Jurists and smart contracts

Jurists tend to come up against two large obstacles when it comes to dealing with smart contracts:

– The first problem is coming to grips with the technology; both the specific technology involved in the architecture and mechanics of a blockchain, and general computing technology. On the first subject, what exactly is a peer-to-peer network? How does asymmetric or double key cryptography work,? What are hashes or proof of work? How is node consensus achieved? What is a fork? And so on; and on the second, what is an algorithm? Or a bit string?, What is programming? What is a “code” in computing? What is involved in “compiling” or “editing”, or “executing” a program? Without a minimum amount of familiar with all these definitions, any effort to analyze or form a legal opinion on smart contracts is in vain, because, put simply, we have no idea what we are talking about.

So, when we define a smart contract as a “self-executing” contract, are we considering that the only thing a computer program does, in principle, is handle information, perform operations with data by following rules or instructions to produce new data? The relationship this has with the compliance, performance or practical enforcement of a contract is not immediately obvious.

The putting into practice of the idea of a smart contact is linked to the creation of those curious “assets” known as cryptocoins, which are simply made of digital information, meaning that the “placing into circulation” of these assets is programmable, able to be fully controlled by a computer program whose output (who is the current holder of a given bitcoin sum) is simply being recorded on a digital database. In relation to other assets made purely of digital matter (a sound or image file containing a work subject to intellectual property rights), it is easy to see how buying and executing the work may be computer-programmed (because a purely digital asset can be made available on remote media). But if our smart contract relates to other types of assets such as the ownership or use of tangible property, collection rights against a given party, or corporate rights or interests in a company, it will first be necessary to “tokenize” these assets or rights, meaning represent them through programmable digital files. This obviously poses the problem (now essentially a legal one) of how far our legal system is able to recognize the legal validity of that form of placing those tokenized assets or rights into circulation where those rights need to be made enforceable in practice in the real world outside the memory of the device or devices (or network, in some cases) executing a given program. Put another way, to what extent is the “authentication” provided by the code executed on the blockchain also legally valid outside the network (a problem that does not arise with cryptocoins, which only exist, operate and display all their effects on the network).

Insofar as the development of the internet of things has flooded the market with a whole range of articles equipped with electronic devices enabling them to be connected and communicate with the internet, and also be automatically controlled and programmed, the smart contract may achieve more effective and self-sufficient automatic self-execution of these articles, less in need of the support of the traditional legal enforcement mechanisms, and therefore less dependent (in principle, at least) on recognition of their legal authentication.

This first remark is designed to draw your attention to the fact that in matters related to smart contracts, knowledge and an understanding of technology, of what it is able or not able to do in practice, must come before any legal judgment.

– This brings me to the second major problem, concerning not so much knowledge as approach: we come to the subject armed with all our legal prejudices, and this could seriously distort our perception. Basically we are confused by the unclear meaning of the term “smart contract”, which immediately brings to mind our legal concept of a contract and everything associated with it. So we leap too soon into wondering about legal validity or invalidity, legal enforceability or unenforceability, about whether or not the requirements for obtaining legal recognition are satisfied, or even about evidence or its use in litigation; and we fail to realize that this is not really the crux of the matter. At the heart of the matter there is a deeper question, which cannot go unnoticed as a result of that legal preconception of ours. The question is not whether it is a greater or lesser defined new concept that seeks to be accommodated in our legal system, but rather something originally conceived in an attempt to make it an alternative to the whole of our legal system.

A smart contract, purely speaking, is not intended to be a legal contract, because it does not need to be one, in the same way as Bitcoin (in the mind of its creators) is not intended to be legally recognized money, or legal tender, but rather money for a society that has already left far behind, as unnecessary, the notions of national state, of laws and of national jurisdictions.

We need the support of a jurisdiction, of the courts of a given country, and as a precondition for this, recognition of the legal meaning and value of a given arrangement or understanding by the legislation of that country, to the extent that, de facto, compliance with, or practical performance of, the agreed terms depends on the intention of a human being. So, when that intention fails, or becomes inaccessible or hard to implement, we will seek help from state forces. If, however, technology provides us with the ability for that agreed arrangement to be implemented mechanically or automatically with complete independence from the intentions of an “obliged” party, then both the concept of contract, along with the whole legislative and institutional apparatus belonging to what we know as “contractual law” become irrelevant.

Clearly, this approach belongs to the intellectuals and ideologues who were the forerunners of this whole system –the crypto-anarchists-: a technological utopia according to which certain problems related to economic exchange and cooperation, which until now have been organized in a very unsatisfactory way (slow, expensive, complicated, unsafe) through the traditional legal systems, may be handled much more efficiently through the simple intervention of technological tools which are already within our reach.

