English law is poised to capitalise on vast numbers of smart legal contracts expected to be created every year, according to Sir Geoffrey Vos, Chancellor of the High Court.
He said all that was necessary to make English law the basis for the transactions was “to remove by legislation only the most fundamental legal impediments, leaving the common law to do the rest”.
He described smart contracts as “becoming one of the most important legal subjects of our generation”.
He acknowledged that he was not aware of an end-to-end one having taken place but he was certain it would happen soon. “That is for sure,” he said.
He added: “What will be of most significance to those using smart contracts will be the remedies that they can obtain when things go wrong.”
If smart contracts were to become part of the mainstream, investors would need to be able to “avoid fraud and ensure a dependable market”.
Speaking in Liverpool last week in a lecture entitled Cryptoassets as property : how can English law boost the confidence of would-be parties to smart legal contracts?, the Chancellor said the legal certainty necessary to open the floodgates to the new technology was missing, but with small adjustments, English law could provide investor confidence.
He defined cryptoassets as those recorded on a distributed ledger but stopping short of electronic data and intellectual property.
He concluded a new legal and regulatory regime was not necessary for contracts based on the distributed ledger technology at the heart of blockchain, or the newer, less resource-intensive and faster directed acyclic graph technology – which provides security by verifying transactions using two randomly chosen nodes in the system rather than adding blocks sequentially in a chain.
He revealed that the government’s lawtech delivery panel , of which he is a member, would “in the next few days” publish a consultation seeking the views of lawyers and coders on legal uncertainties around cryptoassets and the use of smart contracts.
The consultation will ask whether cryptoassets or a private key needed to be recognised as an object of property, and whether a smart contract can give “rise to binding legal obligations, enforceable in accordance with its terms”.
He said coders involved in the development of smart contracts thought they could bypass legal doubts arising by building the answer into code.
However, he said this was wrong and instead “legal foundation to smart contracts is not only desirable but essential”.
Without wanting to pre-empt a government statement advising on changes – due in the summer – Sir Geoffrey concluded that if it was decided that crypto assets should be identified as property under English law, a “quick and simple legislative approach” could resolve the issue, leaving the “flexibility and ingenuity of the common law” to give investors the required certainty.
If this was done quickly, he suggested, “I would expect English law and UK dispute resolution to prove a popular foundation for the trillions of smart legal contracts that we may then expect to be entered into annually”.