Blockchains and Smart Contracts - a User's Perspective

by Maria Claudia Solarte Vasquez, LLM, PhD Ca.

Law and Technology Research Team of the Tallinn Law School and Tallinn School of Economics and Business Administration (TSEBA)
Tallinn University of Technology

Blockchain technology and the category of smart contracts can help automate the law but these computational methods are not suitable to the numerous types of contracts that could become legally enforceable within the civil law legal tradition. Smart contracts still raise fundamental questions manifesting how far removed these are from realizing our deeply rooted legal doctrine. Technically speaking, the issue is unproblematic: blockchains can be embedded with data and commands upon conditional inputs for determined and unambiguous outputs. Automation would necessarily add efficiency to any process -if the interfaces are usable- and secures record keeping. However, efficiency is not the only or even most important fix that can be applied to legal systems, in fact, it can be argued that legal processes are not meant to be efficient in terms of time and resources, at least not primarily. The legal system upholds other, considered much higher values, more complex due to their philosophical (deontic) nature that do not favour fast and simplified formulations. The rule of law establishes that procedural justice pursued by due processes is more important than any given outcome, advancing a notion of fairness that involves precision and transparency, and guaranteeing the participation of people affected in the form of notices and the right to be heard, before a decision that affects them is reached and implemented.

Automation the blockchain technologies could increase accuracy but contradicting participation rights at a great risk of violating fundamental rights. People must understand and have a reasonable chance to participate in operations that could impose legal obligations. The due process is also expected to balance the power of the state and impose a rational and proportional use of discretional powers which very often stand against swift and summary proceedings. The due process ultimately protects individual freedoms; a task unbearable for automated agents.

The implementation of computational methods in the legal sphere and automation opportunities will continue to be in the raise and acknowledgments of the benefits of applications will follow. In the meantime, blockchain mechanisms should not be discarded in certain fields, to support rather than supplant transactions and the legal profession, and in contractual cases that concern only, or have already reached the execution phase. Code could greatly help to improve electronic payment schemes, financial instruments, the issuing of licenses, public registries, tax declarations, corporate accounting, etc. Even with the creation of decentralized distributes services for independent governance parallel to states, the complete elimination of the governmental regulatory models so far precedes and prevails.

Besides, and most importantly, the automation of the law, must progress in tandem with other "fixes." The 10th of November was the World Usability Day but very few of us spoke on that date about the functionality and ease of use of computational methods and technologies. My presentation aimed at filling this predictable gap by conveying a simple message: neither usability nor user experience aspects of automated systems should continue to remain in the side, mistaken for aesthetic, trivial, and trendy interests. These are substantial to the existence of law by code, especially when the systems/applications enable participation and require the consent of the parties. Usability and the user experience (UX) should be considered crucial in automated contracting solutions. These components can determine the very existence of an agreement if to think that the meeting of the minds must be unambiguously configured and faithfully represented on a valid deed. Furthermore, usability and UX provide transactions in general, exchange and contracts a status as relational assets.

The work that I conduct with the research team of the Law School of the Tallinn University of Technology is not chiefly pertaining efficiency aspects but focuses of a swifter transformation of the legal practice that applies to traditional contract management practices as well. This interdisciplinary project began with the dissemination of advanced proactive legal principles, a combination of preventive and innovative strategies that can affect legal development, the teaching and learning of law and, in a fundamental ways, the legal practice. The work includes computational methods, technology mediated interaction, and moves in the direction of legal visualization (in its streams, information architecture and design). This last topic is closely associated with legal semiotics, similarly afflicted with the limitations that the constraints of the rule of law impose. We envision the proliferation of alternative text formats and the introduction of voice and sound conventions with legal relevance. The dialog that workshops like this promotes, presents a good opportunity for legal experts and developers to explore those untamed terrains jointly. A contract, a deed, a document with legal significance could eventually become why not, embedded on a song, a drawing, a movement if unambiguously modifying relationships, if we give to those expressions a convened power of creating rights and duties.

We called the bundle of transaction design tactics and strategies smart contracting not only as a pun to pitch these ideas. However, it helped reach out to an otherwise very sceptical community that would not be satisfied with preventive and collaborative law rhetoric, perceived as too alternative to be taken seriously specially in legal circles. The initial audience we targeted was a very tech savvy generation and environment (in Estonia), and an open minded, interdisciplinary academic community who supported these ideas and paved the way for their implementation (in Finland where the proactive law concept emerged and thrives). Now many pay attention to the logic of the proposals that in our opinion may change the legal environment from what it is restrictive, antagonistic, contentious, competitive, divisive and costly, into a self-organizing, responsible, responsive and collaborative one.

Smart contracting is a set of practices and activities that add collaborative features to transactions to prevent disputes from arising and facilitate and incentivise compliance. Smart contracting employs usability and UX strategies that have the most impact on mediatized exchanges where technology can aid with tools and techniques, for instance improving the interfaces of a legal document (adding layers like in a Ricardian contract, using different language levels, colour, design, visualizations and sound, reducing complexity, leaning the content, and in general minimizing the cognitive burden of the document). At the moment we are testing the usability of administrative law provisions and standard terms of common contracts. The heuristic analysis started with software license agreements that were publically available but the tests became too demanding for the participants. Now they are requested to choose between license agreements, utility contracts (mainly gas and electricity) or data plans for internet service providers.

