(Luận văn) smart contract – achievement of blockchain application, loopholes and recommendation for vietnam

MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS lu an n va SMART CONTRACT – ACHIEVEMENT AND RECOMMENDATION FOR VIETNAM p ie gh tn to OF BLOCKCHAIN APPLICATION, LOOPHOLES d oa nl w va an lu ll u nf Specialization: Master of International Trade Law and Policy oi m z at nh z HO MINH KHUE m co l gm @ an Lu n va Hanoi - 2020 ac th si MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS lu an SMART CONTRACT – ACHIEVEMENT va n OF BLOCKCHAIN APPLICATION, LOOPHOLES tn to p ie gh AND RECOMMENDATION FOR VIETNAM nl w oa Major: International economics d Specialization: Master of International Trade Law and Policy lu ll u nf va an Code: 8310106 oi m z at nh Full name: Ho Minh Khue z m co l gm @ Supervisor: Dr Nguyen Ngoc Ha an Lu n va Hanoi- 2020 ac th si i STATEMENT OF ORIGINAL AUTHORSHIP I, Ho Minh Khue, confirm that this Master thesis has been written solely by the undersigned and contains the work of no other person or people except where explicitly identified to the contrary I also state that said Master thesis has not been submitted elsewhere for the fulfillment of any other qualification I make this statement in full knowledge of and understanding that, should it be found to be false, I will not receive a grade and many face disciplinary proceedings lu Signature: an va n Date: 23rd March 2020 p ie gh tn to d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si ii ACKNOWLEDGEMENTS I would like to express my special thanks of gratitude to my supervisor Dr Nguyen Ngoc Ha as well as our principal, Faculty of Graduate Studies and all professors of Foreign Trade University who game the golden opportunity to this wonderful projects on the topic “Smart contract – Achievement of Blockchain application, loopholes and recommendation for Vietnam”, which also helped me in doing a lot of research and I came to know about so many new things I am really thankful to them Secondly, I would also like to thank my parents and friends who helped me a lu lot in finalizing this project within the limited time frame an n va p ie gh tn to d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si iii CONTENTS STATEMENT OF ORIGINAL AUTHORSHIP i ACKNOWLEDGEMENTS ii LIST OF ABBREVIATIONS iv LIST OF TABLE SUMMARY OF THESIS RESEARCH RESULTS v INTRODUCTION .1 CHAPTER 1: UNDERSTANDING OF BLOCKCHAIN APPLICATION AND SMART CONTRACTS 1.1 Definition of Blockchain and how it works lu 1.1.1 History, definition and types of Blockchain 1.1.2 Development of Blockchain recently .13 1.2 Fundamental of Smart contracts 16 an n va p ie gh tn to 1.2.1 Definition, characteristics and mechanisms of Smart contract 16 1.2.2 Benefit and potential application of Smart contract in realistic 23 1.2.3 Overview about challenges of Smart contracts 32 1.3 Detailed challenges .33 CHAPTER 2: SITUATIONS OF SMART CONTRACTS WITHIN CURRENT FRAMEWORKS 36 w d oa nl 2.1 Overview framework and policy of Smart contract in some countries 36 2.1.1 Current legal frameworks in some countries 39 2.1.2 Evaluation .48 2.2 Problematic aspects that arise with Smart contracts 49 2.2.1 Technically difficulty posed by smart contract development 49 2.2.2 Smart contracts and contract law 50 CHAPTER 3: RECOMMENDATION FOR VIETNAM 64 3.1 Actual situation of Blockchain application in Vietnam 64 3.2 Contracts and Smart contracts regulation in Vietnam 67 ll u nf va an lu oi m z at nh z 3.3 Lessons from framework and policy of Smart contracts for Vietnam 71 3.3.1 Principles for the Blockchain Act 73 3.3.2 Issues relate to the law and blockchain 84 3.3.2 Issues relate to smart legal contracts .86 CONCLUSION 89 LIST OF REFERENCES .91 m co l gm @ an Lu n va ac th si iv LIST OF ABBREVIATIONS Abbreviation Description IoT Internet of Things P2P Peer to Peer TCP Transmission Control Protocol PoW Proof of Work DLT Distributed ledger technology PGP Pretty Good Privacy ICO Initial Coin Offering ID Identification DAO Decentralized organizations ie dApp Decentralized applications GDPR General Data Protection Regulation lu No an n va gh tn to d oa nl w 11 p 10 ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si v LIST OF TABLE Table 1.1: Public Permissionless and Private permitted Blockchain Table 1.2: Traditional and smart contracts 23 Chart 1.1: How smart contracts work .19 lu an n va p ie gh tn to d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si vi SUMMARY OF THESIS RESEARCH RESULTS The birth of "smart contracts" have based on developments in the emerging field of Blockchain application: computerized transaction protocols which autonomously execute the terms of a contract With a lot of advantages which I will analyze below, Smart contracts are really offering the promise of increased commercial efficiency, lower transaction and legal costs, and anonymous