Code and Counsel: How Smart Contracts Can Reshape the Legal Profession

By Obren Manjencich

Introduction

Historically, contract drafting has undergone two groundbreaking technological innovations: the typewriter and the computer. The latter has proven to be more influential and long-lasting, as it allows contracts to be drafted more efficiently and formulaically. Attorneys can store previous contracts in digital files or on hard drives and easily edit them to fit the specifics of a negotiation. However, while contract drafting has become more streamlined, enforcing contracts remains a challenging task. Clauses related to terms like acceptance, delivery, and performance, among others, have been particularly resistant to innovation.

With that said, the groundwork for alleviating the difficulties of contractual enforcement clauses was initially laid in 1994 when Nick Szabo, a computer scientist and lawyer, crafted the idea of smart contracts.^[1] Smart contracts maintain the efficiency aspect of traditional contracts, but revolutionize the formulaic expression of a contract by implementing self-executing programmable code on the blockchain.^[2]

Smart contracts themselves are continuing to develop, and like any emerging technology, is subject to an initial adoption and growth followed by a surge in popularity or appeal, before plateauing with guardrails firmly in place. We are arguably in a state between adoption and growth and broadening appeal. Therefore, this paper argues that smart contracts improve efficiency and compliance, but their technical and doctrinal limitations ensure they function as complements to traditional contracts rather than replacements.

To support this argument, this paper proceeds in several distinct parts. First, it defines smart contracts and explains how they operate. Second, it outlines their benefits and drawbacks and contrasts automated execution with traditional doctrines. Third, it analyzes several use cases—estate planning, UCC transactions, securities, and intellectual property—to illustrate smart contracts’ complementary role. Lastly, it evaluates the remaining legal issues: ethics, jurisdiction, admissibility, and liability.

II. Overview of Smart Contracts

A) Definition

In 1996, Nick Szabo published his seminal paper “Smart Contracts: Building Blocks for Digital Markets,” where he outlined his vision for what smart contracts could become. Szabo, at the end of his introduction, defined a smart contract as “… a set of promises, specified in digital form, including protocols within which the parties perform on these promises.”^[3] A more general description would be a program that executes a specific action when a certain condition has been met.

B) Practical Illustration

As noted by Szabo, an example of a “primitive ancestor”^[4] of smart contracts is the vending machine. An individual inserts an amount of money into the vending machine. If the amount is at or above the price listed, then the vending machine will dispense the item selected.

C)Types

Smart contracts can appear in the following contexts: as a tool for self-performance and/or self-execution of an already concluded contract, as a specific part of a contract, creating a hybrid contract, and as a stand-alone smart contract.^[5]

Tool for Self-Performance and/or Self-Execution

In this context, the contractual parties have already communicated in the real world, negotiated the terms, and concluded the contract entirely off-chain. After forming the contract, the parties can choose to code a part of the contractual content on a blockchain platform to take advantage of the benefits of this technology, which are self-performance and self-execution. The contractual language would be translated and embedded into the blockchain platform, thereby constituting “contractware.”^[6] However, contractware is not a contract from a legal standpoint but rather a computer program that serves as a technical tool for facilitating the self-performance and self-execution of an already off-chain concluded and formed contract.^[7]

ii. As a Specific Part of a Contract (Hybrid Contract)

Here, the contractual parties have also communicated in the real world and negotiated the terms. However, they have also decided to form the contract in a hybrid manner, partially off chain and partially on-chain. This means part of the contract is formed in the real world, while another part of the contract is directly embedded into code. These two parts are complementary and constitute the one and only contractual content, hence the “hybrid” categorization.^[8] The main feature of hybrid contracts is that they can be read by a human and a computer program at the same time. The hybrid smart contract serves not only as a tool for the contract’s self-performance and self-execution, but also to include the contract’s formation, with its conclusion conducted entirely off chain.^[9]

iii. Stand-Alone Smart Contract

This type is the most uncommon.^[10] However, it is arguably the most revolutionary type of smart contract as it can alter the way people complete transactions.^[11] Unlike the previous types of smart contracts, the stand-alone variation is concluded entirely through the blockchain platform with the use of code as the contractual language.^[12] Usually there are no prior negotiations between the contractual parties in the real world, nor is there any legal document detailing the parties’ declarations or intentions.^[13] Therefore, in a stand-alone smart contract, the contractual parties use the code not only to perform their legal obligations, but also to form their declarations of intention and communicate them with each other via the blockchain platform.^[14] Thus, the blockchain becomes a tool for the contract’s self-performance, self-execution, and formation, but also as a means for the contract’s conclusion.^[15]

