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166 U. Pa. L. Rev. 263 (2017-2018)
Smart Contracts and the Cost of Inflexibility

handle is hein.journals/pnlr166 and id is 267 raw text is: COMMENT SMART CONTRACTS AND THE COST OF INFLEXIBILITY JEREMY M. SKLAROFFt Smart contracts are decentralized agreements built in computer code and stored on a blockchain. Proponents imagine a future where commerce takes place exclusively using smart contracts, avoiding the high costs of contract drafting, judicial intervention, opportunistic behavior, and the inherent ambiguities of written language. These decentralized code-only contracts are part of a decades-long quest to eliminate supposed inefficiencies in traditional written agreements. Electronic data interchange (EDI), a contracting technology from the 1970s, was designed with the same goal and garnered similar fanfare. Commentators at the time imagined a revolution in the way firms transacted and afull shift away from anything resembling a paper contract. Ultimately EDIfailed to achieve these goals-it empowered, rather than circumvented, human decisionmakers along with their inefficient way of forming agreements. In doing so, EDI successfully reduced some transaction costs while preserving efficient forms of contractual flexibility. Smart contracts are indeed more technologically sophisticated than EDL Smart contract scripting languages offer a broader range of operations and greater scalability. Smart contracts are capable of seamlessly integrating with the operational and financial systems at the core of modern firms, whereas EDI transactions occurred in very early digital environments that required human intermediaries. Proponents of t Senior Editor, Volume 166, University of Pennsylvania Law Review. J.D. Candidate, 2018, University of Pennsylvania Law School; M.B.A. Candidate, 2018, The Wharton School; B.A. 2011, Columbia University. This piece would not have been possible without the guidance, advice, and support of Professor David Hoffman, who labored over many drafts of this Comment and offered invaluable suggestions throughout. Reuben Grinberg of Davis Polk & Wardwell provided thorough feedback and helped me understand the technical aspects of blockchain and cryptocurrency. Many thanks are due to the editors of the University of Pennsylvania Law Review, particularly Paul Stephan and Ian Weiss, who worked on this Comment. Finally, I am deeply grateful to my family-JBS, ASC, and JDS-for their unwavering support and for always encouraging me to follow my passion, wherever it may lead. (263)