration would allow legal systems to benefit from the efficiency, certainty, transparency, and reduced transaction costs offered by blockchain technology while simultaneously preserving contractual justice, legal certainty, and consumer protection.
Contemporary legal reality is undergoing a profound transformation driven by the digital revolution and distributed ledger technologies, foremost among them blockchain, which was initially developed as the underlying infrastructure for the Bitcoin cryptocurrency and has since expanded into the fields of finance, real estate, supply chains, insurance, government services, and other economic sectors. This evolution has provided a fertile technological environment for the emergence of new forms of transactions, most notably smart contracts, which operate through self-executing code deployed on a distributed network rather than being embodied in a paper instrument or even in a traditional electronic document.
In this context, the contract is no longer merely an agreement drafted in natural language and enforcement is entrusted to courts, arbitral tribunals, or enforcement authorities.
Before the advent of blockchain, the automation of contractual performance was typically carried out through software programs operating under the supervision of one of the parties or an external intermediary. In such a setting, it was possible to suspend performance or correct it and to refer the dispute to the courts whenever an error occurred or a breach of contractual obligations was alleged. This mechanism allowed a degree of control over performance, helped strike a balance between efficiency and fairness, and preserved a margin of discretion for judges or arbitrators when exceptional circumstances, exploitation, or ambiguity in the interpretation of terms arose.
Admittedly, smart contracts significantly reduce the possibility that one of the parties will unilaterally default on the performance of its obligations, since the code-based architecture renders performance automatic so long as the party has consented to the contract and accepted its operational logic. From this perspective, smart contracts may be seen as a tool for strengthening legal certainty, promoting faithful performance, and limiting opportunistic breach by contracting parties an issue of fundamental importance in commercial transactions.
However, the environment in which such contracts are expected to flourish is one of high-volume, cross-border, and rapidly concluded and executed transactions, which may involve digital platforms and decentralized autonomous organizations (DAOs) operating through interlinked bundles of smart contracts. In such a setting, any programming error or security vulnerability as illustrated by several high-profile incidents on blockchain platforms may lead to substantial financial losses or to contractual outcomes that were never contemplated by the parties, while the technical ability of judicial and regulatory authorities to intervene and correct the course of performance appears inherently limited, unless these contracts are redesigned ex-ante with a clear legal consciousness and safeguards in mind.
Considering the above, the classical questions of contract law concerning the very notion of the contract, its essential elements, and the conditions for its validity are being revisited. A central issue arises with respect to the requirement of consent in a contractual framework where party autonomy is expressed through digital interfaces or cryptographic keys: to what extent can one legitimately presume that the contracting party has sufficient knowledge of the underlying code and its legal and economic implications, given the technical complexity that creates a structural information gap between the programmer or platform, on the one hand, and the ordinary contracting party or even the moderately sophisticated trader on the other? This, in turn, calls for a renewed examination of the traditional doctrines on defects of consent, such as mistake, misrepresentation, duress and unconscionability/exploitation, in the context of contracts whose performance is carried out automatically by a “machine”. It raises further question whether, and under what conditions, a smart contract may be set aside once it has already been executed on-chain, and how such avoidance can be operationalized in practice given the inherent difficulty of unwinding transactions recorded on a blockchain.
The discussion also extends to the form of the contract, writing and signature. While many legal systems have recognized electronic writing and electronic signatures for the purposes of civil and commercial transactions, smart contracts introduce a more complex architecture based on public-private key cryptography and the linkage of such keys to parties’ digital identities, and in some public chains a degree of pseudonymity or anonymity remains possible. This raises intricate questions regarding legal capacity, the identification of the “person” who ultimately bears rights, obligations and risks, as well as the determination of the applicable law and competent forum in transactions that are distributed both geographically and technologically.
Moreover, a further concern relates to the potential use of the self-executing mechanism as a means of circumventing mandatory rules or of giving an ostensibly “automatic” character to arrangements which, in substance, operate to pre-emptively seize the debtor’s assets or to erode the legal safeguards granted to him by the legislature. This, in turn, calls upon legislative, judicial and regulatory authorities to develop appropriate tools to ensure that such contracts do not become an instrument for evading public-order constraints in commercial transactions, while at the same time avoiding excessive intervention that might stifle innovation and hinder the adoption of new technologies.
Against this backdrop, the present study undertakes an examination the smart contract from two interrelated angles: the angle of definition and theoretical grounding, and the angle of legal regulation and the practical issues arising from its characterization within the system of civil and commercial contracts.
It seeks, first, to formulate a precise legal definition of the smart contract that reconciles technical requirements with the concepts of contract law, and that highlights it as a contractual model distinct from forms of electronic contracting or traditional automation, in terms of self-execution, its original non-susceptibility to human suspension or modification, and its reliance on a distributed architecture.
Secondly, it seeks to elucidate its legal nature and to determine whether it can be included within existing models (such as the electronic contract or the automated management contract), or whether it constitutes a special model that calls for distinct legislative regulation. Thirdly, it aims to identify and analyze the issues related to the element of consent and its defects in a complex digital environment, the limits of knowledge of the content of the code, and the possibility of applying the doctrines of mistake, fraud, duress and exploitation, in addition to interpretative problems when there is a conflict between the logic of the code and the true intention of the parties, and the problems of compulsory enforcement, liability, and the determination of the applicable law and judicial jurisdiction in distributed, cross-border transactions.
