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Understanding real contracts: a guide for smart contracts coders. Part 3: The Money.

December 4, 2019 By Bruce Antley

Addressing money issues in smart contracts may be a challenge because subjective measures may play an important role. Money Photo Credit | License: CC BY 2.0

Editor’s Note: This is an installment of a series of articles providing background to smart contracts coders about how contracts work in real life. The articles reference this sample sales contract. This guide is intended for general informational purposes only. If you need legal advice about a specific situation, contact a lawyer.

The third part of a contract is what I call The Money section. It says how much is being paid, when it’s being paid and what conditions apply to payment. It’s Section 3 in the sample sales contract.

If you’re writing code for a smart contract, here’s where the magic should happen. It’s what’s going to lead to a few killer lines of code — the “if then” statement that is going to remove layers of back-office administration. This is what gets people jazzed about smart contracts.

But here’s where smart contracts become a little theoretical, particularly outside the realm of purely digital transactions. If you’re writing a contract for the delivery of 100 widgets — the kind of simple sales transaction that the sample contract is intended to cover — what is your trigger going to be for payment?

Will your trigger be a digital notice of delivery of the widgets from the shipper? That works if you’re writing a contract that is very favorable to the seller of the widgets because the seller would get paid even if the box only contains 80 widgets or the buyer ordered green widgets and the box contained 100 pink widgets. Fedex’s notice of completion of delivery isn’t going to address either of those situations, and if you’re the buyer that sucks because you’re bearing all of the risk of a problem that is in control of the seller.

The sample contract includes optional language that makes payment subject to acceptance of the shipment, which seems like a fair balance of the risks, but it adds in a layer of subjectivity that smart contracts aim to remove. One day, IoT sensors will be cheap and common enough that they can be attached to the widgets and help solve this problem, with the movement of the widgets logged on a blockchain. There’s a lot of work being done in this area, but it’s not mainstream yet, and it doesn’t solve for quality issues such as poorly made widgets or even the color of the widgets.

One solution is to provide a method for the buyer to reject a shipment — in part or in full — within a certain time after delivery and then make payment contingent on the buyer not objecting. It’s not a perfectly clean solution. The buyer could object to a shipment without justification and hold up payment, and even if the objection is justified, the buyer and seller are going to have to try to work through the issue.

Smart contracts have the promise of making transactions more efficient, but they are going to have to deal with real world issues, and real world issues are messy.

Next up: Part 4 — The Risk Shifting

Filed Under: Uncategorized Tagged With: Blockchain, law, smart contracts

You come in here with a skull full of mush … and you leave here thinking like a (blockchain) lawyer

January 13, 2019 By Bruce Antley

Students at the University of New Hampshire School of Law will hit the books soon to learn about blockchain-related topics. Photo by Woody Hibbard | CC BY 2.0


The courses may feature law and technology experts as professors, rather than the iconic Prof. Kingsfield from the movie The Paper Chase, but classes in a blockchain law course will start later this month. The University of New Hampshire School of Law is the first law school in the United States to offer a program in blockchain-related topics.

“Blockchain technology is poised to disrupt virtually every industry on a global scale,” said Tonya Evans, the Chair of Intellectual Property & Technology Online Programs at UNH Law. “It has far-reaching impacts, especially for the legal field as we navigate through a new regulatory, financial and business environment.”

The UNH program will include four required courses and one elective and will provide participants with an overview of blockchain technology, cryptocurrency, and smart contracts.

Classes begin January 22, 2019, and will be offered entirely online. The cost of the certification program is $7,875.

Filed Under: Uncategorized Tagged With: Blockchain, class, law

California Adopts 2 Pro-Blockchain Laws

October 4, 2018 By Bruce Antley

California State Capital Building By Jeff Turner / CC BY 2.0

Although new legislation is a step forward in recognition of the important of blockchain technology, regulatory uncertainty is harming innovation.

California has adopted two laws that promote the use and development of blockchain technology in an effort to maintain the state’s position as a leader in technology development.

One of the laws — AB 2658 — requires the formation of a working group to report to the legislature on the potential uses, risks and benefits of the use of blockchain technology by state government and California businesses.  The report is due by July 1, 2020. The second law — SB 838 —  enables companies incorporated in California to use blockchain technology to record the issuance and transfer of company stock.  Gov. Jerry Brown signed the laws on Sept. 28.

