Hashing Out Agreements: An Overview of 'Smart' Contracts under Canadian Law

Abstract

Blockchain-based technologies are starting to permeate every aspect of the Canadian legal landscape. Blockchain is often solely associated with cryptocurrencies, such as Bitcoin; however, it has numerous applications beyond virtual currencies. Blockchain technology has the potential to provide numerous opportunities to those providing legal services, notably through smart contracts. However, some legal uncertainty remains with respect to smart contracts. The legality of smart contracts and their place of operation under Canadian law has yet to be researched. Potential risks for clients, as well as for lawyers—especially with respect to their ethical and professionalism duties—also need to be researched and highlighted. This paper begins by providing an overview of smart contracts, including a brief history of the development of smart contracts, followed by a discussion of the underpinnings of blockchain-based applications, and a presentation of some use cases. After forming an understanding of smart contracts, the paper addresses the important technical and legal limitations that smart contracts face. Since blockchain-based smart contracts rely on blockchain technology and digitalization, this paper explains how smart contracts can only be as “smart” as its developer, and the computers running them. This paper then transitions into a discussion of how the advent of cryptocurrencies and smart contracts relaunched decades-old debates about how society should regulate technology. Although we argue that legal frameworks must evolve with society, we will highlight that we do not need to rewrite or create new approaches to each technological innovation. Subsequently, this paper provides an overview of smart contracts under Canadian contract law. As it currently stands, academics have not fully addressed the question of whether smart contracts conform to our traditional contract law framework. This paper will address the legal status and remaining questions regarding the legal status of smart contracts and the enforceability of smart contract performance. While there may be many barriers to the adoption of any new technologies, legal uncertainty—and therefore legal risks for clients and lawyers—should not be one of them. The key findings below present an overview of the academic research on the key legal questions facing smart contracts in Canada. The key findings are followed by an overview of some of the preliminary use cases of smart contracts in the legal field.