Professional Documents
Culture Documents
Legal Issues Surrounding The Use of SmartContracts
Legal Issues Surrounding The Use of SmartContracts
“Smart contracts” are a critical building block in the development and evolution of many
types of transactions executed on distributed ledger technologies such as blockchains.1 By
automating processes and increasing outcome certainty, smart contracts can offer important
benefits in a system that effectively relies on computer networks to process transactions.
This article examines whether smart contracts are enforceable legal agreements under
contract law in the United States, and highlights certain legal and practical considerations
that will need to be addressed before smart contracts can be widely adopted in commercial
contexts.
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 155 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
then, the ability to store immutable code and data in a transparent way on a blockchain, and
the interest in disintermediating human intervention, has generated widespread interest in
developing smart contracts. As with other data stored on a blockchain (such as the amount
of cryptocurrency held by an address), smart contract code is replicated across multiple
nodes and executed according to the same consensus mechanism on a blockchain.
Moreover, because smart contracts use the same asymmetric cryptography, in which users
rely on private keys and public keys, as other blockchain-based transactions, smart contracts
allow parties to authenticate each other, and provide a level of security not present in many
other automated transactions.
Although smart contracts have great potential to reduce transaction costs and minimize
outcome uncertainty, they currently can replace only the types of contractual provisions that
can be represented in specific and objective terms, such as “if X occurs, then execute step
Y.” Subjective provisions, such as whether a party used commercially reasonable efforts,
cannot be translated into smart contracts. In this respect, smart contracts are not particularly
“smart.” It is therefore important not to confuse smart contracts with efforts being made in
the areas of artificial intelligence and machine learning.
In addition, smart contracts will often need to rely on external (i.e., “off-chain”) resources
before they can execute a transaction. In the crop insurance example above, the recorded
temperature would be such an off-chain resource. The reliance on off-chain resources
presents several problems. For example, smart contracts cannot “pull” data from off-chain
resources; rather, that data must be “pushed” to the smart contract, so the parties need to
agree on a single, definitive, off-chain resource willing to and capable of pushing relevant
data to the smart contract. Without such clarity, there would not be a consensus as to whether
the contract should trigger, and the transaction would not execute. In our example, the farmer
may argue that the weather service he consulted recorded a temperature of 31 degrees, while
the insurer might claim a temperature of 33 degrees.
In order to address these issues, parties to smart contracts use “oracles”—trusted third parties
that retrieve mutually-agreed off-chain information and then push that information to the
smart contract at predetermined times. While oracles represent an elegant, and for the time-
being necessary, solution to smart contracts’ functional need to access off-chain resources,
they introduce a potential point of failure in what might otherwise be a fully automated and
decentralized transaction system. An oracle might cease conducting business, experience a
system failure, be hacked, or provide erroneous data. Indeed, a hacker looking to impact
smart contracts would likely have an easier time exploiting the oracle’s data feed than
hacking the smart contract itself.
Are smart contracts legally enforceable under contract law in the United States?4
Given that the use of smart contracts is in its incipient stages, there is no case law precedent
that directly addresses the enforceability of smart contracts and, as discussed below, there
are only a handful of state statutes purporting to address this issue directly.5 However, the
fact that smart contracts are not drafted in natural language prose should not impact their
enforceability under the principles generally applicable to contracts.
The Uniform Commercial Code and Statute of Frauds
As a preliminary matter, in order to be legally enforceable, smart contracts must comply
with applicable state writing and signing requirements. The most relevant requirements in
this respect flow from two sources: the Uniform Commercial Code (“U.C.C.”), a
comprehensive set of laws governing all commercial transactions in the United States; and
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 156 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
state laws that identify agreements that must be in writing and signed to be enforceable
(referred to as the “statute of frauds”). The U.C.C. has been adopted in whole or in part by
all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands; and all states
except Louisiana have adopted a statute of frauds.