On this basis, the study adopts a problem-oriented framework centered on a set of principal questions, including: How can the smart contract be defined in precise legal terms that take account of its technical elements without undermining the fundamental concepts of contract law? To what extent can the smart contract be accommodated within the general rules governing civil and commercial contracts, or is it necessary to acknowledge that it has a special nature of its own? What is the effect of the self-executing mechanism on the element of consent and on the possibility of applying the doctrines of defects of will in cases of mistake, misrepresentation, duress or exploitation? How can the practical issues relating to the interpretation of smart contracts, their performance and their suspension where necessary be addressed, and to whom liability should be attributed in the event of coding errors or the exploitation of vulnerabilities? And are judicial interpretation and doctrinal development within the framework of existing texts sufficient to integrate smart contracts into the traditional contractual regime, particularly in the field of commercial transactions and e-commerce, or does the matter require legislative amendments and qualitative additions?.
Taken together, these questions are intended to guide the analysis towards constructing an integrated vision for defining, characterizing and regulating the smart contract, in a manner that reconciles, on the one hand, the promotion of technological innovation and, on the other, the requirements of contractual justice, the protection of contracting parties and the stability of commercial transactions, with a view to making smart contracts an instrument that complements, rather than conflicts with, the existing contractual system.
Smart contracts existed long before they were designated by that name. Contracting parties had long been searching for mechanisms to reduce enforcement costs, without necessarily adopting any specific legal or academic framework in doing so. Contemporary examples of such mechanisms include subway ticketing systems, bike-sharing programmes, and electronic toll collection systems on highways.
The expression “smart contracts” first appeared in 1997, when they were defined as contractual clauses embedded in hardware and software in a manner that makes breach more costly. At that time, the concept was illustrated by two key examples: vending machines and devices used to repossess cars pledged as security for a loan.
Smart contracts came to represent a fundamental shift away from paper-based arrangements towards digital systems by reducing intermediation costs in enforcement, enabling self-execution, and limiting the need for arbitration or litigation, for instance, in banking services supported by computers and digital databases. Naturally, this shift could not occur overnight, given the long history and deep entrenchment of paper-based contracting practices.
The true emergence of smart contracts, in their modern sense, coincided with the advent of Bitcoin and the spread of blockchain technology from 2008 onwards. The success of the Bitcoin protocol as a large-scale experiment in the use of decentralised databases provided a crucial foundational infrastructure for the development and deployment of smart contracts.
This study adopts a doctrinal and comparative legal research design. It focuses on the analytical examination of smart contracts as hybrid legal-technical instruments within the framework of traditional contract law. The research is qualitative in nature and does not rely on empirical or quantitative data, but rather on legal reasoning and interpretation.
The study is based on primary and secondary legal sources. Primary sources include legislation, regulatory instruments, and international legal texts such as European Union regulations, UNCITRAL model laws, and national legal frameworks. Secondary sources consist of academic books, peer-reviewed journal articles, and authoritative reports addressing blockchain technology and smart contracts.
The research employs a doctrinal method to interpret and evaluate legal rules governing contract formation, consent, liability, and enforcement. In addition, a comparative approach is used to examine different legal systems, particularly the European Union and the United States, to identify similarities, divergences, and emerging regulatory trends.
The methodology ensures transparency and reproducibility by relying exclusively on publicly available and properly cited legal materials. All sources are clearly referenced, allowing other researchers to verify and replicate the analytical process.
smart contracts and blockchain-based architectures do not abolish the traditional law of obligations; rather, they expose its fault lines and force a reconsideration of several of its core assumptions. The study has shown that, despite their technical sophistication, smart contracts can at least in a large subset of their uses be analysed within the existing conceptual framework of civil and commercial contracts. Offer and acceptance, subject-matter, intention to create legal relations, and certainty of terms can all be identified in code-based transactions, even when these are expressed through cryptographic keys and executed automatically on a decentralised ledger. At the same time, the features that render smart contracts innovative self-execution, immutability (in “strong” forms), and reliance on distributed consensus have significant implications for consent, defects of will, interpretation, performance, and remedies, especially where there is an asymmetry of information between coders, platforms and users.
The research has further demonstrated that blockchain is not a neutral “background” technology. Its consensus mechanisms, cryptographic guarantees and governance models (public, consortium, private) shape the risk allocation between parties, the possibility and cost of unwinding transactions, and the extent to which courts and regulators can intervene ex post. In this sense, the slogan “code is law” is both overstated and revealing overstated because smart contracts ultimately derive their legal effects from the surrounding legal order, but revealing because, in practice, the technical design of code and infrastructure often determines which legal remedies remain realistically available. The challenge for contemporary contract law is therefore not whether to recognise smart contracts as “real” contracts, but how to integrate them coherently into the general regime while preserving contractual justice, the protection of weaker parties and the stability of commercial transactions.
According to the simplest definition, a smart contract is an agreement that is executed automatically. It may also be defined as transaction code created through a computer program, which implements the terms of the contract.
