In today’s digital economy where contracts are entered into at the click of a button from anywhere in the world; in a world where we have smartphones and smart cities, Senator Ihenyen, Lead Partner at Infusion Lawyers at last weekend’s Techpoint Inspired conference, started by asking the audience if we should not also have smart contracts—preprogrammed, automated contracts that can self-enforce and automatically get recorded on a blockchain.
First, what is the problem smart contracts trying to solve? Enforcement problems, answers Senator Ihenyen. “We are in a world of contracts but enforcing them can be a real mess, and this is where smart contracts come in”. The intellectual property and information technology lawyer defined smart contracts as “agreements that self-execute in accordance with the terms parties to the contract have reached and programmed after a meeting of the minds and recorded on a distributed ledger.” He traced the evolution of smart contracts to the works of Nick Szabo.
How smart contracts really work in the real world may not have been quite clear to the audience until Senator Ihenyen used a football bet over the Champions League match between Liverpool and Tottenham as an example. Using smart contracts, Senator Ihenyen illustrated how two parties securely entered a contract and the party whose team won automatically received one bitcoin after the smart contracts autonomously collected data from the internet to self-execute the contract based on terms already written into the protocols of the program. Truly smart, everyone thought.
Having explained what smart contracts are, Senator quickly identified the types of smart contracts, their applications, benefits, and limitations. According to him, some of the practical applications of smart contracts include automated payments, insurance, mortgage transactions, real estate, supply chain management, and other applications. While pointing out the benefits of smart contracts including being autonomous, cost-effective, precise, safe, time-efficient, transparent, and trustless, Senator Ihenyen also pointed out certain limitations of smart contracts. These limitations include blind execution, security vulnerabilities and bugs, present inability to scale, and legal uncertainty concerning the legal status of smart contracts.
On the topical question on whether smart contracts are legally enforceable, Senator Ihenyen answered, “YES and NO, depending on the jurisdiction, law, and nature of transaction involved”. He opined that because of the way smart contracts are formed and structured, they generally meet the requirements of a valid contract. He also opined that since smart contracts are in writing and signed (electronically), smart contracts meet the requirement of writing under the Statute of Frauds 1677. The audience found interesting and engaging Senator Ihenyen’s somewhat indepth look at smart contracts under Nigeria’s Evidence Act 2011 and the Cybercrimes (Prohibition, Prevention etc) Act 2015.
Finally, on the hot debate on whether smart contracts will render lawyers irrelevant, Senator Ihenyen’s answer was again both YES and NO. According to him, “the answer is YES, if what you wish to achieve is write codes and programs in a legal vacuum, without any rights and liabilities requiring enforcement”. But the answer becomes “NO, if what you wish to achieve is create personal or business relationships with legal rights and liabilities.” A lawyer himself, Senator believes that you will always need a lawyer to ensure that the coder is writing the CODE OF LAW not merely the code of logic.” Most of the members of the audience agreed.
Senator Ihenyen who is Vice Chairman (Policy & Regulations) of Nigeria’s Blockchain association, the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), believes that smart contracts are truly the building blocks of the digital economy and they have come to stay.