Developments in technology are transforming every aspect of life day by day, and as an inevitable result of this transformation, a new procedure is emerging in the forms of contract formation, separate from classical contract law.

Stating that traditional contracts could not meet the needs of the day in the 1990s and that the software was faster and more reliable, Nick Szabo first put forward the concept of smart contract.[1] Smart contract is a new form of technology-based contract that has all the conditions of a contract and ensures the performance of the action without any intermediary. With its unchangeable nature, in which external intervention is very difficult, in other words, the smart contract ensures transaction security as well as transparency.

Smart contracts in the EU Data Law, dated 22.12.2023 and will come into force on 12.09.2025;

It is defined as “a computer program used for self-execution of a contract or part thereof, which uses a set of electronic data records and ensures their integrity and accuracy of chronological order.”[2]

For example; The buyer who purchases a novel as an e-book undertakes to pay the sales price with the sales contract, and the seller undertakes to send the book to the buyer. However, it is possible that the seller does not make the book available to the buyer even though the sales price is paid by the buyer. Smart contracts, which eliminate the risk of the other party not fulfilling its debt, automatically make the book available to the buyer if he pays the sales price, without the need for any intermediary or approval.

Another frequently given example is that after the price of a product is placed in the hopper, the vending machines give the relevant product to the buyer upon the command given by the buyer. If you pay attention, unlike the classical sales contract, it is not the seller who performs the action. Once the buyer pays the sales price, the data activates the codes containing all the provisions of the contract and the delivery of the product is carried out without requiring the seller’s approval.

As can be seen in both examples, smart contracts ensure that if one party fulfills its contractual debt, the other party automatically fulfills its debt. Therefore, since it is not possible not to fulfill the obligation, smart contracts are a new field in which the provisions of Enforcement Law, which provides the performance of the obligation through compulsory execution in case the debt is not fulfilled, will not be applicable.

On the other hand, smart contracts are capable of eliminating the power of states to use force in terms of debt performance. So much so that smart contracts, which automatically ensure the performance of the debt, replace the state’s power to use force. Therefore, states, as intermediaries with the power to use force in the performance of the action, will not be able to use this authority in any transaction based on a smart contract. In this respect, smart contracts are an exception in the field of Enforcement Law.

Smart contracts, which operate without any authority and consist of a series of automatic codes, already signal that they will form the basis of more and more transactions day by day. It is envisaged that the land registry, motor vehicle registry and trademark and patent registry records, which are a condition for validity in the establishment of real rights, will be kept on the blockchain in the near future.[3] Therefore, in addition to transforming the way we establish transactions, smart contracts will make it possible to establish real rights over movable and immovable properties without the need for reliable third parties such as public institutions and notaries.

In addition to eliminating intermediaries, the smart contract also provides the advantage of being cost-free, as it eliminates the costs of lawyers and notaries during the preparation of a contract. It also saves time since the documents related to the contract will be automatically generated through the codes in the system. On the other hand, smart contracts are safe because they ensure the establishment of the transaction with immutable codes.

The most distinctive feature of smart contracts is their immutable nature. In smart contracts, whatever is placed in the code is what is executed. As a rule, it is not possible to undo the transaction or change the blocks. However, the information loaded into the code may be incorrect or there may be errors in the code itself. When such a situation is encountered, legal action may be taken to resolve the dispute. It should be noted that when resorting to legal action, problems such as not knowing the identity of the defendant or not being able to determine which country’s court is competent may be encountered, since the nature of the smart contract is suitable for establishing a contractual relationship between people who do not know each other.[4]

Although the judicial remedy is not functional, in case of a conflict between the smart contract provisions, regulations can be made that require changes to the contract or pave the way for the termination of the contract. Secondly, the parties can include a third party in the contract and require the signatures of two people for the execution of the smart contract. In such a case, if a dispute arises, the dispute will be resolved in line with the party in whose favor the third party decides. Thirdly, a disconnection feature can be added to smart contracts if agreed upon situations occur.[5]

In conclusion;

As can be seen, smart contracts, which appeared for the first time with technological developments, eliminate the state and other reliable third parties from being an intermediary in transactions. At the same time, it reinforces the existence of the Neoliberal system, which advocates the thesis that the state should shrink. In addition, although it is still in its infancy, smart contracts are a procedure used in many areas from the insurance sector to the supply chain sector and will obviously have a more widespread use in the future. It will bring with it new applications that we are not legally familiar with, both in the field of enforcement law and in the establishment of real rights. It is already possible to predict that doctrine and judicial decisions will be formed in the future regarding smart contracts, which we have not seen many examples of in legal disputes since they are still a new development.

[1] Murat Gülec, FinTech Istanbul, Akıllı Sözleşme Nedir, Nasıl Calısır, 2022,  https://fintechistanbul.org/2022/06/03/akilli-sozlesme-smart-contract-nedir-nasil-calisir/

[2] Regulation (EU) 2023/2854 of the European Parliament and of the Council of 13 December 2023 on harmonised rules on fair access to and use of data and amending Regulation (EU) 2017/2394 and Directive (EU) 2020/1828 (Data Act) https://eur-lex.europa.eu/eli/reg/2023/2854/oj

[3] Murat Gülec, FinTech Istanbul, Akıllı Sözleşme Nedir, Nasıl Calısır, 2022,  https://fintechistanbul.org/2022/06/03/akilli-sozlesme-smart-contract-nedir-nasil-calisir/

[4] Aybüke Uzunpınar Tüfek, Akıllı Sözlesmelerde Esneklik İhtiyacı: Akıllı Sözlesmelerin Degistirilmesi ve Sona Ermesi 2023, https://akillisozlesmeler.bilkent.edu.tr/2023/12/akilli-sozlesmelerde-esneklik-ihtiyaci-akilli-sozlesmelerin-degistirilmesi-ve-sona-ermesi/

[5]Aybüke Uzunpınar Tüfek, Akıllı Sözlesmelerde Esneklik İhtiyacı: Akıllı Sözlesmelerin Degistirilmesi ve Sona Ermesi 2023, https://akillisozlesmeler.bilkent.edu.tr/2023/12/akilli-sozlesmelerde-esneklik-ihtiyaci-akilli-sozlesmelerin-degistirilmesi-ve-sona-ermesi/