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Creating a smart contract safety net

While the ‘code is law’ philosophy has yet to be tested in any significant legal cases, it is already apparent that such a mindset does not align well with modern contract law and its consideration for the agreed ‘intent’ of the parties involved in a contract dispute.

Imagine it is ten years from now, and we are all participants in a blockchain-powered decentralized digital economy. Cryptocurrencies are a widely accepted payment method, an intermediary-free peer-to-peer ecosystem has become a major part of the global economy, and self-executing smart contracts have largely replaced contractual obligations.

While the economy is booming and consumers are benefiting from a lack of costly middlemen, smart contracts are causing unanticipated problems due to a combination of bad code and a lack of dispute resolution in this utopian "code is law" society.

This is precisely the problem that smart contract dispute resolution startup Sagewise is aiming to solve, having secured a $1.25 million seed funding round led by Wavemaker Genesis – along with investments from affiliates of Ari Paul (Blocktower Capital), Miko Matsumura (Gumi Cryptos), Youbi Capital and Maja Vujinovic (Cipher Principles).

Fundamentally, Sagewise’s system gives contracting parties the ability to achieve their true transactional intent by providing a safety net. Through its software development kit, users can mitigate the risks of a badly coded smart contract as well as evolving situations using a built-in layer of smart contract monitoring, notification, freezing and dispute resolution.

The challenges of ‘not-so-smart’ contracts

Co-founded in 2017 by legal-tech expert Amy Wan and seasoned software engineer Dan Rice, Sagewise has launched at a time when the challenges and shortcomings of smart contracts are becoming increasingly evident. Wan says the two biggest challenges that people who want to deploy smart contracts today are facing are usability and security.

"For usability, smart contracts require that the user be able to at least read code," Wan says, "but less than two percent of the world population has that type of coding knowledge. This makes smart contracts inaccessible to the masses and is a major hurdle to mass adoption. However, I know that there are a lot of projects out there working on creating templated smart contracts and translation languages, so that should help a bit."

As to the security challenge, Wan says the term ‘smart contract’ is often a misnomer. "Smart contracts aren’t very smart," she says, "nor must they necessarily be contracts. Smart contracts may have coding errors, security vulnerabilities, and while code is static, human situations are not–so people are genuinely going to need to be able to upgrade or terminate their smart contracts and dispute the execution of such contracts."

Code is law – until it isn’t

Wan highlights the current disconnect between smart contract developers and legal professionals with actual experience in contract law. This was made evident during the ICO boom in 2017 when many smart contracts were coded in one way but what had been presented during the ICO campaign was often something very different.

"Smart contract developers are very technology-centric and many believe in a philosophy of ‘code is law’," Wan says. "There are multiple ways to interpret this. Sometimes when I get ‘code is law’ fanatics, I tell them that code is not law – the law is law, and code and language are merely mediums of communicating intent. So, code is law, until it isn’t. A famous person in the online dispute resolution space once said that the power of technology to solve disputes is dwarfed by the power of technology to create new disputes. I think this is going to be absolutely true."

Interestingly, despite being a technology company focused on smart contracts, Sagewise decided to raise funds through traditional venture capital means as opposed to launching an ICO. Wan says she evaluated both capital raising options and chose the traditional VC route for one critical reason.

"In late 2017 we did look at doing an ICO that would involve a smart contract," she says. "But I went out and talked to some crypto whales who demanded massive discounts and instant liquidity. These people weren’t investors, but speculators. A speculator doesn’t need to believe in or even understand what we’re doing, but an investor does. I really believe in this company in the long-term, so decided that it would be better to take longer-term capital. I still believe today that that was the right decision."


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