The “written agreement” requirement
Under the U.C.C. and statute of frauds, not every contract needs to be in writing. Under the
U.C.C., the following contracts generally must be in writing: (i) a contract for the sale of
goods priced at or over $500;6 (ii) lease contracts relating to personal property requiring
total payments of $1,000 or more;7 and (iii) certain agreements creating a security interest.8
The specifics of what terms must be in writing vary by the subject matter. For example, a
contract for the sale of goods must generally specify the goods at issue and the price,9 while
a lease must generally include the required payments, the term, and a reasonable description
of the leased property.10 Similarly, each state’s statute of frauds generally requires a written
agreement for: (i) agreements relating to executorship, suretyship, marriage; (ii) performance
to be undertaken over one or more years after the execution of the agreement; and (iii)
agreements for the sale of an interest in land.11
The question is whether a smart contract, effectively a piece of computer code, can satisfy
the writing requirement under the U.C.C. and statute of frauds. Historically, courts have
recognized that under the U.C.C., a written agreement does not necessarily need to be natural
language prose.12 Indeed, the U.C.C. specifies that any type of “intentional reduction to
tangible form” is sufficient.13 This is consistent with the U.C.C. policy that the “writing”
requirement is meant to assure that the intention of the parties is manifest. Thus, courts have
held, for example, that emails can satisfy the U.C.C. “writing” requirement.14 Smart
contracts should be treated no differently than other forms of electronic records. This is not
to say that all smart contracts, by definition, will satisfy the U.C.C. requirement. Just as an
email may be inconclusive as to what the parties actually intended, so too a smart contract
may be too vague. That said, given the objective nature of smart contract code and the
parameter certainty required to effectuate a transaction, most smart contracts for the sale of
goods or for leases should satisfy the U.C.C. “writing” requirement, particularly if the parties
use an ancillary smart contract where the code just executes certain terms in the natural
language agreement.
A similar analysis can be applied under the statue of frauds. Under these state laws, a valid
writing need not be written entirely in natural language prose nor be comprehensive.15 As
with contracts interpreted under the U.C.C., courts have taken an expansive view as to what
can satisfy the “writing” requirement under the statute of frauds, focusing on the intent of
the parties to create a binding agreement.16 Thus, terms conveyed through e-mail or even
types of telegraphic code can form binding contracts.17
In addition, the writing under the statue of frauds generally need only contain the agreement’s
“essential terms” which can vary depending on the type of transaction.18 As noted above,
given the nature of smart contracts, the “essential terms” (such as price and what is being
delivered) will likely be captured by the code itself. And, even if the essential terms are not
capable of being expressed in “if-then” terms, smart contracts can be used as ancillary tools
to natural language contracts that include those terms.
The signature requirement
Both the U.C.C. and the statute of frauds require that a contract have valid signatures to be
binding. This requirement can also be satisfied when using smart contracts. The U.C.C.
specifies that a signature can be “any symbol executed or adopted with present intention to
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 157 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
adopt or accept a writing.”19 Similarly, the statute of frauds generally recognizes that a
signature may be any symbol made by a party with the present intent to authenticate a writing
or contract.20 Courts typically look to the intent of the parties and whether the signing parties
proffered a signature with an intention to authenticate the writing.21 Since smart contract
transactions on a blockchain need to be affirmatively authenticated by each party using
public-private key cryptography, a digital signature on a smart contract should constitute a
“symbol executed or adopted with present intention to adopt or accept a writing”22 and satisfy
the flexible signature requirements of the U.C.C. and statute of frauds.
The E-SIGN Act and UETA
The Electronic Signatures in Global National Commerce Act (“E-SIGN Act”) and state laws
modeled on the Uniform Electronic Transactions Act (“UETA”) also provide important
support for the concept that smart contracts should be treated as legally enforceable
agreements. Under each of these acts, electronic records and electronic signatures used in
interstate or foreign commerce transactions generally cannot be denied legal effect solely
because they are in electronic form.23 Although E-SIGN is a federal law, and generally
preempts state laws, individual states may “modify, limit, or supersede”24 the E-SIGN Act
if they adopt UETA or satisfactory “alternative procedures or requirements.”25 UETA has
been adopted by 47 states, the District of Columbia, Puerto Rico and the Virgin Islands.
The key question is whether the blockchains on which smart contracts are stored are
“electronic records” and therefore enjoy protection under these acts, and whether the digital
signatures used with smart contracts can be deemed protectable “electronic signatures.”
Both the E-SIGN Act and UETA define electronic records broadly to include any “record
created, generated, sent, communicated, received, or stored by electronic means.”26 An
explanatory comment to UETA indicates that this includes any “[i]nformation processing
systems, computer equipment and programs . . . and similar technologies” and any
“information stored on a computer hard drive.”27 There should be little dispute that a
blockchain satisfies this broad definition since, at a minimum, it stores records by electronic
means. Moreover, at least one court has suggested that a database is an electronic record
under UETA,28 providing important guidance given that a blockchain is an encrypted and
distributed database.