However, stand-alone smart contracts form agreements entirely through code, leaving little room for negotiation or clarification. These interpretive challenges are intensified because UCC § 2-204 allows formation through conduct and communication,^[16] whereas stand-alone smart contracts rely solely on code, making intent and assent harder to evaluate.

D) Key Element of Smart Contracts

i. Oracles

An oracle is a mechanism that extracts data, information, or expert knowledge from external sources and provides them to a closed system.^[17]In the context of smart contracts, oracles serve as a communication channel linking the physical world to blockchain infrastructure. ^[18]

Additionally, oracles also come in different types. One of the most prevalent ones is software oracles.^{^[19]} These oracles can interact with any sources of information available online and send that data to the blockchain platform in real time.^[20] For example, a software oracle can provide information regarding stock prices to the blockchain platform, so the smart contract can buy or sell them based on how the contract is coded.

On the other hand, there are also hardware oracles.^[21] These oracles interact with the physical world and relay the necessary information to the blockchain platform.^[22] A hardware oracle is usually installed in physical objects with electronic sensors, like robots, or relates to objects with QR codes/barcodes.^[23] Upon receiving the necessary information, a hardware oracle modifies it to a digital value that can be understood by a smart contract and released to the blockchain platform.

III. Benefits of Smart Contracts

Automation and Accuracy

By automating aspects of smart contracts, such as ensuring the distribution of funds in an estate or scheduled royalty payments, attorneys can eliminate the need for human oversight and third-party involvement. This automation not only speeds up transactions but also reduces costs by removing overhead and intermediaries. Additionally, the enforcement of contracts can be strengthened through automation, as compliance-based provisions can be coded directly into the contract. For example, in a real estate transaction, a smart contract could automatically exchange funds and transfer property ownership once conditions, such as passing inspections or securing financing, are fulfilled.

Additionally, traditional contracts often contain ambiguous language or provisions that can be open to interpretation. For example, a clause like, “The goods should be delivered promptly,” can be vague because “promptly” is subjective and may vary based on interpretation. With smart contracts, everything is encoded in clear, logical conditionsandprecise language. For instance, instead of saying “promptly,” a smart contract might specify, “The goods must be delivered within 7 days from the payment date.” This removes the subjectivity, ensuring that both parties know exactly what the expectations are and when certain actions should occur.

ii. Transparency and Security^{^[24]}

Once a smart contract is utilized and implemented, it can be viewed by all parties, and even the public, on a blockchain. The transparent and trustless nature of smart contracts is demonstrative of a core principle of blockchain based innovations—enabling parties to transact without the need for intermediaries. Trust is continually built on the premise that all the parties to a contract can view the executional parts of the contract in real time. Additionally, blockchain technology adds another layer of trust through increased security of smart contracts through built-in features rooted in cryptography. Cryptographic tools such as hashing and digital signatures, ensure that once a contract is implemented it is immutable.

Ultimately, these advantages strengthen contract performance, but they do not displace the interpretive, equitable, and relational functions that traditional contracts still provide.

IV. Drawbacks of Smart Contracts

Immutability

Smart contracts once deployed are immutable. Immutability can be a drawback for parties wishing to use a smart contract because the circumstances surrounding a contractual agreement may change and therefore be frustrated by both foreseeable and unforeseeable events. For example, a natural disaster might prevent one party from fulfilling its obligations on time. However, if the contract specifies a fixed payment date, the party may still be required to make a payment, even if performance is impossible. In such cases, invoking a force majeure clause becomes challenging, as encoding such provisions in smart contract code may be impractical. This lack of flexibility can create serious issues for parties who need to adapt to changing conditions.