transacting However, beside of benefits they bring into, there are equally significant lu concerns that smart contracts will encounter considerable difficulty adapting to an current legal frameworks regulating contracts across jurisdictions This thesis hopes va n considers the potential issues, loopholes within legal and practical enforceability p ie gh tn to that arise from the use of smart contracts and gives recommendation for Vietnam d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si INTRODUCTION Importance of the study Blockchain application has been popular, adopted and growing rapidly both in academia and industry This growth is driven by the unique features of Blockchains: providing reliability, integrity, and auditability in a decentralized system Thanks to advantages of Blockchain techonology, such as possible eventdriven, self-executing code statements, smart contracts were born These contracts autonomously execute prespecified tasks, such as settling a contract, by examining changing environmental conditions in conjunction with the contract‘s embedded lu rules Smart contracts are envisioned to have a range of innovative applications, an such as privacy preserving transactive energy systems, asset tracking in the IoT, and va n various financial applications Unfortunately, due to the peculiarities of smart tn to contract platforms and languages, the development of smart contracts has proven to ie gh be a challenging and error-prone process These errors often manifest as security p vulnerabilities, which have led to multiple notable security incidents, with losses in w therange of hundreds of millions of dollars worth of cryptocurrencies oa nl Specially, framework and policy about smart contracts in countries is d uncompleted Although this is not a priori bad nor cause for concern cause lu va an technology has always driven societal change, and the law has a long history and plenty of experience adapting to such change, at the same time, history shows us u nf ll that technology must also be open to adapt to existing law where the law reflects the m z at nh many people using oi values and consensus of society, weakness of them will bring some disadvantages to In this study, I investigated Blockchain technology and smart contracts, z particularly the legal implications of smart contracts I would like to enhance the @ gm understanding of smart contracts by providing an overview of legal issues to smart technology period m co l contracts and some points of my view to recommendations to Vietnam for the 4.0 an Lu n va ac th si 2 Literature review Blockchain and smart contracts have the potential to disrupt several business domains, ranging from supply chain and healthcare to finance and accounting Similar to the status of the internet about two to three decades ago, there is currently tremendous excitement over the potential of Blockchain and smart contracts However, this is a pretty new session, particularly in Vietnam, there is not anything of acts or regulations or researches about them News or information of them is also limited, there is just a article named "Negotiation with code - uncompleted legal issues" on 6th April, 2018 of Civil and Network by Ms Dieu Thao Vu Thi The fields of application of smart contracts are numerous They can be used, lu an at least in theory, wherever economic assets show interfaces to the internet and n va certain events can be verified digitally Thanks to the increasing IoT, this affects tn to more and more areas In addition to the financial and insurance sectors, which have gh been particularly present up to now, smart contracts are suitable for use in areas p ie such as Sharing Economy, Energy, Supply Chain or Identity Control Naturally, w contracts that deal with access to digital content, and are therefore easily oa nl translatable into software, are predestined for smart contracts A noteworthy d example is the distribution of music via Blockchain-based smart contracts an lu Recognizing of importance of Blockchain and smart contracts, there are some u nf va researches in these fields, special in legislation: With smart contracts the drafting stage of the contract ex ante, leading to an automatic execution, will become more ll oi m important than subsequent law enforcement ex post The development of this new z at nh contract concept requires a modification of the applicable contract law is a big question The answer to that depends mainly on how this new way of contracting is z accommodated by existing legal provisions @ gm I can list some researches related to issues, which are: m co (2018) accessed 22 January 2018 l - Cardozo Blockchain Project, Smart Contracts & Legal Enforceability an Lu n va ac th si 78 users, or once it is coded and added to the Blockchain The answer may lie in a broad interpretation of the legal rules discussed above