Smart contracts are likewise defined as agreements existing in the form of an electronic program deployed on a particular blockchain, whereby this program ensures the autonomy and self-executing nature of the provisions of the smart contract based on a set of predetermined factors.
Some authors consider human intervention to be an element in the operation of smart contracts, and therefore define them as an agreement that is capable of automatic execution and operation by computer, even though certain parts may require human input or control, and that is enforceable either through the legal enforcement/compulsion of rights and obligations or through the secure execution of the computer program.
Smart contracts are defined as agreements in which performance is carried out automatically, usually by computers. They are designed to ensure performance without recourse to the courts. This automatic performance ensures that human discretion is excluded from the framework of contract execution. A smart contract is a set of code instructions stored on a decentralised electronic database (blockchain) and executed/activated by the transactions that take place.
Many U.S. states have enacted legislation specifically addressing smart contracts, which may not, in fact, be particularly “smart”, given that they have created a hybrid system of inconsistent ideas and principles, resulting in further confusion.
For example, in the State of Arizona, a smart contract has been defined as: “an event-driven program, that runs on a distributed, decentralised, shared and replicated ledger and that can take custody over and instruct transfer of assets on that ledger.” (Arizona Revised Statutes Annotated § 44–7061).
Outside the United States, in 2017 Belarus became the first country to legislate for the smart contract, defining it in a presidential decree as: “a computer program designed to function on a shared distributed platform for the purposes of automatic performance and/or execution of transactions or the performance of other legal acts.”
Based on the features mentioned above, it is possible to define the smart contract as an electronic program executed on a blockchain platform, which embodies the self-executing and autonomous nature of its provisions that are triggered by pre-defined conditions and applied to assets recorded on the blockchain platform. From a technical perspective, it is defined as a self-executing program operating on a shared decentralised distributed platform, namely the blockchain.
There are many advantages of smart contracts, which can be summarized in:
What renders smart contracts genuinely innovative is that their performance is carried out automatically using computers; this innovation makes it possible for declarations of intent to be formulated and expressed in the form of self-executing computer code. Once a smart contract has been concluded, its performance no longer depends on the will of the parties or of any third person, and it does not require any further consent or additional steps on the part of any of them. All that occurs is that the relevant computer program verifies that all the conditions have been satisfied, then transfers the assets and makes specific entries in the blockchain database concerning the asset transfer that has taken place.
Accordingly, the smart contract is, from a technical standpoint, binding on all the parties to it and no longer relies on a human intermediary who may be prone to error or subjective judgment. Any change in circumstances, or in the intention of either party after the date of conclusion of the contract, becomes irrelevant. There is thus no room for opportunistic behavior such as breaching the terms of the contract to maximize the benefit of the breaching party (efficient breach).
A smart contract does not require any legal institutions for its existence: no enforcement agencies, and no supplementary or mandatory legal rules to fill gaps in the contract, as is the case with classical contracts when they are incomplete. This is referred to as the self-sufficiency of the smart contract.
Given that, once a smart contract has been concluded, the contracting party is no longer able to influence its performance, a substantial degree of trust is required to sustain this type of “fiduciary” relationship within the smart contract. However, unlike the classical contract, where trust is placed in the personality and good faith of the other party, in smart contracts such trust is reallocated and placed in the computer algorithm that underpins the agreement.
Smart contracts make it possible to create aggregations of resources and to allocate them in accordance with agreed criteria, which may be particularly suitable for activities such as crowdfunding or insurance contracts.
The immutability of smart contracts deprives them of the flexibility characteristic of traditional contractual relationships and prevents the parties from adjusting their positions in response to changing circumstances. This problem was revealed in June 2016 during the hack of the Decentralised Autonomous Organization (DAO) a fundraising vehicle that had raised USD 168 million when it was launched on the Ethereum platform in 2016.
first, Ethereum is commonly described as an open blockchain-based infrastructure that enables the development and operation of decentralized applications within a distributed environment. Unlike the Bitcoin protocol, Ethereum was intentionally designed to be adaptable and flexible, functioning as a general-purpose platform aimed at supporting the execution of smart contracts in a trust less setting. The platform itself is functionally neutral and does not prescribe specific uses in advance, leaving developers and entrepreneurs free to determine its applications.
Nevertheless, Ethereum is particularly well suited to use cases that automate direct peer-to-peer interactions or facilitate coordinated collective activity across decentralized networks, especially in the context of peer-to-peer marketplaces and complex financial arrangements. While Bitcoin primarily enables the transfer of value without intermediaries, Ethereum, in theory, extends this capability by allowing highly sophisticated financial and organizational transactions to be executed automatically through self-executing code.
When the attacker exploited a flaw in a smart contract to withdraw more than USD 50 million from the DAO, the Ethereum community began to question the principle of immutability of the Ethereum platform. The Ethereum Foundation decided to intervene on behalf of the DAO investors in effect, to “bail them out” by rewriting the core Ethereum code to invalidate the attacker’s transactions and recover the funds.
To do so, the Foundation, influenced by the heavily invested founders of the platform, persuaded most users to agree to its decision. To reverse the transfers, a fork was created which altered the Ethereum protocol and returned the stolen tokens as if the hack had never occurred.