Given that the terms of a smart contract are fixed, changing them is often not possible without deploying an entirely new contract. This has a direct effect on the desirability of a smart contract in situations where parties need fluidity to amend agreements during the duration of their contractual relationship. Various industries are subject to volatile circumstances.

For example, contracts in construction and real estate frequently require renegotiation or amendments to address scope changes, timeline adjustments, and unexpected costs. A rigid, unchangeable contract could result in significant financial strain or disputes. Additionally, in entertainment contracts, changes in production schedules, unexpected delays, or shifts in distribution methods are common. Therefore, artists, producers, and distributors often need to amend contracts to account for changes in project timelines, revenue sharing, intellectual property rights, and distribution platforms. In these industries, among many others, contractual flexibility is essential to ensure that agreements remain fair, realistic, and enforceable as conditions evolve. These scenarios track doctrines such as impossibility and frustration, where courts ordinarily modify or excuse performance—relief that smart contracts cannot accommodate without redeployment. Without the ability to amend terms in response to changing circumstances, businesses could face serious challenges in staying competitive, compliant, or simply functional.

ii. Third Party Involvement

Smart contracts may present themselves as trustless transactions; however, this belief is slightly misguided as these contracts are likely to involve third parties through the use of oracles. Otherwise, their functionality may become limited. In using oracles, the parties to a smart contract are dependent on the reliability and accuracy of the information the oracle is interacting with.

For example, if the parties to a smart contract are using a software oracle, they are relying on a third-party source to have up-to-date information that affects the execution of the smart contract’s conditions. If the information is inaccurate, the smart contract may still rely on it, and an incorrect outcome may result. Hypothetically, if an oracle provides the wrong price of a commodity, a contract designed to trigger when a certain price threshold is crossed may trigger, or fail to trigger, based on the erroneous information. An erroneous oracle input would resemble “mutual mistake” under traditional doctrine—yet code may self-execute before the parties can correct or renegotiate the agreement. This may lead to a unique situation in assessing who is liable for the error. Is it the third-party oracle, the attorney who drafted or approved of the agreement, one of the parties, or all of them combined?

iii. Fraud^{^[25]}

Third-party involvement is likely to raise immediate concerns about the potential for fraud and misrepresentation. For example, if an attorney is tasked with creating a smart contract for a client but lacks expertise in smart contract technology or coding, they may rely on a third party—whether an individual or a business entity—to encode the contract terms. In such cases, the attorney must exercise caution to ensure that the third party does not misuse privileged information or manipulate the code before it becomes immutable.

Consider the following example: A client, who has expertise in stocks, approaches an attorney to create a smart contract for the future sale of a stock in anticipation of an upcoming business deal that might increase the return. The attorney, being upfront about their limited knowledge of smart contracts, suggests engaging a third-party expert to encode the contract. The client agrees and the attorney proceeds with finding a reliable third party for the task. However, during the process, the attorney reveals sensitive information about the client’s business dealings, which the third party could use to gain an advantage. The third party could then either exploit this information for personal gain or, worse, alter the contract’s code without the attorney’s knowledge, preventing the client from achieving their intended outcome. Such conduct could constitute fraudulent inducement or negligent misrepresentation, and the attorney’s supervision duties under MR 5.3 may heighten exposure.

Moreover, smart contracts highlight the growing tension between automated transactional systems and contract doctrines designed to preserve fairness. Traditional principles like impossibility, frustration, and mistake allow courts to correct inequitable outcomes, yet smart contracts execute even when those doctrines would otherwise provide relief. Their code-driven structure also complicates assent and may amplify unconscionability concerns where parties lack the expertise to evaluate embedded terms. These doctrinal frictions suggest that, while smart contracts will streamline many processes, full automation requires legal adaptations that preserve protections embedded in contract law.

Ultimately, these limitations show why smart contracts operate best alongside traditional contractual safeguards rather than as independent substitutes.

V. Use Cases for the Legal Profession

Smart Contracts may be better suited for certain practice areas over others as outlined below.