However, it is obvious that these rules not cleanly embrace the concept of smart contracts Remedial Issues A contract can be breached when the debtor incurs in delay, fails to perform the service or executes it defectively What would be more plausible is an improper compliance or unjust enrichment However, breach can still happen, though smart contracts are created specially to avoid it, when a code cannot execute due to a missing input: for example, the executed code is meant to transfer an amount of lu cryptocurrencies but it is not deposited on a special account Also, the smart an va contract can be null when it produces an illegal outcome, like selling drugs or n allowing a minor to buy alcohol To mitigate these problems some actions can be gh tn to taken: • Not only use smart contracts, but also a written contract that has influence over the first one and, thus, minimize the discrepancies p ie w • Write computer codes in a precise way, including variables that can adjust oa nl with the law and its changes Parties are more likely going to set the terms according to the current law and terms that can be accommodated to future changes d lu an • Breach is a serious matter in Contract Law and how it will take place and u nf va outcomes are complicated to entirely predict Then, it is worth to encourage legislators and jurists to intervene in clarifying the consequences ex-ante They can ll oi m be interested in the enforcement of smart contracts because the intent of the parties z at nh is explicitly contained, and courts will have more certainty about it For instance, specific matters in smart contracts can be expressly forbidden (such as drugs), z demand permission and certain requirements to formalize a smart contract (when @ gm selling products of considerable value to not defraud tax 35 payment, block the m co l deposited amount in a special account, etc.), implement a recognition system that detects the violation of laws (like when the interest of a loan become usury) or buying alcohol) an Lu demands identification to prove legitimacy to contract (like not being a minor n va ac th si 79 • Also, ex-post remedies can be a solution when regulation ex ante is not enough, demand compensation for the caused damages Whether ex-ante or ex-post, through regulation or legal action, there not seem to be many differences to the ones applied in conventional contracts What can be said is that in smart contract parties cannot rely on not knowing the terms defined and inserted, because the precision of these will determine the foreseeable outcome By virtue of their nature, smart contracts are also susceptible to a number of problems, each of which give rise to certain remedial issues Smart contracts are essentially computer programs fashioned as conduits for commercial transactions lu They are coded to execute specific instructions using immutable programming an language Once on the Blockchain, smart contracts proceed in enforcing themselves va n Whilst certain parameters may be amendable, smart contracts operating gh tn to within a Blockchain network fundamentally not – perhaps cannot – change Computer code is designed to be finite; once on the Blockchain, it can be extremely ie p difficult and potentially impossible to access and amend a smart contract‘s coding nl w On the one hand, this might be seen as a positive because human error in execution oa is eliminated given that data in a Blockchain ‗is guaranteed to be valid according to d certain predefined rules of the system On the other hand, smart contracts present lu ll u nf correct va an the risk of errors which may not be reversible or which require extensive efforts to oi m Smart contracts therefore give rise to a number of significant remedial issues These contracts are relatively impervious being designed to be ‗permanent‘ in z at nh nature and to integrate smoothly into what is likely to be a voluminous ledger of z transactions on the Blockchain As mentioned earlier, errors requiring correction gm @ may not be reversible, or at the least would likely require extensive efforts to l correct Whereas error correction with traditional non-digital contracts is relatively m co straightforward, the same cannot be said of smart contracts This may present something of a logistical nightmare for courts trying to apply traditional contract an Lu law principle to rectify errors with a smart contract It can be seen that enforcing a n va ac th si 80 judicial order which affects contractual relations may well be far more complex in the case of smart contracts Interpreting Content It is the natural role of the courts to resolve legal disputes between citizens and/or the state Given that contracts are in the domain of private law, when contractual disputes arise it is for the courts to determine the rights and obligations of each party This inherently