However, this breach of the platform’s immutability/stability was highly controversial and led to a split within the Ethereum community, as a minority of participants chose to continue with the original, unmodified code. As a result, Ethereum split into two parallel crypto “worlds”, identical in most respects but with one key difference: the forked Ethereum world effectively treated the DAO smart contracts as voidable by all participants on the basis of mutual mistake, whereas the unforced Ethereum world continued to treat the attack as a valid transaction under the terms of the DAO smart contract.
The DAO incident illustrates a fundamental disjunction between legal remedies and technical execution in smart contracts. While a court may declare a contract void or rescinded as a matter of law, such a declaration cannot be directly implemented at the technical level of an immutable blockchain. Unlike traditional contracts, where nullity retroactively eliminates legal effects, the execution of a smart contract produces irreversible transactions that remain permanently recorded on the ledger. Any attempt to “reverse” such effects through technical means whether by offsetting transactions or protocol-level intervention does not replicate the legal consequence of treating the contract as if it had never existed but rather substitutes it with a new set of transactions. This structural mismatch exposes the limits of judicial remedies when confronted with self-executing, immutable contractual architectures.
A further problem arising from the immutable nature of smart contracts concerns the way a court decision declaring a smart contract void is to be implemented. It is evident that “replacing” the transaction with a new one that fully offsets the existing transaction and neutralises its effects will not lead to the same result as treating the contract as though it had never existed in the first place.
In traditional contracts, the need to amend contractual terms frequently arises, and, when smart contracts are examined, several new issues likewise emerge that would, in principle, call for contractual modification. As a basic rule, once a smart contract has been coded and deployed on the blockchain, it continues to run until performance is completed; this is precisely what enables the smart contract to attain a high degree of certainty.
Smart contracts are characterised by their non-revocability. Their performance is guaranteed by the cryptographic functions employed within the decentralised environment known as the blockchain. Once a smart contract has been concluded between the parties, its performance and enforcement are ensured by an immutable computer program. This allows the parties to place less trust in one another and instead to rely on the automated machinery of the blockchain to execute their obligations, irrespective of any subsequent change of mind that may occur after the contract has been formed.
Smart contracts operate by recording the ownership of digital assets or the digital representation of off-chain assets on a blockchain platform. This electronic contractual form provides an embedded activation mechanism, enabling the parties to trigger performance based on specific electronic events written into the blockchain. Furthermore, because smart contracts rely on cryptographic techniques, every interaction with the contract requires the use of a digital signature or cryptographic key associated with the relevant party.
Some commentators consider that, with the rapid development of technology, software-based equations (code) will be created to govern all types of contractual transactions.
The spread of distributed ledger technologies (DLT) has prompted renewed discussion about the use of technology to enforce agreements between individuals without recourse to third parties. New companies and protocols have assembled core code libraries for drafting smart contracts. This code exists independently of the Bitcoin system. These new entities are working to build an ecosystem for experimenting with the implementation of smart contracts, and a substantial body of literature has emerged on the subject, most of it from a technical or financial perspective.
The implication of the smart contract is that the terms of the agreement, as well as the factual elements relating to its performance, can be coded into a decentralised blockchain that cannot be overridden or bypassed by any malicious or erroneous behaviour on the part of any computer on the network. Thus, if millions of computers verify that A has paid B one thousand pounds at a specific date and time, one may be certain that A has in fact paid B that amount at the stated date and time.
Decentralised distributed ledgers (DLT), also known as blockchains, are essentially information databases created and maintained by a network of interconnected computers without a central authority. For example, instead of a public registry system relying on paper files stored in a municipal records office, a blockchain-based system would maintain electronic databases online on every computer connected to the network. On this basis, it has become easier to construct and enforce secure contracts without recourse to the state, by means of decentralised consensus mechanisms.
One of the most promising fields for the deployment of blockchain technology is its use in creating fully automated contracts, which are performed without human intervention.
Awareness of the term “smart contract” began to grow with the spread of knowledge about distributed ledger technology (DLT), of which blockchain is one type.
Decentralised finance (DeFi) refers to a series of platforms and applications developed by programmers to facilitate a wide range of banking and financial activities on the blockchain within the cryptocurrency ecosystem. It may be regarded as the financial infrastructure of the crypto-asset system. Proponents of cryptocurrencies envisage, over time, the construction of a DeFi ecosystem capable of competing with traditional banking and financial systems.
The DeFi system relies heavily on cryptography, blockchain technology and smart contracts. Smart contracts can encapsulate all the functionalities offered by DeFi technologies. At present, most DeFi applications are built on the Ethereum network, owing to its powerful programming language, Solidity.
Smart contracts may take different structural forms, ranging from pure code to hybrid arrangements that combine programming and natural language. In practice, they may:
be fully encoded in computer software. exist as a coded contract with a separate, matching natural language version. consist of a natural-language contract whose performance is implemented through a separate coded or programmed layer; or take the form of a natural-language contract that relies on a coded payment or settlement mechanism. These variants illustrate that the “smartness” of the contract may lie either in the entirety of the agreement or in specific functional components, such as execution or payment.