The E-SIGN Act and UETA also define electronic signatures broadly. Under both acts, an
“electronic signature” includes any “electronic sound, symbol, or process attached to or
logically associated with a record and executed or adopted by a person with the intent to
sign the record.”29 Moreover, UETA expressly states that this definition encompasses a
“digital signature using public key encryption technology.”30 As with the statute of frauds
and the U.C.C., a digital signature based on asymmetric cryptography that is used to sign a
smart contract should meet the E-SIGN Act and UETA definition of a legally valid electronic
signature.
The E-SIGN Act and UETA also include an additional concept that supports the
enforceability of smart contracts. Under these acts, an agreement cannot be denied legal
effect because the parties used an “electronic agent” which each act defines to include a
“computer program or an electronic or other automated means used independently to initiate
an action or respond to electronic records or performances in whole or in part, without review
or action by an individual.”31 Smart contracts which run self-executing code agreed to by
the contracting parties would seem to fit squarely within this definition. The comments to
UETA also contemplate the possibility that electronic agents could conduct transactions with
other electronic agents or autonomously, which could occur as smart contracts and artificial
intelligence continue to develop.32
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 158 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
In order to rely on the foregoing protections of UETA, the parties must first agree in a non-
electronic writing that they will conduct all or part of a transaction electronically. Thus, one
party could not implement a smart contract without the express written consent of the other
party. Similarly, if a written record needs to be made available to a consumer, the E-SIGN
Act requires affirmative consumer consent before an electronic record can be used, which
consent can be withdrawn at any time.33 The right for consumers to withdraw their consent
at any time under the E-SIGN Act may create operational complications given the self-
executing nature of most smart contracts.
As noted above, only 47 states have adopted UETA. Illinois (through the state’s Electronic
Commerce Security Act),34 New York (through the state’s Electronic Signatures and Records
Act),35 and Washington (though a state statute that recognizes the E-SIGN Act as applying
to state and local transactions)36 have each adopted their own unique e-signature statutes in
lieu of a statute modeled on UETA. While these three states adopt broad definitions of
electronic records and electronic signatures, none offer the added protection of electronic
agents set forth in the 47 states that have adopted UETA.
Specific state laws applicable to smart contracts
Although, as discussed above, there are strong arguments that existing state laws already
provide a sound basis for the enforceability of smart contracts, to date, four states have
amended their laws specifically to allow for the enforceability of blockchain-based contracts.
Many believe that these states have done so in order to appear “blockchain friendly” to attract
blockchain-based companies. However, in their attempts to provide greater clarity on this
issue and incentivize blockchain-based development, these states may have created more
uncertainty, in part because of how these laws will be interpreted and in part because of the
implicit suggestion that existing laws did not cover smart contract transactions.
Arizona
In March 2017, Arizona became the first state to amend its version of UETA, the Arizona
Electronic Transactions Act (“AETA”) to address blockchain technology. The AETA as
amended provides that a “signature that is secured through blockchain technology is . . . an
electronic signature,” and “a record or contract that is secured through blockchain technology
is . . . an electronic record.”37 The AETA further states that “[s]mart contracts may exist in
commerce” and that contracts “may not be denied legal effect, validity or enforceability
solely because that contract contains a smart contract term.”38 Blockchain technology is
defined to mean “distributed ledger technology that uses a distributed, decentralized, shared
and replicated ledger, which may be public or private, permissioned or permissionless, or
driven by tokenized crypto economics or tokenless. The data on the ledger is protected with
cryptography, is immutable and auditable and provides an uncensored truth.”39 A smart
contract is defined as “an event-driven program, with state, that runs on a distributed,
decentralized, shared and replicated ledger that can take custody over and instruct transfer
of assets on that ledger.”40 Although these definitions are broad, they employ multiple
ambiguous terms whose exact meaning litigants and courts may debate.