Intellectual Property

Smart contracts can significantly assist attorneys involved in drafting and negotiating licensing agreements for various types of Intellectual Property. These contracts can be leveraged in two primary ways: automating royalty payments^[26] and enhancing the tracking and enforcement of rights.

For instance, consider a licensor of a software program. They could deploy a smart contract integrated with a software oracle to track downloads across different licensee websites. This setup ensures that once a specific number of downloads is reached on a site, the licensee is automatically required to make a payment to the licensor. By using a smart contract in this manner, the licensor gains efficiency, eliminating the need for manual follow-up or meetings with licensees to verify download numbers.

In terms of enforcement, smart contracts can also be employed to track the sale of patented inventions. If a licensee is found to be selling the patented product outside the agreed-upon geographic territory, the smart contract can immediately notify the licensor. This allows for faster response times and more timely action, such as sending a notice of breach or taking legal measures to protect the licensor’s rights.

ii. Securities

Smart contracts can significantly streamline the process of buying and selling securities by automating trade execution, ensuring that transactions are completed as soon as predefined conditions are met. This eliminates the need for intermediaries, reduces the risk of human error, and accelerates the settlement process, making trades nearly instantaneous.

By recording all transactions on the blockchain, smart contracts also provide full transparency and create immutable records, which can be easily audited for compliance. Moreover, compliance with securities laws, such as verifying accredited investors or fulfilling anti-money laundering (AML) requirements, can be built directly into the smart contract. Automated reporting and real-time regulatory monitoring can be seamlessly integrated, reducing the burden of manual paperwork while enhancing the attorney’s ability to track compliance and maintain accurate records. Additionally, smart contracts can handle the tokenization of securities, enabling the digital issuance and management of securities, which can be used for more efficient tracking of ownership, distribution of dividends, and conducting corporate actions like stock splits or voting.

Beyond transaction execution, smart contracts also reduce the administrative overhead that attorneys typically face, particularly in the management and documentation of securities transactions. By automating document generation, ownership transfer, and the management of escrow accounts, attorneys can eliminate tedious manual processes, reducing both legal costs and time spent on non-legal tasks. For instance, the transfer of securities or assets can be recorded in the blockchain, ensuring accurate and tamper-proof documentation. This level of automation not only helps speed up transactions but also significantly reduces the possibility of errors or fraud.

iii. Estate Planning

Smart contracts offer estate planning attorneys the potential to enhance precision and efficiency in their practices. For instance, they can automate the distribution of a decedent’s assets upon the confirmation of a death certificate or the expiration of a specified waiting period. However, attorneys must exercise caution when integrating smart contracts into their estate planning workflows. In cases where ongoing litigation may involve the distribution of assets, there is a risk that a court-imposed injunction could prevent the transfer. If a smart contract inadvertently executes a distribution in violation of such an injunction, the attorney could face significant legal consequences.

Because estate planning involves substantial documentation, smart contracts can store these records on a tamper-resistant blockchain once executed. This also allows for easy access and verification of legal documents for all parties involved, ensuring transparency and ideally reducing the risk of fraud or disputes. By automating routine tasks like asset distribution and documentation verification, smart contracts can reduce the amount of manual work needed. This can help lower administrative costs, allowing estate planning attorneys to focus on more complex tasks.

Thus, smart contracts streamline transactional steps while traditional contracts remain essential for negotiation, interpretation, and enforcement.

VI. Legal and Ethical Considerations for Smart Contract Use

Professional Responsibility

With any representation an attorney’s conduct must comply with the Model Rules of Professional Responsibility otherwise they face the possibility of losing their license to practice. Consequently, smart contract usage implicates several rules from an ethical standpoint.

First, Model Rule 1.1 — Competence states that “a lawyer shall provide competent representation to a client.” Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. ^[27]Additionally Comment 8 to MR 1.1, states that “… a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology…”^[28] Model Rule 1.1 and Comment 8 combine to put the onus on the attorney to not only ensure that they provide adequate advice to a client during the relationship, but force an attorney to be aware of and assess how new technologies can alter the practice of law. In essence, before utilizing smart contracts, an attorney should take the time to become knowledgeable about the technology instead of figuring it out as they go.

