Hardly any profession has such an astonishing history as lawyers do. Modern practitioners inherit a legacy of thousands of years of development, from Roman jurists to the American attorneys portrayed in Hollywood movies.

Contained in that legacy are decades and centuries of continuous development of the lawyer’s toolkit. Some areas of law, such as contract law, are deeply rooted in ancient and medieval law. Legal institutions and concepts that emerged a long time ago are often still a fundamental part of the modern lawyer’s toolkit.

Also, the way lawyers perform their profession still has much to do with the past. Old, thick books (although now mostly replaced by legal information databases) or court robes and wigs[1] are still commonly associated with our image. This is because the lawyer’s job still hasn’t changed much: it’s about humans interpreting traditional, paper-based rules and applying some overarching, sometimes unwritten, principles.

Ancient jurist Gaius — I was learning Roman law from a book based on his “Institutiones”, written about 161 CE. No blockchains available at the time

The traditional image of a lawyer has yet another dimension: as interpreters of the law adopted by the state, lawyers are often perceived as some kind of state agents. At the same time their work is often very hard to understand by a regular Joe on the street. As Gavin Wood has put it beautifully:

“What separates, or distinguishes lawyers from story writers is that story writers don’t expect their stories to be upheld by pretty much the whole of society.”

This is exactly the view adopted in particular by technology people. Lawyers create complicated, unclear and confusing laws and have a monopoly on their correct interpretation. Such a system cannot be sustainable over a long period of time, and yet we’re still stuck in it, as the argument goes.

You may agree with it or not, but there is definitely some kernel of truth here. Most lawyers wouldn’t say that the system is completely broken, but even they agree that it’s inefficient. The problem so far has been that we haven’t had something better to replace, or at least upgrade it, with. At least until recently.

Smart contracts: the revolution has arrived

Note: I’m not going to explain what are and what aren’t smart contracts. I assume that you at least more or less know the concept and use cases. If not, I particularly like this legal publication that appeared quite early in the space (maybe I like it because I was the editor and main author).

Smart contracts hold the promise to radically change how the law works, how the future of the legal system will look like, and, last but not least, how the role of lawyers may evolve. They are a brand new, possibly great tool in the lawyer’s toolkit.

But wait… Aren’t smart contracts created by developers? Isn’t this still the lawyers’ domain? Are smart contracts law in the first place?

Again, irreplaceable Gavin Wood to the rescue:

“We were creating this new kind of legal system that was going to mean that, in the future, lawyers and programmers were going to be the same job… It became clear to me that this is something bigger than any of us were thinking.”

That’s exactly the case. Smart contracts aren’t just another instrument the lawyers will use. Nor they are yet another area for coders. Smart contracts are potentially very, very big.

Perhaps, in the end “lawyers” will be just a subset of “programmers”. Until this happens, however, lawyers still have a great role to play, not least because of their centuries old know-how. Also, traditional law remains the rulebook on which large societies and economies work. This will not change in a day.

So let’s see how the lawyer’s work with smart contracts looks like in practice.

Smart contracts in practice

What will the legal profession look like in a world increasingly ruled by smart contracts? I don’t want to theorize here. At Neufund, developers and lawyers alike are actually working on merging tech and the law together: smart contracts and traditional legal instruments.

Here’s some of my own experience from the lawyer’s perspective.

Practical aspects of drafting legal smart contracts

The below practical aspects of making smart contracts work together with traditional legal documents result from my experience as a General Counsel at Neufund.

A good real-world, already available example is our Employee Stock Option Plan, which is governed by both smart contracts and classic legal solutions. We’ve shared the code for this in our Github, which we encourage you to visit if you’re thinking about implementing your own “ESOP”. We have already implemented this with our own employees and the practical application of the lessons we’ve learned from this will happen soon in our Initial Capital Building Mechanism (commonly, but not fully correctly, referred to as an ICO).