Nevada
In June 2017, Nevada amended its version of UETA, the Nevada Electronic Transactions
Acts (“NETA”) to state that an “electronic record” includes, without limitation, a
blockchain.41 The statute defines blockchain to mean “an electronic record of transactions
or other data which is: (i) [u]niformly ordered; (ii) processed using a decentralized method
by which one or more computers or machines verify the recorded transactions or other data;
(iii) [r]edundantly maintained or processed by one or more computers or machines to
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 159 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
guarantee the consistency or nonrepudiation of the recorded transactions or other data; and
(iv) [v]alidated by the use of cryptography.”42 A recent amendment, which will go into effect
in October 2019, clarifies that the definition of blockchain includes, without limitation, a
public blockchain.43 Smart contracts are not directly addressed in the statute, and note that
the definition of blockchain is fairly different than that adopted by Arizona.44
Ohio
In June 2018, Ohio amended its version of UETA to state that “a record or contract that is
secured through blockchain technology is considered to be in an electronic form and to be
an electronic record.”45 The law also amends the definition of electronic signatures to state
that “a signature that is secured through blockchain technology is considered to be in an
electronic form and to be an electronic signature”46 and that “a record or signature may not
be denied legal effect or enforceability solely because . . . the contract contains a smart
contract term.” The amendment mirrors Arizona’s definition of blockchain technology,
defining it as “distributed ledger technology that uses a distributed, decentralized, shared,
and replicated ledger, which may be public or private, permissioned or permissionless, or
driven by tokenized crypto economics or tokenless. The data on the ledger is protected with
cryptography, is immutable and auditable, and provides an uncensored truth.”47
Tennessee
In March 2018, Tennessee amended its UETA to clarify that “a record or contract that is
secured through distributed ledger technology is considered to be in an electronic form and
to be an electronic record.”48 It further provides: “[a] cryptographic signature that is
generated and stored through distributed ledger technology is considered to be . . . an
electronic signature.”49 Tennessee adopted some of the blockchain technology definition
used by Arizona and Ohio, but categorized it as “distributed ledger technology” and made
some important modifications. Specifically, distributed ledger technology is defined as “any
distributed ledger protocol and supporting infrastructure, including blockchain, that uses a
distributed, decentralized, shared, and replicated ledger, whether it be public or private,
permissioned or permissionless, and which may include the use of electronic currencies or
electronic tokens as a medium of electronic exchange.”50 Similarly, the state’s definition of
“smart contracts” mirrors that of Arizona and Ohio but adds some additional language. A
“smart contract” is defined to mean “an event-driven computer program, that executes on
an electronic, distributed, decentralized, shared, and replicated ledger that is used to automate
transactions, including, but not limited to, transactions that: (A) [t]ake custody over and
instruct transfer of assets on that ledger; (B) [c]reate and distribute electronic assets; (C)
[s]ynchronize information; or (D) [m]anage identity and user access to software
applications.”51, 52
Other legal considerations
In addition to the foregoing statutes generally governing the enforceability of contracts,
smart contracts may be subject to a variety of legal frameworks depending on their terms
and consideration. This may include state and federal commodities and securities laws and
regulations; anti-money laundering laws and regulations; and state money transmission laws.
Developers of, and parties to, smart contracts must discern which regulations apply and what
such compliance entails, including registration and documentation requirements.
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 160 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 161 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 162 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 163 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 164 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
disagree on whether a particular contractual provision can be captured through the objectivity
that a smart contract demands.
Do smart contracts really guarantee payment?
One benefit often touted of smart contracts is that they can automate payment without the
need for dunning notices or other collection expenses and without the need to go to court to
obtain a judgment mandating payment. While this is indeed true for simpler use cases, it
may be less accurate in complex commercial relationships. The reality is that parties are
constantly moving funds throughout their organization and do not “park” total amounts that
are due on a long-term contract in anticipation of future payment requirements. Similarly,
a person obtaining a loan is unlikely to keep the full loan amount in a specified wallet linked
to the smart contract. Rather, the borrower will put those funds to use, funding the necessary
repayments on an ad hoc basis.
If the party owing amounts under the smart contract fails to fund the wallet on a timely basis,
a smart contract looking to transfer money from that wallet upon a trigger event may find
that the requisite funds are not available. Implementing another layer into the process, such
as having the smart contract seek to pull funds from other wallets or having that wallet “fund
itself” from other sources, would not solve the problem if those wallets or sources of funds
also lack the requisite payment amounts. The parties might seek to address this issue through
a text-based requirement that a wallet linked to the smart contract always have a minimum
amount, but that solution simply would give the party a stronger legal argument if the dispute
was adjudicated. It would not render the payment operation of the smart contract wholly
automatic. Thus, although smart contracts will render payments far more efficient, they may
not eliminate the need to adjudicate payment disputes.
Risk allocation for attacks and failures
Smart contracts introduce an additional risk that does not exist in most text-based contractual
relationships—the possibility that the contract will be hacked or that the code or protocol
simply contains an unintended programming error. Given the relative security of
blockchains, these concepts are closely aligned; namely, most “hacks” associated with
blockchain technology are really exploitations of an unintended coding error. As with many
bugs in computer code, these errors are not glaring, but rather become obvious only once
they have been exploited. For example, in 2017 an attacker was able to drain several multi-
signature wallets offered by Parity of $31 million in ether.58 Multi-signature wallets add a
layer of security because they require more than one private key to access the wallet.