involves reference to the terms of the contract In the case of a smart contract, however, the terms are encapsulated in computer code that will almost certainly be completely unintelligible to the average lawyer or judge lu Reference to the terms in legible linguistic form (in extrinsic materials such as an va original terms of reference or heads of agreement, negotiation notes, emails etc.) n would also seemingly be barred by the parol evidence rule, which prohibits gh tn to reference to such materials where the express terms have been reduced to a final written agreement An exception here might be that the terms of the smart contract ie p are entirely ambiguous and incomprehensible without reference to such extrinsic nl w materials, in which case the courts may permit resort to them Expert evidence may oa also be required, such as qualified programmers equipped to decipher the smart d contract code In any event, the process of construction is very likely to be slowed lu va an as a consequence of the need to consider both the contract terms as coded into the u nf smart contract (program) and the original, natural contract terms as drafted by the ll parties and/or their lawyers Smart contracts present other difficulties relating to the oi m expression of their content z at nh Another problem would arise where the contract contained a mechanism for z variation, which is a common feature in many commercial agreements It may also gm @ be difficult, perhaps near impossible, to reduce particular scenarios articulated in l contract terms to computer code These clauses could not readily be enforced owing m co to the immutable nature of the Blockchain, and the need for professionals versed in programming (which would likely exclude the parties and their lawyer(s)) to the an Lu work n va ac th si 81 Communicate legal interpretations as broadly as possible When blockchain is added into a law, or when a binding or highly certain interpretation of the law with regards to blockchain is reached, we think it is worthwhile for authorities to make an extra effort to communicate this to the wider community by continuing such efforts in future, through various channels Choose the right regulatory approaches for the question at hand When it comes to regulating new technologies like blockchain, regulators can choose from three basic approaches, each of which has its own advantages and disadvantages They can for instance apply existing laws and regulations as they lu an stand now to the new case This has the advantage of simplicity, but in squeezing a n va new phenomenon into old requirements, regulators could run the risk of negating or tn to watering down those aspects of blockchain that are truly innovative A second approach is to amend existing laws to take into account what makes the new case gh p ie special This can be a pragmatic way forward, though it runs the risk of creating new loopholes, perhaps with unintended consequences Finally, regulators can craft nl w completely new, ad-hoc rules and regulations for specific use cases While flexible d oa and innovation friendly, considering the speed of innovation and the rapid an lu appearance of new use cases, regulators may find it difficult to keep up, or may find va they are creating a confusing jungle of bespoke, even potentially conflicting, new ll u nf rules Our point is that there is no right answer, but rather that clarity on the oi m different ways to approach blockchain regulation can be a good tool in helping policy makers strike the necessary balance between protection and innovation that z at nh they strive for z Harmonise the law and interpretations of it @ gm Whatever approach individual regulators take, we think it crucial that m co l blockchain and smart contract regulation be as harmonised as possible That means sharing definitions – and where possible sharing regulations themselves – as well as its attendant use cases are international by nature an Lu to the extent possible sharing common interpretations Blockchain technology and n va ac th si 82 Help policy makers develop an understanding of the technology Getting it right will require the respective authorities and the full ecosystem to understand this new technology and what can (and cannot) be achieved with it I think education of policy makers is particularly important, and worth the extra effort Education, training, hands-on experience and exposure to the technology and the ecosystem are the best way to provide regulators the tools they need to make the best decisions As a first step, lawmakers should determine whether, under existing laws, software that automatically executes an agreement (if certain conditions are met) is lu deemed to act merely as a messenger of the relevant contracting parties, or whether an va it might be characterised as a contracting party itself (or