For legal purposes, it is useful to distinguish between “strong” and “weak” smart contracts. Strong smart contracts are those for which modification or cancellation after deployment entails significant technical or economic costs, such that judicial intervention to alter their operation is, in practice, difficult to justify.
Weak smart contracts, by contrast, can be amended or overridden with relative ease whether by the parties, the platform operator, or a court so that their legal treatment does not fundamentally depart from that of traditional contracts supported by automated tools. From an innovation perspective, this differentiation is realistic, as current technologies and social practices remain far removed from a fully “strong” model of smart contracting, particularly in areas such as contracts for personal services, which resist full computer control and cannot be entirely reduced to code.
From a technological standpoint, the meaningful deployment of smart-contract applications was hardly feasible before the widespread diffusion of networked computing, which left courts and their agents as the primary mechanisms for contract enforcement. With ongoing digitalization and the proliferation of the so-called Internet of Things (IoT), however, the practical viability of embedding contractual software in connected devices has increased significantly.
For example, internet-enabled refrigerators and heating, ventilation and air-conditioning (HVAC) systems may be linked to smart contracts that automatically verify payment of amounts due to suppliers and adjust, suspend or downgrade the services provided in the event of customer default.
The notion of “self-enforcement” is commonly used to describe the way blockchain-based smart contracts execute contractual obligations through automated processes. Rather than relying on subsequent human intervention, such contracts are programmed to carry out specific actions such as releasing digital assets or denying access to certain goods or services once predefined conditions are satisfied, including instances of default on loan repayments or rental obligations. This approach is premised on the view that human decision-making is susceptible to bias and inconsistency, whereas algorithmic execution is regarded as impartial and predictable, operating without discretion, hesitation, or the capacity to withhold performance.
Max Raskin has suggested that a judge can, in functional terms, be understood as a machine that applies a set of rules to a given constellation of facts and then instructs other actors to implement the outcome. On this view, judicial enforcement is not the only conceivable mechanism for giving effect to contractual obligations: instead of a human judge interpreting and applying contractual terms, it is theoretically possible for a computational system to perform that role. For such a system to be viable, it must possess two essential capabilities: first, the ability to generate normatively “correct” outputs from the factual inputs provided; and second, the ability for those outputs to be translated back into the real world through appropriate enforcement pathways.
The vending machine is often cited as the paradigmatic example of a self-executing contract. It is typically defined as “a self-contained automatic machine that dispenses goods or provides services upon the insertion of coins.” In contractual terms, the machine completes one side of the bargain automatically once acceptance occurs unilaterally through the insertion of the required sum of money. This simple model illustrates how performance may, in part, be detached from ongoing human discretion and delegated to a technical artefact.
It is relatively straightforward to imagine contracts for the sale of movable property being structured as smart contracts and executed electronically. By contrast, it is less intuitive to see how contracts for the sale of immovable property (real estate) could be fully implemented in this way.
Nonetheless, a stylized model can be constructed on a blockchain platform. Under such a model, once the buyer and seller have concluded a sale agreement, the buyer transfers the deposit, which is held in a neutral escrow-like account controlled by a smart contract. After the buyer has transferred the full purchase price to that smart-contract escrow, the seller may finalize the transaction by triggering the contract to:
release the funds to the seller’s account and; transfer the tokenized title to the property to the buyer. The transfer is then recorded on the blockchain and the ownership status updated accordingly.
This scenario rests on several critical assumptions. First, the property must be tokenized, meaning that a specific blockchain token has been legally and technically linked to the underlying real estate. Although there is growing publicity around “selling houses on the blockchain”, significant legal and technical hurdles still need to be addressed before such models can be widely implemented. Secondly, the transaction is assumed to involve a straightforward transfer of unencumbered title between the parties, which often does not reflect the more complex reality of real-estate practice (e.g. mortgages, easements, co-ownership, registration requirements).
A similar thought experiment can be applied to loan agreements. A borrower could submit an electronic loan application to a bank, which would, in turn, notify the borrower of the required documentation. Once the documentation has been duly provided and verified, the lender may transfer the loan amount into an escrow account governed by a smart contract (a pre-designated address on the blockchain). The smart contract could then automatically manage disbursement and repayment in accordance with the agreed terms such as releasing funds upon satisfaction of specified conditions, scheduling repayments, and triggering default consequences thereby reducing the scope for ex post opportunism and manual intervention, while still operating within the broader legal framework that recognizes and constrains such automated arrangements.
Smart contracts represent an evolutionary development of the blockchain system, which was originally created to enable the operation of digital currencies. In essence, a smart contract is a computer program that runs on a blockchain platform, through which dealings in assets can be conducted in a fully electronic manner. This includes transactions involving sale, purchase, lease, mortgage, construction, development, insurance and other forms of contractual arrangements. In all such cases, contractual relations may be implemented via smart contracts expressed in the form of computer code deployed on the blockchain.
Blockchain was initially introduced as the technological backbone of the cryptocurrency Bitcoin, and only later began to acquire independent significance as its various potential uses became better understood. It nevertheless remains closely associated with Bitcoin, forming the core of its technological infrastructure.