Second, Model Rule 1.6 — Confidentiality of Information subsection (a) states that “a lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).”^[29] Consequently, attorneys must be very clear with clients about how confidential information may be revealed in a smart contract. Model Rule 1.6 however provides three ways in which confidential information may be revealed whether through informed consent, implied authorization, or one of seven enumerated reasons in subsection b.^[30] Regardless, an attorney should be cautious as to ensure that confidential information isn’t divulged without conforming to the rules of Professional Responsibility.

Third, Model Rule 5.3 —Responsibilities Regarding Nonlawyer Assistance subsection (b) states “a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person’s conduct is compatible with the professional obligations of the lawyer.” Furthermore subsection (c) states “a lawyer shall be responsible for conduct of such a person that would be a violation … if engaged in by a lawyer if: (1) the lawyer orders or, with the knowledge of the specific conduct, ratifies the conduct involved; or (2) the lawyer is a partner or has comparable managerial authority in the law firm in which the person is employed, or has direct supervisory authority over the person, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.”^[31]

This rule is critical to consider, as many attorneys do not have backgrounds in computer science, and by extension, coding. Moreover, law firms in all likelihood do not employ individuals with specialized knowledge such as coding smart contracts. Therefore, it is more likely that an attorney may seek out a third party to code the provisions of a contract that a client desires to be used in a smart contract. This is where the nonlawyer assistance issue will be most prevalent. For this reason, attorneys should be careful as to understand when their actions may be implicated by this rule.

ii. Jurisdiction

Smart contracts are likely to introduce new challenges in jurisdictional disputes, particularly because they can be used by parties across different countries. When a dispute arises between two parties in separate jurisdictions, determining the appropriate forum for resolution becomes more complicated. Should the case be decided by a tribunal in the jurisdiction of the blockchain hosting the contract? This question becomes trickier if the blockchain’s terms of service specify a particular jurisdiction. In such cases, one might assume that the agreed-upon forum is clear.

However, a party could still challenge the validity or applicability of those terms, especially if they were not fully aware of or agreed to them in a meaningful way. Additionally, personal or diversity jurisdiction may come into play, especially if the host blockchain has a principal place of business in a specific location, which could influence where the case could be heard. If the blockchain is operated by a centralized entity, the location of that entity’s operations could potentially create a basis for jurisdiction, much like traditional business disputes.

Given the decentralized nature of blockchain networks, courts will likely continue to evaluate personal jurisdiction through the traditional minimum-contacts framework. If a smart-contract dispute arises, a court will assess whether the parties purposefully availed themselves of the forum, even if the platform is globally distributed. Likewise, any embedded governing-law or forum-selection provisions remain enforceable only if the parties validly assented to them, consistent with Atlantic Marine.^[32]

Moreover, parties involved in a smart contract might also have separate, traditional agreements that contain choice of law or forum selection clauses. Since smart contracts are executed purely based on code, they do not inherently understand these legal frameworks. This creates a disconnect between the digital execution of the contract and the legal requirements that govern traditional agreements. Enforcing these clauses would require intervention from external legal systems, which smart contracts themselves cannot currently provide. This highlights the fact that while smart contracts may be useful for automating certain aspects of agreements, they are best seen as a complement to, rather than a replacement for, traditional legal contracts.

iii. Admissibility

In addition to potentially head scratching jurisdictional challenges for smart contract usage, smart contracts will also present novel issues in terms of admissibility as evidence. Before diving into evidentiary concerns, it is worth noting several states either recognize smart contracts as a legally valid instrument or have approved smart contracts as admissible evidence.^[33] For example, Arizona^[34] and Tennessee^[35] recognize smart contracts as a legally valid instrument, while Vermont^[36] has already approved smart contracts as admissible forms of evidence.