However, in the Parity attack, the attacker was able to exploit a flaw in the Parity code by
reinitializing the smart contract and making himself or herself the sole owner of the multi-
signature wallets. Parties to a smart contract will need to consider how risk and liability for
unintended coding errors and resulting exploitations are allocated between the parties, and
possibly with any third party developers or insurers of the smart contract.
Governing law and venue
One of the key promises of blockchain technology, and by extension smart contracts, is the
development of robust, decentralized and global platforms. However, global adoption means
that parties may be using a smart contract across far more jurisdictions than might exist in
the case of text-based contracts. The party offering terms under a smart contract would
therefore be best-served by specifying the governing law and venue for that smart contract.
A governing law provision specifies what substantive law will apply to the interpretation of
the smart contract, whereas a venue clause specifies which jurisdiction’s courts will
adjudicate the dispute. In cases where governing law or venue is not specified, a plaintiff
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 165 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
Conclusion
As smart contracts are in their nascent stages, so is the law surrounding their enforceability
and use. While there are strong arguments that properly constructed smart contracts are
enforceable under existing statutes governing electronic contracts, certain issues must be
resolved before they can enjoy widespread adoption in complex commercial transactions.
While smart contracts have potential to change the way markets operate, their impact will
invariably be shaped by how such applications fit within the contours of the law.
***
Acknowledgment
The authors acknowledge the assistance of Daniel Chase, a law student at Berkeley Law.
***
Endnotes
1. Blockchains are one type of “distributed ledger technology” in which data is organized
in blocks and new data can only be appended to the chain. For purposes of this article,
we refer to blockchains, but most of the legal issues presented here apply to other
forms of distributed ledger technology as well.
2. See International Swaps and Derivatives Association, ISDA Legal Guidelines For
Smart Derivatives Contracts: Introduction (Jan. 2019), https://www.isda.org/a/
MhgME/Legal-Guidelines-for-Smart-Derivatives-Contracts-Introduction.pdf.
3. Compare Nick Szabo, Smart Contracts: Building Blocks for Digital Market (1996)
with Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008).
4. There is no federal contract law in the United States; rather, the enforceability and
interpretation of contracts is determined at the state level. Thus, while certain core
principles apply consistently across state lines, and there has been a drive to harmonize
state laws by the National Conference of Commissioners on Uniform State Laws, any
conclusions regarding the enforceability of smart contracts must be tempered by the
reality that states may adopt different views.
5. For a comprehensive overview of the enforceability of smart contracts, see “Smart
Contracts” & Legal Enforceability (Cardozo Blockchain Project Research Report No.
2, Oct. 16, 2018), https://cardozo.yu.edu/sites/default/files/Smart%20Contracts%20
Report%20%232_0.pdf; see also Uniform Law Commission, Guidance Note
Regarding the Relation Between the Uniform Electronic Transactions Act and Federal
ESIGN Act, Blockchain Technology and ‘Smart Contracts’ (Feb. 11, 2019) (opining
that state UETA provisions do not require amendment to enable use of blockchain
technology and smart contracts in electronic transactions).
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 166 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
6. U.C.C. § 2-201.
7. Id. § 2A-201.
8. Id. § 9-203(b)(3)(A).
9. Id. § 2-201.
10. Id. § 2A-201.
11. See, e.g., Restatement (Second) Contracts § 110. Contracts that fail to comply with the
statute of frauds remain enforceable in some cases, such as cases wherein promissory
estoppel applies. See Restatement (Second) Contracts § 90.
12. See, e.g., Apex Oil Co. v. Vanguard Oil Serv. Co., 760 F.2d 417, 420, 423 (2d Cir.
1985).
13. U.C.C. § 1-201(43).
14. See, e.g., Bazak Int’l Corp. v. Tarrant Apparel Grp., 378 F. Supp. 2d 377, 392 (S.D.N.Y.
2005) (“Although e-mails are intangible messages during their transmission, this fact
alone does not prove fatal to their qualifying as writings under the UCC[.] [F]orms of
communication regularly recognized by the courts as fulfilling the UCC “writing”
requirement, such as fax, telex and telegraph, are all intangible forms of
communication during portions of their transmission. Just as messages sent using
these accepted methods can be rendered tangible, thereby falling within the UCC
definition, so too can e-mails.”)
