Academy of European Law (ERA)

Understanding smart contracts

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Source: Academy of European Law (ERA)

Over the last few years, smart contracts and blockchain technology have received significant attention across various business sectors and their potential is still growing. Already in 2015, it was found that “distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum 2022” (Santander, The Fintech 2.0 Paper: Rebooting Financial Services, 2015, p. 15). Other industries which might be affected apart from financial institutions include property and real estate, the energy and consumer markets and logistics and transport.
 
Lawyers will therefore have to get acquainted with this popular alternative to traditional contracts which require enforcement by court involvement. Issues to be addressed include:

•    How do smart contracts function? Are they legally binding?
•    How to perform a smart contract? What are the remedies?
•    How to implement a GDPR compliant blockchain?
•    How are smart contracts used in the financial sector?
•    How will they be enforced?
•    How does dispute resolution via blockchain work?
 
Which law applies to the third-party effects of assignment of claims?
 
In order to obtain liquidity and access credit, companies transfer the right to claim a debt to another person (= assignment). In international finance, assignment frequently occurs on a cross-border level; however, there is no legal certainty as to which law applies when determining who owns a claim after it has been assigned. In order to promote cross-border investment and access to cheaper credit, the European Commission has proposed a set of rules (COM[2018]96) to clarify which law applies in these cases. These new rules currently under debate will have a huge impact on financial industries such as banking, factoring and securitisation.
 
Both topics, smart contracts & blockchain technology as well as the new rules on third-party effects of assignment of claims will be discussed at ERA’s upcoming conference
Smart Contracts & Assignment of Claims on 21-22 March 2019 in Trier.

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