Smart Contracts and Legal Challenges

Osman Gazi Güçlütürk
7 min readAug 1, 2018
Image Source: Blockgeeks

Blockchain is almost everywhere these days. There is an undeniable hype around it and only the time will show us in which fields this technology will manage to survive. One of the most cited applications of the Blockchain technology is smart contracts, introduced with the Ethereum blockchain, then copied and used in different blockchain-based platforms.

A smart contract is, in fact, a piece of code running on a Blockchain, which is an (1) append-only (2) digital ledger under which the data is stored (3) not by central actors but by different participants (4) in blocks that are connected with cryptographic algorithms. For a detailed analysis on how the Blockchain technology works, you can check here.

Smart contracts are not ‘contracts’ that are ‘smart’

Why are they called ‘contracts’? What makes them different from other codes? First of all, it must be emphasised that this is a misnomer. Smart contracts are neither smart nor contracts, at least not necessarily. The underlying idea why these are called ‘contracts’ is possibly that they are used to transact by people whereas the reason they are claimed to be ‘smart’ is probably the fact that they are automatically executed when pre-determined conditions are satisfied.

Legal contracts

Legal contract can be defined as an agreement between the parties on a promise that is recognized by the law. The recognition by the law is what distinguishes contracts in legal terms from ordinary promises. Indeed this line is not very clear considering that almost all legal systems recognise verbal contracts as well. Depending on the legal system that would be applied, conditions of a valid legal contract change. However, there are some common principles and features that have been adopted in almost all jurisdictions. In this story, we will examine the lifecycle of a traditional legal contract and compare it to the that of a smart contract.

Freedom of contract

Maybe the most fundamental principle of the contract law is the freedom of contract which stipulates that, in principle, everyone is free to enter into a contract. This freedom includes the freedom of choosing the counterparty and determining the subject, the form and other terms of the contract. Of…

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Osman Gazi Güçlütürk

Lawyer | IP&IT&Blockchain Law| PhD Candidate in Law & Computer Science| Self-taught Coder | LL.B. (Galatasaray) - LL.M. (LSE) - M.A. (Ankara) - MJur (Oxon)