15. See, e.g., Bibb v. Allen, 149 U.S. 481, 497–98 (1893) (holding that a contract written
in telegraphic cipher code was binding); Cloud Corp. v. Hasbro, Inc., 314 F.3d 289,
295–96 (7th Cir. 2002).
16. See, e.g., Leeds v. First Allied Connecticut Corp., 521 A.2d 1095, 1097 (Del. Ch. 1986)
(explaining an agreement is binding when “a reasonable negotiator . . . would have
concluded, in that setting, that the agreement reached constituted agreement on all of
the terms that the parties themselves regarded as essential[.]”).
17. See, e.g., Bibb, 149 U.S. at 497–98; Naldi v. Grunberg, 908 N.Y.S.2d 639, 645 (App.
Div. 2010).
18. See, e.g., Ross v. Ross, 172 A.3d 1069, 1075 (N.H. 2017); Simmonds v. Marshall, 292
A.D.2d 592, 592 (2d Dep’t 2002); Leeds v. First Allied Connecticut Corp., 521 A.2d at
1097.
19. U.C.C. § 1-201(37).
20. Restatement (Second) Contracts § 134; U.C.C. § 1-201(37).
21. See, e.g., SD Protection, Inc. v. Del Rio, 498 F. Supp. 2d 576, 584 (E.D.N.Y 2007);
U.C.C. § 1-201 cmt 37.
22. See U.C.C. § 1-201(37); see also Restatement (Second) Contracts § 134.
23. 15 U.S.C. § 7001(a)(1); UETA § 7(a), (c)-(d). There are certain exceptions to these
acts (such as wills) that will not impact the majority of smart contract usage.
24. 15 U.S.C. § 7002(a).
25. 15 U.S.C. § 7002(a)(2)(A).
26. UETA § 2(7); see also 15 U.S.C. § 7006(4).
27. Id. § 2 cmt. 6.
28. See Godfrey v. Fred Meyer Stores, 124 P.3d 621, 631 (2005) (Armstrong, J.,
concurring).
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 167 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 168 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
56. In re Zachary Coburn, Securities Act Release No. 84553 (Nov. 8, 2018),
https://www.sec.gov/litigation/admin/2018/34-84553.pdf.
57. 545 U.S. 913, 918–19; 936–37 (2005) (holding that one who “distributes a device with
the object of promoting its use to infringe copyright, as shown by clear expression or
other affirmative steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties”).
58. See Haseeb Qureshi, “A Hacker Stole $31M of Ether—How it Happened, and What it
Means for Ethereum,” FreeCodeCamp (July 20, 2017), https://medium.freecodecamp.
org/a-hacker-stole-31m-of-ether-how-it-happened-and-what-it-means-for-ethereum-
9e5dc29e33ce.
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 169 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London
Skadden, Arps, Slate, Meagher & Flom LLP Legal issues surrounding the use of smart contracts
Stuart Levi
Tel: +1 212 735 2750 / Email: [email protected]
Stuart D. Levi is co-head of Skadden’s Intellectual Property and Technology
Group, and he coordinates the firm’s blockchain, outsourcing and privacy
practices. Mr. Levi has a broad and diverse practice that includes outsourcing
transactions, technology and intellectual property licensing, fintech and
blockchain matters, privacy and cybersecurity advice, branding and
distribution agreements, cloud computing agreements, technology transfers,
strategic alliances and joint ventures. Mr. Levi also counsels clients on
website and technology policies, intellectual property strategy and regulatory
compliance. His background in computer science and the information
technology industry allows Mr. Levi to understand the technology and
business drivers underlying transactions and agreements in these areas.
Alex Lipton
Tel: +1 212 735 3006 / Email: [email protected]
Alex is an Intellectual Property and Technology associate in Skadden’s New
York office. He earned his A.B. from Harvard University (2011) and J.D.
from NYU School of Law (2016).
Cristina Vasile
Tel: +1 212 735 2247 / Email: [email protected]
Cristina is an Intellectual Property and Technology associate in Skadden’s
New York office. She earned her B.A. and M.A. from NYU (2008, 2009) and
her J.D. from NYU School of Law (2016).
GLI – Blockchain & Cryptocurrency Regulation 2020, 2nd Edition 170 www.globallegalinsights.com
© Published and reproduced with kind permission by Global Legal Group Ltd, London