CYIL vol. 16 (2025)

TOMÁŠ KŘIVKA smart contract operates autonomously, executing its coded instructions whenever the specified conditions are met, without requiring further action or consent from the parties. 15 The key technical feature that creates legal challenges is the immutability of blockchain based smart contracts. Unlike traditional contracts, which exist as text that can be interpreted, modified by mutual agreement, or set aside by courts, smart contracts consist of code that, once deployed on most blockchain networks, cannot be altered or reversed. 16 This immutability is precisely what makes blockchain technology valuable for many applications – it ensures that records cannot be tampered with and that transactions, once executed, are final. However, this same immutability creates profound problems for contract law. If parties discover an error in the code, experience a fundamental change in circumstances, mutually agree to modify their agreement, or if a court determines that the contract is illegal or unconscionable, the smart contract may nonetheless continue executing according to its original programming. 17 While technically sophisticated solutions exist (such as multi-signature mechanisms requiring multiple parties’ approval before execution, time-locks that delay execution or upgradeability patterns that allow code modification under certain conditions), these solutions are not universally implemented and themselves introduce new complexities and vulnerabilities. 18 The automated execution characteristic of smart contracts also raises fundamental questions about the nature of contractual obligation and performance. In traditional contract law, performance is a human act, subject to the performer’s judgment, discretion, and good faith. 19 Contract law recognizes that parties must cooperate in performance, act reasonably to facilitate each other’s performance, and sometimes adapt their conduct to changed circumstances or the counterparty’s needs. Good faith requirements 20 (discussed in detail in Section 4) present significant challenges for automated execution. Smart contracts cannot incorporate good faith considerations but follow their programming automatically, regardless of whether execution would be fair or consistent with parties’ intentions. 21 Furthermore, the transparency of smart contracts is more apparent than real. While the code of a smart contract deployed on a public blockchain is theoretically visible to anyone, understanding ‘what that code actually does’ requires significant technical expertise in computer programming and blockchain technology. 22 For most parties, particularly consumers and small businesses, smart contract code is effectively inscrutable – a black box whose operations they 15 See European Central Bank: Distributed Ledger Technology in Post-Trade Settlement (2016). Available at: . Accessed 18 August 2025. 16 YEUNG, K., ‘Regulation by Blockchain: The Emerging Battle for Supremacy between the Code of Law and Code as Law’ (2019) 82 Modern Law Review 207, pp. 215–225. 17 MIK, A., ‘Smart Contracts: Terminology, Technical Limitations and Real World Complexity’ (2017) 9 Law, Innovation and Technology 269, pp. 280–292. 18 AGOSTINI, L., ‘ Blockchain and Smart Contracts: The EU’s (Lacking) Approach’ (2019) Luiss Guido Carli University, pp. 42–58. 19 UNIDROIT Principles of International Commercial Contracts 2016, Article 1.7 (Good Faith and Fair Dealing). 20 Principles of European Contract Law (PECL), Article 1:201 (Good Faith and Fair Dealing), in LANDO, O. et al. (eds.), ‘ Principles of European Contract Law’ (Kluwer, 2000). 21 PAECH, P., ‘Securities, Intermediation and the Blockchain: An Inevitable Choice between Liquidity and Legal Certainty?’ (2016) 21 Uniform Law Review 612, pp. 625–633. 22 European Law Institute, ELI Principles on Blockchain Technology, Smart Contracts and Consumer Protection (2022), Principles 3.1-3.3. Available at: https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/ Publications/ELI_ Principles_on_Blockchain_Technology_Smart_Contracts_and_Consumer_Protection.pdf. Accessed 18 August 2025.

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