Smart contracting relates to smart contracts in every way. Usability is about engineering artefacts that work. No user/customer/agent of a system, product, service or transaction would be able to value what is not understood or becomes impossible to use. People may even get the functioning of a system right, without understanding, casually or even based on a misrepresentation, but no agreement can be claimed to derive from situations like this. Knowing and understanding are also key factors for appreciation and dissemination of any technology, along with trust, the effective satisfaction of real needs, etc. In short, the evaluation of technical solutions cannot seriously take place in the absence of usability tests.

 

Discussion questions

  1. Whose tasks do smart contracts simplify?
  2. Are users likely to understand legal transactions better when these become automated?
  3. Will automation increase the amount of relevant information necessary for agreeing to the terms of a given contract (learnability)?

Our experience and research suggests that the burden of dealing with legal documents and transactions does not become lighter when adding additional cognitive strains such as new requirements in the shape of mechanisms that are not intuitive, well mapped or known. We have worked hard at facilitating contract negotiations on the basis of transforming the texts alone, but advanced slowly because of the high level of tolerance for legal complexity prevailing in all sectors. We anticipate that blockchain technology at first would stress ordinary customers, including companies and other organizations, who may reject changes unless they are either mandatory or formally institutionalized. Smart contracts proponents must work on the usability of those proposals very well, and explain their functionality without claiming any resemblance to legal agreements. Smart contracts are not real contracts.

Legal agreements are configured according to what the law says, composed by five essential elements that must converge for their formation, whereas smart contracts are execution management systems, decentralized and autonomous. Sometimes, in simple transactions the lifecycle of the contracting process (negotiation, formation and execution) is so short that its stages are indistinguishable, but they can be determined. In contrast, the outputs by machines based on inputs (triggering commands or information about events) can hardly be catalogued as a full contract if a part of one at all.

Comparative table on smart contracts and smart contracting characteristics

 
 
Smart contracts "smart contract code"
 
 
 
 
Smart contracting
 
 
 
 

Block chain technology that provides for the automated execution of contractual terms, typically built upon a shared ledger

 
 
 
 

Legal products and services design strategies that are, user centered and focus on usability and UX of interfaces with legal relevance. Applicable to all stages of the lifecycle of a contract

 
 
 
 

Software based process

 
 
 
 

Human process, specialized transaction management strategy that recognizes and uses digital technologies.

 
 
 
 

Purposes: efficient execution, self-organization, independence and accuracy

 
 
 
 

Aims at more efficiency, effectiveness, satisfaction, sustainability (relational) and dispute prevention

 
 
 
 

Smart in that they are automated by electronic means

 
 
 
 

Smart in the meaning of sound, scalable onto electronic formats but most importantly durable, friendly and beneficial for the preservation of the underlying relationships

 
 
 
 

Enforced successfully when completed with accuracy such in the case of a delivery or a deposit of funds, or a charge.

 
 
 
 

Much more complex. Success would not necessarily mean completion of a contractual process, and the execution can be dynamic and adaptable according to unforeseeable events.

 
 
 
 
 
  • A perfect implementation leaves no room for error, unstoppable, tamperproof; all eventualities must be decided before hand to minimize risks.

  • Freedom in, but not out of the process.

  • Operational semantics

 
 
 
 
 
 
  • Dynamic conflict management, traditional enforcement. Not everything we need to know about a relational contract can be contained on a single text. Literal interpretation is only one way to decipher text. The contracting process is a service, and the text a boundary object

  • Freedom in and out of the process

  • Denotational and connotational legal pragmatics

 
 
 
 
 
 
  • Evolving usability. Templates with aided graphical user interfaces: can this lead to a consent that if free of vice?

  • Not expressive or user friendly but possessing other attributes ׃security, anonymity, data integrity (records), independence.

  • Drawbacks׃ transaction costs economics. Wasteful (energy and other resources such as expertise), no scalability, pricey, confining.

 
 
 
 
 

Usability criteria: can collaborative interfaces become incentives for compliance by increasing understanding and reducing mistakes and the risk of misrepresentations?

intuitive readable interactive simplicity aesthetics learnable secure licit efficient

 
 
 
 

Electronic representations of legal documents with text and parameters for execution must make sure they faithfully represent the agreement by the parties. Issue of legal ontologies: semantic web.

Criptocurrency and smart contracts are said to motivate adversarial thinking. Distributed does not mean collaborative.

 
 
 
 

Collaborative׃ integrative and constructive natural language

 
 

Blockchain technology realizes the libertarian dream but enabling the unfolding of unstoppable uncontrollable forces that assume everyone is well informed and self-reliant, and that no deviations should take place much less alternative interpretations. We cannot expect machines to understand in the sense of a state of minds with all the possible variations, Chinese, English or even code language. These systems do not have a grasp of pragmatics and do not need to understand the aboutness or intentionality of a command. In the case of agreements fixed onto blockchain technology on the basis of a human mistake, fraud or at a gun point, execution is inevitable.

This topic warrants further discussions as proposed, on issues that are insufficiently addressed by current mainstream research. Most blockchain technology research focuses on bitcoins and on issues of privacy and security.