as its representative or n agent) If existing laws not provide a clear answer, lawmakers may wish to gh tn to consider amending applicable laws to clarify that software acts merely as a messenger or medium of communication in this context Lawmakers should also ie p assess whether existing laws allow for contracting parties to issue conditional offers nl w and acceptances, including via automated software (as would often be the case d oa where parties enter into smart contracts under the Concluding Model) If not, an lu lawmakers may wish to consider amending existing laws to facilitate the use of smart contracts under the Concluding Model, for example to recognise the actions va u nf of the parties in coding software to automatically conclude a contract where ll relevant conditions are met, as the issue of a conditional offer or acceptance m oi Finally, lawmakers should identify whether there are any situations in which the law z at nh requires notices (or other communications relating to contracts) to be issued by a legal or natural person If this is the case, lawmakers should consider whether it z gm @ would be appropriate to amend existing laws to allow such notices or communications to be delivered via software, in the context of a smart contract l regulation: m co A wait-and-see approach on less mature use cases and encourage self- an Lu n va ac th si 83 As regulators know all too well, intervening too early in novel use cases can be counterproductive In less mature blockchain use cases, for example, questions around decentralized autonomous organizations (DAOs), the report suggested that the EU would profit from a wait-and-see approach and only keeping a close eye on developments while the use cases mature Closely monitor developments in less mature use cases and encourage selfregulation As regulators know all too well, intervening too early in novel use cases can be counterproductive In less mature blockchain use cases That said, when it comes lu to new use cases regulators can always support efforts by the industry to self- an va regulate This is often an effective and prudent approach in the early stages of a new n technology, considering the relatively small size of these areas tn to Make use of blockchain as a regulatory tool p ie gh Last but not least, I think an excellent way for regulators to help monitor and w regulate the industry is to get involved themselves This not only has benefits in oa nl terms of education and, as we wrote above, as an indirect method of regulation d through helping to shape the new ecosystem Blockchain also offers potentially lu an powerful new regulatory tools For example, regulators could plug themselves into u nf va new blockchain-based platforms as they come online, unleashing new opportunities to improve the efficacy but also efficiency of their operations - including potentially ll oi m with realtime regulatory monitoring and intervention capabilities By ―getting their z at nh hands dirty‖ now with the technology, regulators will be well placed to take advantage of the opportunities it offers them as these opportunities arise z In summary, as blockchain technology becomes more widely used in support @ gm of new types of decentralised applications and platforms, lawmakers and regulators m co l will increasingly find themselves faced with challenging questions These challenges are healthy and to be welcomed as part of the natural processes of an Lu change in society The law has great experience in successfully adapting to this kind of change, if often at its own pace With a few general thoughts and n va ac th si 84 recommendations for Vietnam policy makers might go about this adaptation over the short to mid-term, I believe that the time smart contracts will approach into the life much more 3.3.2 Issues relate to the law and blockchain Ideally, we believe that if blockchain-enabled markets are to mature, policymakers and businesses must create the rules of engagement together Regulators should provide guiding principles to attract private-sector investors, ensure consumer protection and citizens‘ rights, and provide safeguards against anti-competitive practices Now, we will have a deeper understanding of five topics lu that should be considered while including the law with blockchain technology I an va excluded the discussion of the sixth topic, ―risk to fair competition,‖ to avoid n confusion The reason given is that a blockchain network (a decentralization and gh tn to transparency platform) should lead to the enhancement of efficiencies and could lower boundaries for new competitors to enter old markets p ie w Legal value of blockchain as registries: oa nl To legalize a transaction, it requires legal recognition of blockchain-based d signatures (who did the transaction), timestamps (when it was carried out), lu an validations (who