Cryptocurrencies are used primarily for two purposes: as a store of value and as a means of exchange, in other words, they perform a function analogous to money. These characteristics have lent support to the proposition that cryptocurrencies may be treated as a form of property right. Since digital currencies rely on the blockchain system, the latter has been taken as a starting point for structuring transactions involving other types of assets, whether movable or immovable.
Governments and corporations around the world remain deeply uncertain as to how best to employ blockchain technologies in different areas of social and economic life, although the Emirate of Dubai, for example, has taken serious steps towards their comprehensive implementation.
Blockchain may be defined as a decentralized database of all verified transactions, shared across peer-to-peer (P2P) networks and operating through cryptographic algorithms. Its importance can be captured by noting that it enables the transfer of digital assets (or the digital representation of offline physical assets) in a manner that reduces or even eliminates intermediaries in economic transactions, by keeping accurate records of asset holders without the involvement of traditional intermediaries such as registries or land registration authorities. Blockchain thus ensures permanent access to reliable information.
In more general terms, blockchain denotes a class of digital technologies that combine cryptography, data management, networking and incentive mechanisms to support the verification, execution and recording of transactions between parties.
In systems such as Bitcoin, each block contains data representing debit and credit entries on cryptographic addresses. A simple transaction for example, “A pays B ten units of cryptocurrency on 2 March at 4 p.m.” (Raskin, 2016) is bundled together with other transactions into a block. This block is then proposed to the network and verified by many nodes using a consensus protocol. Once validated, it is cryptographically linked to the preceding blocks, extending the chain and updating the state of the ledger for all participants.
Consensus is achieved without reliance on any central repository of information. Each node maintains a copy of the ledger and participates in validating proposed blocks against the existing history of transactions. Through this distributed verification process, the network converges on a single authoritative version of the ledger, which may record rights, obligations and ownership interests.
Cryptography is central to this architecture. Transactions are digitally signed, and each block contains a cryptographic hash of the previous block. When a new block is added and propagated to the network, each node verifies both the signatures and the integrity of the chain. This design makes ex post alteration of recorded data computationally prohibitive: modifying one block would require recalculating the cryptographic links for that block and all subsequent blocks on every node in the network.
Different governance models of blockchain can be distinguished. In public blockchains, resilience is generally high owing to the large and open set of validating nodes. In consortium and private blockchains, the number of nodes is smaller; while this may reduce resilience in a purely technical sense, it also limits external exposure and can enhance control, confidentiality and regulatory compliance. In all cases, a node denotes an individual participant in the network that takes part in verifying and propagating data; collectively, these nodes maintain what operates as a logically unified ledger shared across the platform.
Contract law is one of the most dynamically evolving branches of private law, continually adapting to new business models and technologies.
At the same time, blockchain technology can be viewed, following Savelyev, as a “paradigm shift” in contracting because it enables the full automation of performance by both parties, in contrast to devices such as vending machines that only automate one side of the exchange. This qualitative transformation, however, does not mean that smart contracts can fully replicate the nuance and flexibility of written agreements drafted in natural language, especially where open-textured legal standards are concerned.
In classical civil-law doctrine, the form of the contract is generally understood to take one of three principal shapes:
The parties agree on specific contractual terms, reduce them to writing in several paper originals, sign them, and each party retains one or more physical copies in their possession. This form used where the subject-matter of the contract is of significant financial value.
Here, the contract is concluded in “screen-based” form through a computer program or a website accessed via any electronic device (computer, mobile phone, etc.), and the party merely declares his or her identity through the interface. This form is usually resorted to where the contract does not concern a high-value economic transaction, and the parties are primarily concerned with reducing the costs of travel, legal drafting, official registration, and similar transaction costs.
Neither of these two forms necessarily requires the involvement of a third party between the contracting parties.
This form combines the advantages of the previous two: the reliability and evidential value of the written form, and the speed, convenience, and cost reduction of electronic contracting. It relies on an electronic signature mechanism whereby the party maintains a private electronic signature key consisting of a string of letters and numbers (such as ysp5965ms7009jnd74ndljd). When the party wishes to enter an electronic contract, the identity of the sender verified by means of the previously communicated public key, and the private key used to complete the transaction. A certification authority supervises this process usually a governmental body or a private entity licensed by the state which generates the public and private keys and thereby ensures a level of reliability comparable to traditional paper-based dealings.
Although this last method is highly effective in guaranteeing the authenticity and reliability of an electronic contract even in the absence of the parties’ physical co-presence, since each has transmitted proof of identity and confirmed consent beyond reasonable doubt it ultimately amounts to a formal transposition of the trustworthy written contract into an equally trustworthy electronic format.
By contrast, smart contracts, while they may rely on this trusted electronic form for concluding the contract, go a significant step further by ensuring that performance is also carried out electronically. Receipt of funds, for example, may be affected automatically between the bank accounts of the parties at a specified time through a dedicated software application. This presupposes linking the electronic bank accounts of both parties to the smart contract, and feeding the program with information on whether each party has performed its obligations for instance, by connecting the software to electronic sensors capable of monitoring construction works and triggering payment instalments accordingly, or to biometric attendance systems that record workers’ daily presence, and to performance reports prepared by their supervisors, so that the program can automatically release full salaries or impose appropriate deductions based on the data supplied.
