The functioning of cryptocurrencies like Bitcoin ultimately depends on participants’ agreements to selectively disclose or conceal information. Various arguments suggest that those agreements amount to a large multilateral contract to which all participants are parties. That multilateral agreement is automatically enforced through smart contract technology. Therefore, cryptocurrency “wallet holders” are simultaneously creditors and debtors of smart contract claims vis-à-vis their cryptocurrency community.Geiregat argues
Smart contracts are not unanimously defined. Many scholars, however, agree that the concept does not refer to contracts in the proper legal sense. Instead, smart contracts can be described as (hardware and/or) software that initiates, controls and/or documents legally relevant acts, depending on predetermined and digitally proven events, and by means of which legally binding contracts may be concluded, depending on the circumstances. Hence, a smart contract, quite deceptively, is a technical means that can be used in the contractual sphere e.g. to execute contracts rather than simply being a legal concept. It is therefore more accurate to refer to it as smart contract technology.
Smart contracts and blockchain
Vending machines are an old-school example of an application of smart contract technology. Hence, smart contracts do not necessarily make use of blockchain technology. When they do, however, trust is put in computer power and the public availability of certain information. As a result, blockchain-enhanced smart contracts are more efficient and trustworthy. Hence, although blockchain technology is not a requirement for smart contracts, its application is likely to lead to an increase in use of smart contract technologies.
Cryptocurrency agreements use smart contract technology
From a private-law perspective, cryptocurrency systems give rise to a multilateral agreement to which all wallet-holders (aka the community) are parties (supra). When two of those parties agree to transfer coins from one party to another, both only need to push some virtual buttons. When they do, ultimately the whole cryptocurrency community automatically undergoes the effects: software automatically verifies whether the transaction is legitimate and registers the transaction if that is so. Through the architecture of the system, each wallet-holder who wishes to continue using the system, must accept that (cryptocurrency) wealth has shifted from one participant to another. This holds true, even if not all legal conditions for validity of the contract are fulfilled. In other words, cryptocurrency participants use software that initiates, controls and documents legally relevant acts, depending on predetermined and digitally proven events. In sum, they use smart contract technology.He concludes
Cryptocurrency community members (wallet-holders or participants) are all parties to one multilateral agreement. The use of smart contract technology is part of that agreement. These findings only relate to the legal position of a cryptocurrency participant vis-à-vis his or her fellow-participants [Fig. 1]. They do not permit conclusions to be drawn as to the nature of the agreement concluded between two users who exchange “cryptocoins” for goods, services, a sum of money or anything else [Fig. 2]. Nonetheless, as a “payment” in cryptocurrency coins essentially amounts to the creation of a claim on the cryptocurrency community, the smart contract classification may indirectly alter the classification of that two-party contract. For instance, trading goods for cryptocurrency coins amounts to a trade in goods for claims rather than for money, which implies such exchange can never qualify as a proper sales agreement. In other words, lawyers who use their “(smart) contract lenses” may see a clearer picture when analysing cryptocurrency transfers.