EVALUATION OF CERTAIN PROBLEMS THAT MAY ARISE WITH SMART CONTRACTS FROM A LEGAL PERSPECTIVE

Abstract

Purpose- The smart contract and blockchain concepts are being discussed in various disciplines as well as law with a rapid increase. However, in legal sense, the application of such concepts are far more advanced than the legal regulations on those topics not to mention the academic studies. Although there are a few distinguished monographies and a number of papers focusing the legal aspect, the applicability especially in certain circumstance – in which contractual law studies or defines as fundamental elements – are still vague. Therefore, this paper distinguishes itself by focusing on the purpose of studying some of the possible legal effects and results of smart contracts in commercial life as well as in finance. Methodology- The study employs academic and theoretical analysis of the smart contracts concept from the point of legal theory, by making a thorough examination of diverse national and international papers, monographies and other studies. Findings- As a result of this study it is revealed that smart contracts are already useful “tools” for commercial transactions especially for synallagmatic contracts with long terms, in finance and insurance sectors. Secondly , these types of contracts are going to be used more often in a broader sense. Thirdly, besides their advantages, such tools should be considered as a “contract” in legal sense, whether they are on-chain or off-chain or hybrid. Finally, since these are contracts, not a plain software, they are subject to the rules, theories, discussions and conditions of the relevant legal systems, specifically law of obligation. Therefore they should be subject to various legal regulations such as the provisions of standardized terms of contract, unfair terms and conditions, consumer law principles, finance law, insurance law, business law as well as banking law whenever applicable. Thus, the so called advantages of blockchain system, such as unanimity, decentralization, transparency and automation will be considered to be inapplicable from a legal perspective. In addition, if such contract contains a foreign element, the applicable local law should be determined according to the conflict of laws principles. Sometimes more than one local may be applicable to one single contract. Conclusion- As a result of this study it is concluded that smart contracts are already a practical part of commercial transactions in especially finance and insurance sectors, and are going to be used more often within further commercial areas. However it is also observed that smart contracts will have shortcomings on some of its pormises such as confidentiality, reliability and sustainability. In addition, smart contract concept should be considered as a legal contract therefore it will always be under the scope of relevant legal regulations.

Keywords

• Smart contracts
• legal characteristics of smart contracts
• blockchain
• smart contracts and finance

References

1. Badak, Z. (2020). What will be the effect of distributed ledger technology law (dlt law, lex cryptographia) to the company law? A study on the future of the organization of companies wıth the new normal. Koronavirus Döneminde Güncel Hukuki Meseleler Sempozyumu, Ibn Haldun Üniversitesi.
2. Szabo, N. (1997). Formalizing and securing relationships on public networks, https://nakamotoinstitute.org/formalizingsecuringrelationships/ (last visited 30.11.2021).
3. Çağlayan Aksoy, P. (2020). Akıllı Sözleşmelerin Kuruluşu ve Geçerlilik Şartları. de Filippi, P. and Wright, A. (2018). Blockchain and the Law 'The Rule of Code', Harvard University Press.
4. Karahan, Ç. and Tüfekci, A. (2019). Blokzincir teknolojisinin iç denetim faaliyetlerine etkileri: fırsatlar ve tehditler. Denetişim Dergisi, 9(19), 55–72.
5. Kun, E. (2021). Is ınsisting on specific performance under smart contracts desirable under english law? ınflexibilities of smart contracts and potential solutions. Bilişim Hukuku Dergisi, 3(1), 139-175.
6. Philippe, D. (2018). Blockchain and smart contract: lex cryptographia? Article to be published in the legal review DAOR, https://philippelaw.eu/wp-content/uploads/2018/12/BLOCKCHAIN-AND-SMART-CONTRACT.pdf (last visited 30.11.2021)
7. Scholz, L. H. (2017). Algorithmic contracts. Stanford Technology Law Reviews, 20, 128-169.
8. Sillaber, C. and Waltl, B. (2017). Life cycle of smart contracts in blockchain ecosystems. Datenschutz und Datensicherheit 8 | 2017, p. 497- 500.

9. Tevetoğlu, M. (2021). Ethereum ve akıllı sözleşmeler. İnÜHFD, 12(1), 193-208