From this starting point, the real issue that warrants our attention as jurists is: first, whether what is being sought is actually possible, simply in practical terms, and to what extent –in all areas of human relationships which until now were covered by contractual law or only some of those areas-, and how it may be possible; and secondly, whether this alternative way of doing things proves, from the standpoint of forming a judgment and bearing in mind all the potential interests at play (not just pure economic efficiency, the speed and safety of transactions, but also the need for protection of the weaker parties in economic relationships, particularly vulnerable property or vital interests, social solidarity interests which are supposed to form the basis of taxation, etc.), to be something acceptable and advisable, and in which areas it may be and in which areas it may not. While remaining very much aware at all times that we are confronting a phenomenon that largely goes beyond our forces, the forces of a national state, which may easily be overtaken by events in its attempt to gate the field.

The future of work. Changes in the world of employment

The changes we are experiencing in the world of employment are fast and continual. If we look at what work will be like, and how employment relationships will be structured in the future, the only certain thing we will find is that they will change continually and we must forget any attempt to find a stable place for accommodating new scenarios. In the words of Yuval Noah Harari, author of “Sapiens”, “any attempt to define the characteristics of modern society is akin to defining the color of a chameleon. The only characteristic of which we can be certain is the incessant change”. And the problem is that often we try to understand the changing employment scenario using conceptual structures of the past. That explains the disconcerted reaction to the changes and the improvised and well-intended nature of many of the changes proposed to bring order to the new scenario.

Above all, the world of work is experiencing the impact of automated and robotic processes. Which is having an effect on both the numbers and characteristics of the jobs required. The number of jobs is affected because the processes of automation, the use of increasingly sophisticated robots, is reducing labor needs, more drastically in some industries than in others. The destruction of jobs is vast, though it must be said that the same process that is destroying jobs is also creating new employment opportunities. This is a two-sided problem: from one angle, as we have seen in every change process in the production system that we have experienced in the past, there is an inevitable time delay between the destruction of jobs and the appearance of new jobs on the market. This puts pressure on unemployment, in the short term, and means that some generations of workers suffer the consequences of change more than others.

From another, and here we link up with the other impact of automation, on the characteristics of employment, the new jobs have very different training requirements and may not fall within the traditional formats in the world of employment. The jobs that are arising are different from the previous ones, with very different training requirements (making it hard for them to be performed by the workers displaced by automation) and with forms of performing work that may differ to a large extent from those traditionally in place.

It also has to be considered that the consequences of automation are felt very differently among the various sectors of the labor force. More qualified (and highly paid) employees in skilled jobs with a high cognitive element are for the time being little affected by the use of robots. Their work has a low manual component and is not repetitive, so not easy to automate (for the time being, I must stress, until we have robots with cognitive skills, able to take decisions independently). Similarly, people in lower qualified (and lower paid) jobs who are increasingly joining the ranks of personal services are also withstanding the devastation caused by automation, because their tasks are manual but not repetitive. Automation has had the greatest impact on medium to highly qualified jobs, with average to high pay, which are manual and repetitive and therefore easy to replace with a robot. The full effect of this is felt in the manufacturing industry, by the more traditional and unionized components of the working population.

That explains various changes that are taking place in the world of employment. Among other things, it is the root cause, along with other factors, naturally, of the widening salary gap, a greater difference between the higher and lower paid employees (due precisely to the impact on employees in the middle qualification and pay range). And it also explains, or helps explain, some of the changes that causing the most confusion among the analysts that are staying within the conceptual frameworks of the past. The rebirth of self-employed work, for example. Leaving aside the clearly fraudulent mechanisms, seeking only to evade employment legislation, such as those of false self-employed workers, a great many new jobs in advanced technology sectors, which make intensive use of information technologies, arise or are entered into as self-employed work, falling outside the traditional types of self-employed work. We are increasingly seeing the appearance of new opportunities for self-employed work, which is dependent to a greater or lesser extent (and, therefore, with a greater or lesser need for protection) but in all cases clearly distinct from the traditional types of self-employed work.

Elsewhere, the new jobs arising in the more advanced sectors of the economy are linked to specific projects and are therefore temporary. We still think of temporary jobs as precarious contracts, which are often used simply to avoid the economic and legal costs associated with an indefinite contract, but many of the new jobs created by changes in the production system are temporary jobs, meaning they require a temporary rather than an indefinite employment contract. The recent introduction in France, by the Macron reform, of project-based contracts is a good exponent of these new scenarios.

If we try to continue seeing temporary employment exclusively as a bad thing, or at least as an exceptional measure, in employment contracts, we will never be able to give an appropriate response to the new scenarios in the world of employment. Similarly, both the employment and social protection legislation must take into account the new central role that self-employment is gaining, and will increasingly have in the future.

Lastly, a no less important change in connection with labor relations is that arising from the trend, an unavoidable consequence of the factors described above, towards more individual employment relationships. Individual rules on working conditions will gradually become more important and the employment contract will re-gain room for determining working conditions. This creates a considerable amount of friction with the traditional collective bargaining system and with the unions’ goal to retain their monopoly over the rules on working conditions.

All of this makes for a changed and changing world of employment. It will be no use trying to ignore the changes or stamp them out by introducing prohibitions in the law. We must search for new legislative answers to the new circumstances we are facing, instead of trying to ignore the changes and redirect them to the structures of the past.