One of the main critical features of blockchain technology is the smart contracts. They actually constitute arrangements written in computer program code verified, executed and enforced automatically on a blockchain. Information society and the Internet of Things (IoT) will try to move forward by minimizing human involvement in agreements and there are those who believe that smart contracts are the completion of this road. They are wrong.
Smart contract are like prisons in which parties are willingly locked in. They are irreversible and they offer no room for alternative solution. Moreover, the minimization of transaction costs in smart contracts is also a myth that needs to be clarified. As in blockchains, transactions costs are not minimized in the case of smart contracts. They are simply yet again reallocated. On the one hand they offer a trustless option for contracts running under pre-existing norms with immutable continuation in time and clear arrangements between the parties. On the other hand though, the drafting of such a contract demands a tremendous and costly effort of specification of every possible alternatives in a structure of “if-this-then-that” statements all written in software code. Seems tough, don’t you think?
It can be said with certainty that blockchains and smart contracts are neither the end of markets nor the last rival of the firms. Equally, smart contracts will never set aside traditional ones. Blockchain technology and the smart contracts are neither able nor willing to adopt such ambitions. Looking at the past, we can witness that apart from these who avoid a contract’s clarity, there are also those who are seeking it. Apart from these who are deterred by a systems complexity there are those who build on it. Apart from these who favour a contract’s flexibility, there are also those who prefer the one-shot solution. And apart from the moneylenders in the villages of India as we read in the conclusion of Akerlof’s article “The Market for Lemons” there were also banks.
Today, there are still banks in India…