The impact of smart contracts for legal professionals in the future

Kit Burden, partner and global co-head of technology sector at DLA Piper, explores the impact of smart contracts for legal professionals in the future and discusses what precautions can be put in place to protect against things that may go wrong.

Who will create contracts in the future?

From one perspective, smart contracts are not ‘new’ in the sense that straight-through processing of transactions (ie automated triggers of activity) has been around for a long time, and particularly in the financial services and logistics sectors. However, what is new is the introduction of distributed ledger/blockchain technologies, such that the scope and sophistication of such systems and processes can potentially be significantly expanded.

Perhaps most significantly, therefore, the smart contracts of the future (or at least the immediate future) will likely be created by programmers and designers, rather than lawyers. They will be the people who will be thinking ‘what do I need to achieve?’ and then ‘what needs to happen for us to get there?’, but potentially in quite simplistic terms, ie without necessarily asking what would happen if things did not go as smoothly as might be ideal.

For the larger and more commercially significant endeavours (including some of the key pilots for smart contracts and blockchain-based networks in the financial services sector) if the lawyers are not actually creating the new smart contracts, they are at least heavily engaged in their formation.

What happens if it goes wrong? Can precautions be put in place to protect against that eventuality?

This is the historical province of the lawyer, ie to ask the ‘what if…’ question, and then craft the contract terms to try to deal with it.

Depending on the nature of the smart contract in question, this will