Are smart contracts legally enforceable?

With the proliferation of smart contracts in the world the question arises, just how enforceable are these contracts? The short answer is that so long as they comply with the basic rules of a contract they will be enforceable. However the actual circumstances may vary from country to country or state to state. The reason for this is that to enforce a smart contract outside its automatic terms you are going to need traditional courts to assist. This article will explain what a smart contract is and how they are legally enforceable.

What is a smart contract?

These are simple programs stored on a blockchain that run when predetermined conditions are met. This means that no party to the contract has to do anything to complete the contract. For example you could have an insurance contract that pays out automatically when a certain weather event occurs in an area. They can also automate workflows triggering the next action when conditions are met.

So are they enforceable?

A contract in its most basic form requires 3 things, an offer, an acceptance of that offer and the payment of some consideration (which means that either something is performed or some money is paid). These basic requirements are universal when it comes to a contract so if the smart contract has these three requirements then it should be enforceable. To enforce the smart contract or even challenge the contract you may have to rely on traditional courts.

This means that local laws will apply and the laws may vary from state to state and country to country. There is a body of law called ‘private international law’ which deals with the circumstances in which different types of contract can be enforced across jurisdictions and how that is dealt with. In short there is no simple answer and if you are entering into a smart contract for any substantial sum and you are unsure of what to do if there is a dispute get advice before you enter into that contract.

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