Although the terms of a smart contract are executed automatically, the validity of the contract still presupposes the parties’ will (consent). This will be manifested at the moment an individual decides to enter a transaction based on pre-defined terms or, in the case of electronic agents, when the individual chooses to use such an agent to conclude certain agreements and agrees to be bound by its acts.
For a contract to be properly formed, there must be a common intention between the parties to enter legal relations. The test for determining whether this requirement is met is an objective one: whether a reasonable person would regard the agreement as legally binding. In the context of a smart contract, once the offer is accepted, execution typically begins at the same time; it is therefore unlikely that a reasonable person would not regard such an arrangement as a binding contract.
Comparisons with earlier waves of technological innovation in contracting are instructive. Smart contracts may evolve in a manner analogous to “click-wrap” agreements, which are formed entirely online. One party posts the contractual terms on its website, thereby offering goods or services; the buyer then indicates consent to be bound by those terms through his or her conduct usually by clicking an “I agree” button. United States courts have generally held click-wrap agreements to be enforceable, recognising that, in this modern setting, parties are not required to discuss and negotiate every individual clause.
Where part of the contract is drafted in ordinary language and another part is expressed in code, the parties may agree that specific terms be represented in the form of computer code. However, it is important that such coded expression be capable of being received as evidence of the parties’ agreement in any subsequent judicial or arbitral proceedings. If courts or tribunals were unable to recognise this record as reflecting the parties’ consent, the legal effectiveness of the arrangement would be seriously undermined although courts may, in practice, rely on expert evidence to interpret the meaning of the code.
The declaration of intent itself is traditionally analysed as comprising an objective and a subjective element. The subjective element consists of: (1) the will to perform an act; (2) awareness of making a declaration of intent; and (3) the will to enter a transaction. Some commentators argue that this subjective element presupposes human behaviour and legal capacity, which are not present in the smart contract’s automated operations.
Under the current legal framework, however, execution software may be understood as a mere conveyor or messenger of the contracting party’s declaration of intent transmitting or receiving such declarations on behalf of that party. In German and French law, a messenger does not need to possess legal capacity to contract, which supports the view that software can function as a technical medium for expressing a legally valid will formed by a natural or legal person.
To reconcile the demands of technical certainty with the requirements of legal attribution before courts and arbitral tribunals, contemporary scholarship has proposed a hybrid model of so-called Smart Contract Templates, built upon what is known as the Ricardian triple. This model combines:
a legal text in natural language (legal prose) that judges and lawyers can read and interpret in accordance with the rules of contract law. a set of parameters that link the legal terms to digital, machine-processable elements; and standardised code that performs the automatic execution of the contractual provisions on a blockchain platform.
This approach demonstrates that expressing party intent in the form of code is not meant to replace the contract in its legal sense, but rather to operate as an execution layer functionally tied to a written agreement that remains available as the primary reference point in case of dispute, thereby alleviating concerns about accepting code as evidence of consent and allowing expert technical testimony to assist in its interpretation without detaching it from the traditional contractual framework.
In the context of smart contracts, what is commonly referred to as the “electronic signature” has been adopted as a means of verifying the identity of the contracting parties. The question nevertheless remains whether a cryptographic signature by the parties’ sufficient evidence of their identity is.
In many jurisdictions, electronic signatures are treated as equivalent to handwritten signatures, and their legal definition is broadly similar across different legal systems. Thus, for example, the United States Uniform Electronic Transactions Act defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”
Just as a valid subject-matter is required in a traditional contract, a smart contract also has a subject-matter, which will typically consist in the transfer of digital assets recorded on a blockchain. This may be characterised, within the framework of contract theory, as the legal effect which constitutes the object of the obligation, thereby preserving the classical distinction between contracts and gratuitous dispositions, in as much as contracts involve an exchange of obligations coupled with the possibility of judicial enforcement.
It has already been noted that a smart contract is drafted in a programming language and that conditional statements form the core of its structure. The logic of computer programming operates through formulations such as “if condition X is fulfilled, effect Y follows,” which is closely aligned with the contractual conception of obligations that are subject to a condition precedent or subsequent. Raskin has argued that, in this context, the performance of the contract is nothing more than the activation of one of these pre-programmed conditional statements.
In this sense, contract law, smart contracts and computer programming all operate within a common conditional framework built on the logic of “if … then …”. At the same time, it must be emphasised that smart contracts do not constitute a form of artificial intelligence: they are not capable of machine learning or of autonomously reshaping their own terms but are designed to produce a specific outcome whenever the same set of pre-defined conditions is met.
Given the technical features of smart contracts, the traditional rules on contractual interpretation are not readily applicable most notably the principle of construing the contract according to the parties’ common intention, even where this diverges from the literal wording, or according to the meaning that a reasonable person would attribute to the terms. Smart contracts are conceived as self-contained arrangements that are not meant to be interpreted ex post by external bodies or jurisdictions; the code itself is intended to operate as the final arbiter of the “transaction” it represents.