validated the transactions) and ―documents‖ (that is, the data u nf va associated with a transaction or contract) In Europe, such issues are handled under the eIDAS (electronic IDentification, Authentication and Trust Services regulation) ll oi m The situation is more complicated when it comes to eSignatures and eSeals z at nh (signatures of a legal entity as opposed to a natural person) eIDAS recognizes three different levels of eSignatures: (1) simple, (2) advanced, and (3) qualified z Blockchains would appear to meet the technical criteria for (1) simple and (2) @ gm advanced However, to be legally binding, blockchain needs to meet the highest l standard (i.e., (3) qualified) that requires using the services of a recognized Trust m co Service Provider (TSP) or undergoing the arduous process of becoming a transactions not have legal authority by themselves an Lu recognized TSP yourself For this reason, from an eIDAS perspective, blockchain n va ac th si 85 Territoriality: The nature of blockchains may render it difficult to determine in what country damage occurs as a result of conduct on blockchains For this reason, we might need to revisit aspects of European private international law To achieve certainty as to the precise nature and scope of legal relationships on blockchains, a potential approach could be to develop existing legal tools further This makes cross-jurisdictional harmonization important That, in turn, requires regulators and lawmakers to collaborate across national borders to harmonize legal and regulatory regimes, while managing potential risks, including issues of monopolies and market lu manipulation Addressing these would require significant legal and organizational an changes and a mechanism for collaboration to ensure alignment va n Enforceability: tn to Again, the primary concern of blockchain is always surrounding anonymity gh p ie However, the report provided a clear explanation that blockchain could be anonymous in real-time during the transaction, but it is not entirely non-detectable nl w It is not an issue for enterprise blockchain solutions (i.e., permissioned blockchain) d oa because it is mainly designed for identifiable and accountable actors to engage in an lu the network As for permissionless blockchain, it is not true that users who violate va the law on a blockchain are not identifiable or traceable This is because the entries ll u nf in the ledgers are immutable, providing an audit trail and evidence of wrongdoing oi m While not always identifiable real-time of the transaction, given enough time and effort, many parties to a transaction can be unmasked Therefore, at this point, there z at nh is no question of total impunity for blockchain actors It is important to note that the z most popular platforms not support anonymity completely: Bitcoin and gm @ Ethereum Importantly, consumers typically purchase and trade their cryptocurrency l on the crypto exchanges (e.g., Coinbase and Binance), where such crypto m co intermediaries require users to provide real identity during the registration process to adhere to AML and other regulations In this sense, the intermediaries can be an Lu handy regulatory access points, as with any regulatory intervention n va ac th si 86 Liability Two aspects of liability should be addressed: (1) liability of core software developers and (2) liability of network participants generally Based on the report, it suggested that it does not seem appropriate to charge core software developers with responsibility for any unlawful use of an open-source program merely because they are the creators of the tool Blockchain open-source software, similar to all other products, can be used to achieve good and evil goals It is important to note that imposing extended responsibilities on core software developers may drive some of them to escape into anonymity or discourage them from trying to innovate lu Although it is possible to identify the actors in the permissionless blockchain an network, this does require time and effort and is therefore not always practical This va n can, in turn, be an obstacle in enforcing liability (compensation) on actors in tn to blockchain-based networks generally As such, by creating an insurance system in ie gh the permissionless blockchain network (as a party to liable to injured party) would p make the whole system more expensive during the audit trail process nl w Data protection d oa Apart from anonymity concern, as explained before, other considerations are an lu worth to examine For instance, the data provider‘s right to control the data on the va blockchain network can be problematic, including rights to the rectification of ll u nf personal data, to know if one‘s data is being processed and—an issue with smart oi m contracts—the right to be protected from decisions made only on the basis of automated