Discover how blockchain agreements can meet legal standards, avoid ambiguity, and ensure enforceability.
The Challenge of Legally Binding Blockchain Agreements
TWC Magazine: The widespread adoption of fully decentralized blockchain networks requires a structured approach to legally binding agreements. However, the legal prerequisites for online contracts—such as clear notice of terms and affirmative manifestation of assent—do not seamlessly translate to blockchain applications.
Legal Framework for Online Contracts
Courts have long established that for an online agreement to be enforceable, users must:
- Receive clear and conspicuous notice of the contract’s terms.
- Unambiguously manifest their assent through an affirmative action.
A notable case, Berman v. Freedom Financial Network, LLC, 30 F.4th 849 (9th Cir. 2022), emphasized that inconspicuous links (e.g., small gray fonts buried within a webpage) are insufficient for enforcing an agreement. Similarly, courts have scrutinized the “manifestation of assent” principle, requiring that users take explicit actions—such as clicking an “I Agree” button—to confirm their acceptance.
Types of Online Agreements and Their Enforceability
- Browsewrap Agreements: These agreements merely provide a link to terms but do not require any user action. Courts often deem them unenforceable due to the lack of explicit assent (Gaker v. Citizens Disability, LLC, 2023 WL 1777460).
- Clickwrap Agreements: Users must actively click an “I Agree” button after reviewing terms, making them the most enforceable form of online contracts.
Blockchain Agreements: The Assent Dilemma
In decentralized environments, achieving the legal standard for assent is complex. Smart contracts, which automate transactions through blockchain, do not inherently provide users with conspicuous legal terms or require explicit agreement.
Smart Contracts: “Code is Law”?
Some argue that smart contract code itself constitutes an agreement. However, this approach presents two main challenges:
- Courts may not recognize code as the sole governing agreement.
- Code lacks the flexibility to incorporate nuanced legal provisions, such as “commercially reasonable efforts” or disclaimers for fraud.
A Hybrid Legal-Tech Solution: CyTE
MetaLex (metalex.tech) has developed the Cybernetic Law Token Exchange App (CyTE), an innovative approach that merges traditional and smart contracts. CyTE functions as a decentralized, trustless escrow system for peer-to-peer token transactions while ensuring legal enforceability.
How CyTE Works:
- The initiating party inputs transaction details, including:
- Counterparty information
- Token identity
- Expiration time
- Choice of law jurisdiction
- Dispute resolution method (e.g., arbitration)
- Both parties sign a legal contract on-chain via their wallets.
- The contract is stored immutably on-chain, with an escrow smart contract managing token transfers.
This parallel system ensures that blockchain transactions maintain legal enforceability without relying solely on smart contract code.
The Future of Blockchain Agreements
As blockchain adoption grows, regulatory bodies will need to adapt traditional contract laws to decentralized environments. Hybrid solutions like CyTE, alongside emerging “legal wrapper” tokens, demonstrate promising avenues for ensuring enforceable agreements in Web3 transactions.
By addressing ambiguity and enforcing legal assent, these innovations pave the way for legally sound blockchain agreements, enhancing trust and usability in the decentralized economy.
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