34 ISSUE 59 • JANUARY 2017

OPINION / Smart Contracts

To code or not to codeCould 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

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