Legal regime of smart contracts: a code or a contract

Introduction: the article is devoted to the analysis of legal regulation of smart contracts, the concept, content, and scope of their application. The author analyzes in detail foreign experience of using smart contracts and suggests possible options for expanding the application area. The article also has a separate section that looks at smart contracts as compared with traditional institutions of civil law. Smart contracts are expected to find application in almost all areas of life in the future. As is often the case with new technologies, the use of smart contracts raises a number of civil law issues. Blockchain technology makes it possible not only to create new means of payment but also to autonomously manage almost any process. It can be used for individual contracts and even for the creation of autonomous decentralized systems. Purpose: to provide an insight into the institution of smart contracts and define their role in civil law. Methods: empirical methods of comparison, description, interpretation; theoretical methods of formal and dialectical logic; special scientific methods such as the legal-dogmatic method, the methods of interpretation of legal norms and comparative legal research. Results: smart contracts are computer programs that perform legally significant actions according to predetermined algorithms set out in the form of a so-called program code. In practice, they are especially important in connection with the development of blockchain technology or (more generally) distributed ledger technology. Conclusions: the term ‘smart contract’ was defined by Nick Szabo in the 1990s as a sequence of commands represented in digital form, including transaction protocols that execute these agreements. Thus, smart contracts formulate rules and sanctions for agreements and execute them automatically. These are not necessarily contracts in the legal sense, but they are capable of controlling, tracking, and documenting legally significant actions. Smart contracts can also be implemented using traditional, for example, mechanical technologies (e.g. in a vending machine). However, blockchain and distributed ledger technologies make it possible to implement incomparably more complex rules and enforcement mechanisms and offer a decentralized environment with an integrated settlement system. From a legal point of view, smart contracts perform two functions. On the one hand, they serve as a functional equivalent of a contract since their technological code can identify the services to be exchanged as well as the conditions under which they must be provided. Being the normative order of the digital, this code formulates the program of obligations of the parties. It resembles the legal order of a contract, without necessarily coinciding with it. On the other hand, smart contracts serve as a tool for the execution of contracts - by controlling, monitoring, and documenting the exchange of services. They can also facilitate the execution of conventional contracts by translating their provisions into a technical code, verifying the occurrence of agreedupon events, and enforcing contracts. Smart contracts are suitable for contractual relationships, for example, for processing payments or delivering goods without the participation of the parties and an intermediate step in the form of direct execution. Smart contracts are gaining more and more popularity, especially in the financial sector. In addition to the so-called token economy (cryptocurrencies, ICO, etc.), there are also discussed algorithmic ETFs, online platforms for loans or project financing. Another important area of application is sharing economy. From a legal point of view, smart contracts can either be the subject of a contractual agreement or generate it on their own. There is sometimes put forward a thesis under the motto ‘Code is law’ that smart contracts give rise to a largely autonomous legal system and/ or are not subject to applicable law. However, this appears to be an erroneous conclusion.