Elon Musk Shows the Limits of Smart Contracts

People breach agreements all the time. The way people violate contracts is not always cut and dry, and remedying those breaches often involves lawyers effectively renegotiating a deal based on ambiguities. Sometimes the contract violations are clear cut — an Air BnB tenant who is now squatting or someone refusing to pay fees they committed themselves to in a contract. But if the defaulting party acts badly, remedying these breaches may take armed agents of the state authorized by a judge. Smart contracts are a set of protocols that digitally facilitate the verification of steps in contracts, often on the blockchain. The tech has useful applications, for example, large-scale inventory management, but smart contracts fall apart for the same reasons as all other contracts: people. A smart contract could perhaps automatically serve a squatter the proper notice to vacate and maybe even file with the appropriate court. But until we have judge bots with a license to kill, it will take humans to handle evictions. Human arbiters are just as necessary for contract breaches that don’t involve property. Think about enforcing payments that cannot be fully automated, and arguments about if a service is up to speck. Even clear-cut contract breaches cannot be enforced fully with automation. Last year a “fin-tech” startup breached a contract with Push ROI. I wrote about the breach in some detail here. But the short version is that the startup’s CFO negotiated a contract that couldn’t be terminated. After that contract was signed, someone from the startup…Elon Musk Shows the Limits of Smart Contracts

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