1. Connecting smart contracts with legal documents

Making sure that smart contracts and legal documents are not totally separate realms is a must. They cannot simply exist one next to the other, without any interactions between them. But at the moment, even in blockchain projects lawyers and developers work not just in different rooms, but also on different planets.

This is not how it should look like. If you are building something, integrity and cohesion of all parts is an obvious postulate. You need to make smart contracts and legal instruments mutually correspond and refer to each other. There shouldn’t be a single doubt that parties (participants) to smart contracts are also bound by a specific legal agreement.

Our experience at Neufund is that this can be done in a really elegant way. Putting modesty aside, this is legal tech at its best.

2. The issue of primacy

There’s a fundamental issue of what should enjoy primacy in the case of conflict: a legal agreement or a smart contract. There is no (and perhaps there never will be) a clear answer to that. That’s why I think it wise to clearly solve that issue at the time of designing the whole structure, and to articulate it explicitly without leaving any doubts.

In practice, you may even want to specify which specific parts of the legal agreement should give way to the contents of smart contracts. Usually, they are the ones most closely related to a corresponding smart contract. You may also want to make other parts, especially those consisting of particularly wet code, take precedence over the smart contract in the event of conflict.

3. Understanding the role of smart contracts

Lawyers beware. I’m going to say something obvious yet important and not often fully understood: smart contracts are not necessarily legal contracts.

I’m not talking about lawyerish issue of what constitutes a contract here. What I am saying is that the word “contract” is often misleading to lawyers. Smart contracts can embody many kinds of legal (and non-legal) relationships, and legal contracts are just the most prominent example of that. Also, a smart contract will very often (not always) be just an implementation mechanism for an actual legal contract. That’s why you need to consider carefully what kind of a legal tool (e.g. agreement) you want to use in a given case.

4. The impact of regulations

Regulations are often designed to confine business exactly to the frames projected by the government. While some of the rhetoric in the space might make it seem like with blockchain you are beyond reach of any government and regulations, this is not the case. Very often, in order to have real-life impact and avoid problems, your smart contract-based solutions should be checked against compliance with regulations. Lawyers with their traditional toolkit will help.

5. Use of traditional legal solutions

Law has great tradition in regulating things and most of the time it does actually make sense. Another advantage is that only in keeping with legal principles (e.g. rules on conclusion of agreement) can produce reliable legal effects before a court. So, try to convince the developers to modify (in their language: overcomplicate) their smart contracts in such a way as to actually make sure that their legal effect is as intended by the authors.

6. Oracles

Oracles are a very sensitive issue in each smart contract, in particular when they refer to third-party owned sources of information prone to error (e.g. human error). Legal documents accompanying smart contracts should cater to this issue.

7. Elasticity and fail-safe

Very often smart contracts cannot be changed without the consensus of the whole distributed network and in principle it’s an asset. However, don’t take it as dogma. Sometimes it’s simply better to ascertain at least some level of elasticity, not to mention that a fail-safe is always welcome when a f****p occurs. As we all know, s… happens.

8. Audit

For smart contracts, the best piece of advice I have for you is: Audit. Audit. Audit! In the case of smart contracts plus traditional legal documents, you may also add to that: Audit!!!

Am I hearing you say that it’s not easy to find people that are able to conduct both legal and technical audit? Yes, that’s true. But it’s necessary anyways and both law firms and technology companies will soon recognize that need.

9. Other

The above are just examples of how lawyers might safely use their toolkit to support smart contract-based projects and I have left out many other issues. I encourage every lawyer with similarly unusual experience to share their thoughts, because — as I have argued in Coindesk recently — we lawyers have a great role to play in the coming crypto revolution. I, for one, will welcome your voice to the choir.

Feel free to comment and reach out to me.

[1] Legal wigs look like on the picture below. Imagine that in some countries lawyers still wear them! Programmers, think hard about whether you really want to enter the law…