Blockchain has the potential to revolutionize many industries in the near future. It is vital that California recognizes and supports this industry as an economic driver in our state.  These are common sense bills that send the message that California supports innovation and the blockchain industry ….

Ally Medina, Director of the Blockchain Advocacy Coalition

What is blockchain technology?  Blockchain is a digital ledger — a log of transactions.  The ledger is shared across a network of computers, and transactions are recorded onto the ledger only if the computers on the blockchain network reach consensus on the validity of the transaction.  Transactions are logged on the ledger as part of a block, and the blocks are strung together in a chain, with each including a reference to the preceding block – thus the name “blockchain.” It’s the same technology that powers Bitcoin and other “cryptocurrencies,” but, in part because transactions recorded on a blockchain are resistant to tampering, it is well-suited to tasks such as maintaining records of assets.  If you’re interested in learning more, check out Blockchain Explained in 1000 Words.

The California laws, although they reflect a significant recognition by the legislature of the potential of blockchain technology, do not address many of the regulatory uncertainties surrounding certain implementations of blockchain.

For example, the U.S. Securities and Exchange Commission has not provided clear guidance on the circumstances under which cryptocurrencies will be subject to the same regulations as corporate stock.  The Internal Revenue Service has not provided guidance about issues affecting owners of cryptocurrencies, such as how the tax law should treat owners of blockchain-based currency that has undergone a split called a “hard fork.”

The lack of clear guidance from regulators threatens development of blockchain-related businesses in the United States, including in California, the center of so much of the innovation in the digital age.  The Blockchain Advocacy Coalition published a chart showing how California is losing its global share of blockchain businesses.

Earlier this year,  Perianne Boring, president and founder of the Chamber of Digital Commerce, an industry group, told The New York Times that the current regulatory landscape is “unorganized and incredibly complicated, and it’s really putting the U.S. at risk of falling behind from an innovation and technology perspective. There are turf wars between the different regulatory agencies and turf wars between the feds and the states, and none of this is in the best interest of the U.S. or the blockchain technology industry.”

Filed Under: News and Opinion, Uncategorized Tagged With: Blockchain, California, law

Trust, Blockchain and the Law

September 15, 2018 By Bruce Antley

Photo by NightFlighttoVenus / CC BY 2.0


Trust.  I did not truly grasp how badly technology had damaged trust until I took my two kids on a trip to the new World Trade Center last summer.  After stopping for a few moments of reflection at the 9/11 memorial and looking up at the top of the new skyscraper, we presented our tickets and took the elevator to the observation deck, 1,250 feet (almost 400 meters) above Manhattan.  When we exited the elevator, we were greeted by a grand view of the New York cityscape. My daughter and I owed and awed, said “OMG” and all of the other things one does when presented with something unbelievably spectacular.

My daughter — by far the most observant of the three of us — must have noticed her younger brother wasn’t joining in our fascination.  “Isn’t that amazing?” she asked him. I looked down and saw that he had the same mouth-twisted expression of cynicism that I have when my wife and I are told that no one knows anything about what happened to the peanut butter despite an empty jar in the trash, a spoon in the sink and two children with breath wreaking of Skippy.

My daughter repeated the question.  “Isn’t that amazing?” “No,” he said.  “It’s not real.” My daughter said, “What do you mean it’s not real?  Look outside.” She pointed to a helicopter passing by the building and a ferry on the East River.  “Yeah, that’s not real,” he responded.

I was baffled by his response.  I simply could not process what he meant.  How could he doubt that the view from the window was real.  Then I realized this brilliant boy, who spends every minute we allow him watching YouTube videos and playing realistic video games;  this boy, who will innocently ask me as I catch up on work emails in the evening, “Dad, can you come over for a minute and help me set up a Minecraft server?” has seen such spectacular simulations of reality, that spectacular reality seems like a simulation.

After some coaxing, he acknowledged that what he was seeing was real, although I’m not certain whether he was saying that because he believed or because he wanted us to stop haranguing him.

Law and Technology Have Combined to Destroy Trust

That was the moment, though, when I grasped how our amazing technology has destroyed trust.  Artificial reality has progressed to the point that what we see is not necessarily real. Our most personal information has been amassed and then stolen.  Three times in one year I received replacements for the same credit card because of data breaches. Large health care insurers have had sensitive information stolen, and government agencies have seen personal details of some of their most valuable employees taken by foreign agents.

