1. 34 ISSUE 59 • JANUARY 2017
OPINION / Smart Contracts
To code or not to code
Could smart
contracts be the
end of lawyers
unless they know
how to write
computer code?
Michael Twomey
of Law2020 offers
his take.
A
s a recent conference, organised
by Law2020 and CBD Consultancy
Dubai, entitled 'The Law and
Regulation of the Internet of
Things', a delegate asked whether lawyers in
the future would have to know how to write
computer code.
This question stemmed from an
interesting discussion of smart contracts
and blockchain technology. And a
discussion of blockchain is particularly
relevant in the UAE. October saw the
announcement of the ‘Dubai Blockchain
Strategy’ that aims to see all of the
documents of the Government of Dubai on
blockchain by the year 2020. Dubai will be
the first government in the world to execute
all its transactions on blockchain.
WHAT IS A SMART CONTRACT?
A smart contract is computer code that
will, using algorithms, create, execute,
monitor and enforce an agreement. And
when smart contracts combine with
blockchain technology and the billions of
connected devices that will make up the
so-called internet of things, we will see a
truly massive revolution in how we trade
and do business – and, indeed, how we live
our lives.
And don’t take my word for it. In July 2016,
Japan’s Softbank announced its proposed
USD32 billion acquisition of the British
semiconductor designer, ARM Holdings.
Softbank’s Chief Executive, the billionaire
Japanese technology investor, Masayoshi
Son, said at the time:
“First there was the internet, then the
mobile internet and next there will be the
internet of things, which is going to be the
biggest paradigm shift in human history”
If that sounds like hyperbole, it is perhaps
not quite matched by the words of Mark
Walport, Chief Scientific Adviser to HM
Government, in a report dated December
2015. The Walport report states:
“…..the eventual impact of DLTs [another
term for blockchain] on British society may be
as significant as foundational events such as
the creation of Magna Carta”.
Whether the words of Mr Son and Mr
Walport overstate the significance or not,
big things are happening out there - and
lawyers and regulators need to be aware
of them.
The classic and most easily
understandable example of a smart contract
is the humble vending machine. You put
your money in and out comes a chocolate
bar. No intermediaries needed. No lawyers
and no teams of bank workers clearing the
funds. (On August 24, 2016, the front page of

2. 35theoath-me.com • The Oath
OPINION / Smart Contracts
the Financial Times ran a story that four of
the world's biggest banks have teamed up to
develop a new form of digital cash that they
believe will become an industry standard
to clear and settle financial trades using
blockchain. The total cost to the finance
industry of clearing and settling trades at
the moment is estimated at between USD65
billion and USD80 billion a year.)
Blockchain and smart contracts can, for
example, be used to transfer property and
keep a secure online register of ownership.
The ownership will be transferred upon the
receipt of funds (probably a cryptocurrency
such as Bitcoin). Two private individuals
may sign up to a standard blockchain that
would automatically transfer title and
register the new ownership of the vehicle
upon receipt of payment. Without the need
for a centralised securities depository,
securities can be traded. And code within a
smart service level agreement may release
service credits upon the failure to meet the
agreed level.
But surely human input will continue
to be needed for individualised complex
contracts. However, with developments
in technology, and the growth of artificial
intelligence, the numbers of areas deemed
too difficult to be dealt with by algorithms
will diminish.
But can an algorithm assess if a contract
condition has been satisfactorily or
reasonably met? Or if a party has used
best or reasonable endeavours? Surely
this is a judgment that requires human
input? But many terms and conditions
can be standardised when, for example,
transactions are repeated. And it may be
that vague and ambiguous terms such as
“endeavours” might be replaced by
certain code.
But is all this far in the future? There is,
for example, currently no ability to connect
and alter centralised property registers
with transactions between businesses and
individuals. But innovation cannot be held
back and the blockchain, also known as the
DLT or decentralised ledger technology,
will do away with the need or desirability
of a centralised register. And in Dubai, if
the aims of the Smart Blockchain Strategy
are achieved, this level of interconnectivity
with registers that already exist may not be
too distant.
WILL LAWYERS NEED TO KNOW CODE?
Surely lawyers will be needed to produce
the wording of the smart contract at the
outset? This may remain the case. But what
wording would that be? The contract will
consist of code, instructions to produce
specified outputs in response to specified
situations and events. So will the lawyer
outsource the writing of the code? If so,
cannot the writer of the code take the
instructions from the client?
Code is certain with no room for the
ambiguities of conventional language. Code
can never be wrong. But the code may not
reflect the client’s intentions and algorithms
can lead to unintended consequences.
For example, the recent ‘flash crash’ of the
pound was blamed on faulty algorithms.
The question of who would be liable for such
a fault is an interesting one, particularly if
the lawyer did not write the code,
could not read the code, and outsourced
that function.
THE FUTURE
The future is exciting and challenging, and
not a little scary. Will this new world need
as many lawyers? If banks can reduce the
billions spent on settlement and clearing,
what will become of the humans who work
in those banks throughout the world? And
it is not as if we can all become drivers for
Uber – all the cars will be driverless.
We will be returning to Dubai, in
association with CBD Consultancy, and
travelling to other cities to run seminars
and training sessions and conferences
on the blockchain and smart contract.
These sessions will most likely consist of
discussions where we seek to identify the
issues and challenges and try to prepare
ourselves for the future.
To conclude with a reference to the
recipient of the Nobel Prize for Literature
in 2016, Bob Dylan said “Times they are
a’changing”. He also said “You better start
swimming or you’ll sink like a stone”.
Text by:
Michael Twomey, director of Law
Programmes, Law2020
But can an
algorithm assess
if a contract
condition has been
satisfactorily or
reasonably met? Or
if a party has used
best or reasonable
endeavours?”
www.cbddubai.com