Moreover, The ESIGN Act establishes that electronic records and signatures may not be denied “legal effect, validity, or enforceability,”^[37]and limits state deviations to those consistent with UETA or ESIGN itself. Because blockchain transactions routinely implicate interstate commerce, ESIGN provides the baseline rule supporting the enforceability of smart contracts while framing the preemption boundaries for state regulation.

As evidenced, evidentiary disputes involving smart contracts are likely to center around Federal Rules of Evidence 901 — Authenticating or Identifying Evidence, and 902 — Evidence That is Self-Authenticating.

To assess the admissibility of smart contracts as evidence under Federal Rules of Evidence 901 and 902, it is necessary to first establish whether the smart contract can be properly authenticated. As noted, a smart contract is a self-executing contract with the terms written into lines of code deployed on a blockchain. Thus, key considerations for authentication are whether the smart contract’s origin, integrity, and execution can be demonstrated in a manner that satisfies the requirements of Rule 901(a), which mandates evidence sufficient to support a finding that the item is what the proponent claims it is.

One method of authentication may involve testimony from a witness with knowledge of the smart contract’s creation, deployment, or execution^[38] or through an expert witness who can analyze the blockchain’s integrity and the specific code of the smart contract.^[39] Additionally, the distinctive characteristics of the smart contract itself, such as the unique blockchain address from which it originated or the immutable nature of its code once deployed, could be sufficient to authenticate it.^[40] The blockchain’s distributed ledger also provides a record that can be cross-referenced to establish the authenticity of the contract, as its public and transparent nature leaves a traceable digital footprint.

Moreover, smart contracts that are generated and maintained through an electronic system could be self-authenticating under Rule 902(13).^[41] In Aerotek v. Boyd, the Texas Supreme Court accepted secure, automated digital records—timestamps, system logs, and metadata—as reliable evidence of electronic signatures. Although not directly a Rule 902(13) case, its reasoning could support treating blockchain-generated records as self-authenticating digital evidence.^[42] Specifically, a smart contract stored on a blockchain, as a record generated by an electronic process or system that produces an accurate result, could meet the requirements for self-authentication if accompanied by a certification from a qualified person, demonstrating that the blockchain’s protocols ensure the accuracy of the record.

In sum, the admissibility of a smart contract hinges on demonstrating its authenticity through testimony, expert analysis, or a certification confirming the reliability of the electronic process that generated the contract. In the context of blockchain technology, these mechanisms of authentication align well with the principles set forth in Rules 901 and 902.

iv. Liability

Determining liability for what happens when a smart contract malfunctions is another area where clear rules will likely develop over time. For now, courts may allocate liability based on negligence or other contract principles, including whether an attorney reasonably supervised nonlawyer coders under MR 5.3, whether the oracle provider breached a duty of care, and whether parties assumed the risk of automated execution.

However, the breadth of potential liability for a smart contract error can snowball quickly. For example, what if an attorney relies on a third party to write the code for a smart contract in which the parties are relying on a software oracle to aid in the contract’s execution? Say the oracle uses inaccurate data, then who will be responsible for the error? It is certainly plausible to think that the attorney, third party, and host oracle may each be held liable based on varying standards. With that said, whether courts choose to apply traditional tort and contract rules to smart contracts, or create new rules will be revealed in time. Nonetheless, attorneys should be cautious about just how intricate a smart contract becomes and the exposure that comes with it.

VII. Conclusion

Smart contracts meaningfully enhance transactional efficiency, accuracy, and transparency. Yet their immutability, reliance on external data, and doctrinal tensions—particularly with mistake, impossibility, assent, and unconscionability—limit their ability to operate independently. As states, courts, and practitioners refine governing frameworks, smart contracts will continue to expand in use, but their role will remain complementary to the flexible, interpretive, and equitable functions preserved in traditional contract law.

[1] Kraken, What Are Smart Contracts?, Kraken Learning (2025), https://www.kraken.com/learn/what-are-smart-contracts.

[2] Id.

[3] Nick Szabo, Smart Contracts: Building Blocks for Digital Markets (1996), https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html.

[4] Id.

[5] Vasiliki Papadoulia & Vagelis Papakonstantinou, AI Oracles and Smart Contracts (2024).

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.