Françoise Birnholz & Kelsey Barthold · September 2021
89 Geo. Wash. L. Rev. Arguendo 96
Permissioned blockchains, which allow automation of routine processes through smart contracts, have the potential to streamline authentication and trade significantly. While there may be a popular conception of the blockchain as an anonymous ledger, the parties in a permissioned blockchain are known to each other. Those parties create rules of governance to control access to the blockchain and define permissible actions. As this discrete blockchain application may be less familiar to many than the concept of an anonymous ledger, discussion of regulating blockchain may inappropriately sweep permissioned blockchains and anonymous, permissionless blockchains together. Further, referring to certain permissioned blockchain applications as “smart contracts” may lead to confusion regarding the intersection of law and technology.
This Essay first seeks to help attorneys and transacting parties have a clear-eyed view of the separation between new technology and the general principles of existing law that will apply to new technology. It clarifies that parties using smart contracts are still contracting within the same general framework of contract law that applies to other transacting parties; the use of a new technology does not typically overhaul the legal status of the underlying contractual provisions or the assets ultimately exchanged. Rather, courts and parties must apply the law to the facts—facts involving the use of permissioned blockchain technology. Smart contracts represent an exciting new technology, but they do not usher in a new common law.
The Essay next explains that permissioned blockchain applications require minimal regulation of the technology itself due to the ability of participants to protect themselves. Widespread use of a new technology, like blockchain, fairly sparks discussion about the need for regulation. In a consortium using a permissioned blockchain, however, parties are highly sophisticated, have worked together to develop norms and define parameters, and are not anonymous. In this context, structural legislation or regulation of blockchain technology is not necessary.