What has the law done about these breaches of trust?  Virtually nothing. Surely, every once in a while, you’ll see an indictment of mysterious foreign agents, although they never seem to go to jail.  In fact, the only party that seems to be routinely punished is the company that was hacked, not to mention the thousands of people who hold accounts who now have to deal with the loss of their personal information.  I don’t really question laws that require companies to use some reasonable level of security and to report data breaches, but is that the best the law can do — punish the homeowner for not locking the backdoor and then waiting too long before she calls the police?  

Our commercial systems depend on trust.  For centuries and beyond, people traded primarily with people they knew, and trust was enforced within that small group.  If you live in the Arctic tundra with a few dozen other people and you get caught selling spoiled fish, you’ll find yourself pretty quickly alone on an iceberg with wolves and polar bears as your only companions.  When you’re transacting with people continents away through a global computer network, it’s a little hard to use shunning as a defense against bad-faith dealing.

Blockchain Technology Has the Potential to Restore Trust

When the Postal system, railroads and the telephone enabled commerce to spread beyond neighbors and across regional borders, the United States responded with numerous laws aimed at fraud that crossed local jurisdictional lines.  It led to the Federal Trade Commission Act, which prohibits unfair and deceptive trade practices, and the Securities Act of 1933, which requires registration of securities (the law that is at the heart of the controversy over the offering of Initial Coin Offerings).  Other countries have similar laws. But the effectiveness of these laws is limited when the parties to a transaction are beyond the reach of the jurisdiction of anti-fraud laws. That’s where blockchain technology comes in.

Blockchain technology holds the promise of restoring that trust.  The Economist called blockchain technology the “trust machine.”  

“In essence it is a shared, trusted, public ledger that everyone can inspect, but which no single user controls. The participants in a blockchain system collectively keep the ledger up to date: it can be amended only according to strict rules and by general agreement. Bitcoin’s blockchain ledger prevents double-spending and keeps track of transactions continuously. It is what makes possible a currency without a central bank.”

The Economist

How does blockchain technology encourage trust? There are two main ways:  it has the power to verify transactions in a low-cost manner and it reduces the cost of networks.  

Its power to verify transactions is perhaps the better known of its qualities.  Its “records can’t be duplicated, manipulated or faked, and increased visibility … promotes an unprecedented level of trust,” says a report from the World Economic Forum. It means governments can better protect citizens, while business partners can be certain trading documents are real. Consumers can check the quality and provenance of products, and banks can reduce processing time.”

But, perhaps even more powerful,  particularly in an age when the business practices of the dominant tech giants — including Facebook and Google — are called into question, is the power of blockchain technology to reduce the cost of networks.  Platforms, such as Facebook and Google, are inherently more useful the more users they have. The greater the number of your friends are on Facebook, the more compelling it is to share photos of your kids, your dog and your cat doing funny tricks.  The more people use Google for searches, the better Google can tune its algorithms to improve your search results. With these strengths of broader networks, comes the downside: market power, which allows Facebook and Google to engage in data collection and other practices that users might not tolerate if there were viable alternatives.  

A blockchain platform that is open to all participants (permissionless), however, mitigates this downside by distributing control across the network.  “A permissionless system guarantees that no single entity can control the network. If you cannot control it, then you cannot exert market power over it,” says Economist Cathy Barrera.

So, blockchain technology has the promise of restoring trust.  It can help to verify transactions and ensure that bad actors don’t change records, and it can reduce the power of market participants.  But to succeed, blockchain will have to overcome negative public perceptions and to do so, it will have to come under the rule of law. The use of blockchain-based cryptocurrency for illegal transactions, Initial Coin Offerings that ignore securities laws and the theft of millions of dollars worth of cryptocurrency without consequences will undermine trust.  To fully realize the potential of blockchain technology, regulators and blockchain proponents will need to reach consensus on application of know-your-customer, anti-money-laundering and securities registration requirements (among others).

The decentralized nature of blockchain technology will make the application of law, which tends to centralize power, a challenge, and that is what this blog will chronicle, so that perhaps one day when my son becomes an adult, he can trust what he sees, how he does business and how his personal information is handled.

Filed Under: News and Opinion, Uncategorized Tagged With: Blockchain, law, truth

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Founded by longtime media and tech lawyer, Bruce Antley, Blockchain Legal Digest is the source for news and information about blockchain technology and the law, including cryptocurrency, ICOs, smart contracts and other innovations.

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