data processing Inspire of these challenges, the findings of the report z at nh remain a positive view on solving these thorny issues in the near future z 3.3.2 Issues relate to smart legal contracts @ gm According to the report, a smart contract could represent a digital asset (i.e., m co l payment, investment, and utility tokens) or an organization (i.e., DAOs), and act as an autonomous agent (e.g., a smart contract with AI features) However, when it an Lu comes to the legality of smart contracts, here are some of the issues that arise: n va ac th si 87 Formal requirements Perhaps in a given jurisdiction, a contract needs to be on paper or be notarized, or maybe not As an example, Swedish law normally accepts oral agreements as valid, but only paper contracts when it comes to real estate At the same time, unlike other countries, Swedish law does not require the use of notaries Similarly, there may be requirements that a contract is in a language that both parties can understand (although English is universally accepted, we cannot assume that all non-English speakers can understand English perfectly) Can computer code be considered such a language? And if so, would we then require ―translations‖ of lu this language into others, like ordinary human language, and thereby also need rules an for what constitutes a legally binding translation of a smart contract to say Finnish, va n German, French or Italian? Another question affecting whether a smart contract is legally binding has to p ie gh tn to Signing requirements do with who ―signed‖ it, and how this signature has been carried out To be legally nl w valid in Europe under the eIDAS, digital signatures on a blockchain must be d oa verified by a trusted service provider An automated smart legal contract requiring an lu such digital signatures will need to be able to ascertain if the signature is valid, if it va refers to the correct person and, if so, if that person has the authority to sign In ll u nf commercial settings, this could mean being able to access company databases or z at nh Immutability of smart contracts oi m some other reliable oracle These, in turn, would need some legal standing The more ―automated‖ a smart contract is, the trickier the legal issues can z become The advantage is that they will execute as written no matter what— @ gm holding, in theory, the parties to their commitments through the inexorable might of m co l code Yet in such cases, what happens from a legal perspective if off-chain conditions change? There might be changes in the law, applicable regulations, in the an Lu business environment, or other relevant spheres that would necessitate a change in the smart contract What legal recourse would the parties have if the smart contract n va ac th si 88 they have deployed cannot be accessed and modified? If appropriate functionality is not included in the code to allow for the adoption of the changes in the legal contract, the smart contract could perform non-valid legal actions Smart contract audits/quality assurance A smart contract might execute as written and yet still behave in ways not foreseen by its writers For this reason, smart contract ―audits‖—often complex, highly technical processes to check for the validity and viability of smart contract code become important That raises the question of whether such audits have to become requirements, or also need legal recognition of some kind to make a smart lu contract valid? This has yet to be decided an n va Legal status, effect and enforceability of smart contracts generally tn to The act of transacting, even if devoid of requiring any element of trust, must gh result in an enforceable change over rights attaching to or deriving from the asset p ie concerned, whether this is a token or is represented by a token For the assets w transacted on blockchains to exist in the real world, they should be vested with oa nl rights in rem d In conclusion, the advancement of the current blockchain technology lu va an becomes more widely used in support of new types of decentralized applications u nf and platforms, lawmakers and regulators should increasingly find themselves faced ll with challenging questions However, these challenges are healthy and will be m oi welcomed as part of the natural processes of change in society for the betterment z at nh z m co l gm @ an Lu n va ac th si 89 CONCLUSION A smart contract, as for what has been argued, complies with the essential elements - consent, object and cause- and form Vietnam Law requires and, therefore, fits under the principals of Contract Law Nevertheless, it is still a new technology and we have a lot to learn That is why it is worth encouraging public authorities and jurists to embrace and adapt to the changes and needs of the blockchain technology and smart contracts, taking into account its