Book-Smart, Not Street-Smart: Blockchain-Based Smart Contracts and The Social Workings of Law

Artificial Intelligence and Innovation and Economic Growth

Article Snapshot


Karen Levy


Engaging Science, Technology, and Society, Vol. 3, pp. 1-15, 2017


“Smart” contracts can be automatically enforced without the involvement of a court. However, the parties to many contracts include terms that cannot or should not be enforced for social reasons.

Policy Relevance

“Smart” contracts may be less important than many commentators believe.

Main Points

  • A blockchain is a digital ledger distributed across a network, which enables a secure record of transactions between parties to be recorded without involvement of a central institution such as a bank.
  • “Smart” contracts rely on a blockchain system and could be enforced without recourse to intervention by a court; by contrast, if a traditional contract is breached, the wronged party must take a long series of legal steps to address the breach.
  • Smart contracts are problematic; contracts are often enforced through social mechanisms other than the legal system, and serve functions that are not intended to be addressed by strict enforcement mechanisms.
  • Contracting parties may agree to terms they know are unenforceable; these provisions carry communicative weight about the parties’ desires and values, and may shape behavior in socially desirable ways.
  • Contracts often include deliberately vague terms; many businesses anticipate a long relationship with the other party to the contract, and being too exacting might threaten this relationship.
  • Contracting parties do not always pursue legal remedies when one party has breached the contract, as parties may prefer to work out their own solutions.
  • Automatic enforcement of contractual obligations can have detrimental effects on people without resources; for example, some lenders immediately disable a borrower’s vehicle when the borrower falls behind on payments.

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