However, two important qualifications must be made. First, the technical complexity of smart contracts and the need for advanced programming skills to create such arrangements mean that, in many cases, they are developed by specialized companies at the request of a client. The separation between the programmer who writes the code and the party who intends to use it in their commercial activity creates a risk of misunderstanding regarding the terms of the future agreement. This reflects a divergence between execution and intention, which is aggravated by the significant gap in abstraction between legal language and programming languages. The use of Boolean logic in the code may reduce the scope for interpretation and provide a prominent level of certainty, but it does not eliminate the problem entirely.
From a computational perspective, any potential ambiguity must be addressed ex ante through the design of the executable program so that no “unknown points” remain at the performance stage. The history of computing shows, however, that software does not always operate as its designers expect: once deployed, the code may fail or behave differently from what was intended. Even if the actual outcome of a smart contract diverges from the parties’ subjective intentions, the system still constitutes the closest mechanical approximation to their will, because the behaviour of computer code is predictable under a given set of rules, whereas ambiguity in human interpretation is not resolved automatically.
The sphere of discretion exercised by the human mind lies beyond the reach of computer programs, because it involves outcomes and value judgments that were neither fully contemplated nor specified by the parties prior to the conclusion of the contract but arise only after it. Where, for example, performance is made dependent on a party’s reasonable personal satisfaction such as the commissioning of a painting this assessment is inherently subjective. One way in which the parties may address this is by reserving, to a certain extent, discretionary power in the contractual terms from the outset, or, alternatively, by refraining from the use of a smart contract in situations where such discretion constitutes an essential element of the agreement.
in conclusion, smart contracts represent an evolutionary development rather than a disruption of traditional contract law. Their significance lies not in replacing legal doctrine, but in reshaping the conditions under which contractual obligations are expressed, executed, and enforced. By translating legal commitments into programmable logic, smart contracts shift a substantial part of contractual governance from ex post adjudication to ex ante design, thereby redefining the balance between legal certainty and equitable flexibility.
This transformation exposes a structural tension between the rigidity of code and the adaptive nature of legal reasoning. While automated execution enhances efficiency and reduces opportunistic behavior, it simultaneously limits the capacity to accommodate unforeseen circumstances, correct errors, or protect weaker parties. As a result, the effectiveness of smart contracts ultimately depends on the extent to which legal safeguards are embedded at the design stage, rather than relied upon after performance has occurred.
So, the future of smart contracting does not lie in the dominance of code over law, but in their functional integration. Legal systems are called upon to evolve, not by abandoning established principles, but by reinterpreting them considering technologically mediated transactions. This requires a shift toward hybrid contractual models, where legal text and code operate in tandem, supported by regulatory oversight and interpretative mechanisms capable of bridging the gap between technical execution and legal intent.
Ultimately, the challenge is not to determine whether law or code should prevail, but to ensure that their interaction produces outcomes that remain consistent with the fundamental objectives of contract law: fairness, predictability, and the protection of legitimate expectations in an increasingly digitalized economy.
Based on the findings, the study proposes the following more concise recommendations:
Expressly recognize smart contracts as contracts in law whenever the classic elements of offer, acceptance, consideration/cause and intention are present, treating code as a technical vehicle for expression and performance rather than a separate “law of the code”.
Provide specific rules for highly irrevocable or non-modifiable smart contracts, including minimum “exit” or emergency-stop mechanisms and clear allocation of risk for bugs and exploited vulnerabilities.
Ensure that rules on unfair terms, consumer protection and pre-contractual information apply equally on-chain, with requirements for accessible natural-language documentation mirroring the code and explicit warnings where self-execution makes reversal difficult.
Continue to adapt frameworks for crypto-assets, VASPs and DLT market infrastructures, with attention to supervisory access to data, AML/CFT obligations and reconciling immutability with data-protection rights.
Articulate principles for reading and construing smart contracts, including structured use of expert evidence to translate code into legal categories and rules for resolving conflicts between code behavior and proven common intention.
Clarify when programmers, platform operators or parties bear responsibility for losses arising from bugs, design flaws or foreseeable security weaknesses.
Treat legal prose plus parametrized code as one integrated contract, with the written text retaining primacy for resolving disputes while giving strong evidential weight to on-chain records.
Accompany smart contracts with a clear natural-language agreement identifying the parties, subject-matter, risk allocation and dispute-resolution mechanism, and explicitly mapping key clauses to code.
Incorporate arbitration or other ADR clauses, together with technical tools (multi-sig, escrow, supervised oracles, pause functions) that allow suspension, correction or rollback in cases of serious defects, hacks or unforeseen events.
Subject material smart-contract deployments, especially those involving pooled funds, retail users or systemic functions to join legal and security review to verify compliance, robustness and alignment between business intent and coded logic.
Further work should address conflict-of-laws issues in cross-border smart contracts, the legal status of DAOs, interactions with insolvency and restructuring proceedings, and the possible role of automated enforcement agents or “electronic judges” alongside state courts and arbitral mechanisms.
Ethical considerations.
This study does not involve human participants or animals. Therefore, no ethical approval or consent was required.
Repository name: Smart Contracts and Blockchain Technology: Legal Sources Used in the Study.
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