particularities, which are not few, in the stages of formation and perfection, performance and breach Most solutions come in comparison to traditional contracts, but it is not lu always possible due to the nature of smart contracts Yet any type of contract is an an va agreement that can be enforced, there are differences regarding the type of contract n In a conventional contract, when breached, the aggrieved party takes legal action gh tn to going to court to demand restitution, a specific performance or pay for caused damages; But when it comes to smart contracts, due to its conditional and self- ie p enforceability nature, the contract would have already been executed or in the nl w process of execution, so the aggrieved party will have to go to court after an d oa improper compliance or unjust enrichment Nevertheless, the breach is a possibility an lu when a code cannot correctly execute due to a missing input, yet smart contracts pretend to avoid these problems For legal security, it is important that legislators va ll u nf and jurists intervene clarifying the consequences ex-ante oi m In the fact that a large part of the population uses these technologies in this type of transactions, such as the use of smart contracts, many legislations not yet z at nh stipulate a legal framework that regulates commercial matters carried out in this z means that allow legal certainty by assuming that those with whom it is treated will gm @ respect their commitments as in conventional agreements Although no doubt that l this type of instruments have multiple advantages such as cost reduction, the m co elimination of intermediaries and the protection of data by being in an encrypted code, we cannot ignore that being a legitimate tool, necessarily in its creation, as an Lu throughout its validity and at the end of it must have legal supervision that allows n va ac th si 90 users to have full certainty that the agreed agreement will have compliance and otherwise must trust that there will be mechanisms to restore arbitrariness As one of the products of Industry 4.0, Blockchain in general and smart contracts in particular is one big step of digital technology in transactions With many advantages, smart contracts can make the world become a better place without profit commissions It is true that blockchain and smart contracts pretend to change the way we use contracts Now, many companies and governments are working on these technologies due to all the benefits it provides, like lowering costs, being more secure, faster and, of course, with certainty However, the main lu downsides to consider is related to the early stage of development and, in particular, an if they can work with the existing laws or need an additional regulation For now, va n the applications will not grab the attention of individuals and be focused on specific tn to business areas, such as banking and insurance We not believe smart contracts ie gh will replace conventional contracts It is an alternative in specific areas that provides p considerable advantages It can contribute to reducing fraud, delays and overall cost w of things So, many experts predict smart contracts will become an important role in oa nl the future for most of the business and management sectors However, nothing is d perfect, Smart contracts still have limitations, especially when the current laws lu va an not have enough time and data to control its limitations On the other hand, with Vietnams‘ abundant human resources, Smart Contracts also makes a lot of people u nf ll lose their jobs By looking specifically, I hope we can find a right path for this m oi technology in the Vietnamese environment z at nh z m co l gm @ an Lu n va ac th si 91 LIST OF REFERENCES (1) Riccardo de Caria, A Digital Revolution in International Trade, The International Legal Framework for Blockchain Technologies, Virtual Currencies and Smart Contracts: Challenges and Opportunity (2) Aaron Wright & Primavera De Filippi Decentralized, Blockchain Technology and The Rise of Lex Cryptographia (3) E Allan Farnsworth, ‗Comparative Contract Law‘ in Mathias Reimann and Reinhard Zimmermann (eds), The Oxford Handbook of Comparative Law (OUP 2016) 901; Arthur von Mehren, ‗A General View on Contract‘, lu International Encyclopedia of Comparative Law: Contract in General, vol an VII/1 (Mohr Siebeck 2008) 19ff.; Caroline Bradley, ‗Private International va n Law-Making for the Financial Markets‘ (2005) 29 Fordham Int'l L.J 127, to tn 158f Tapscott and D Tapscott, ―How blockchain is changing finance,‖ ie gh A Harvard Business Review, vol 1, no 9, 2017 p (4) Tapscott and D Tapscott, ―How blockchain is changing finance,‖ (5) Harvard Business Review, vol 1, no 9, 2017 (6) Nakamoto, S., Bitcoin: A Peer-to-Peer Electronic Cash System, (2008), d oa nl w A lu (7) va an available at: https://bitcoin.org/bitcoin.pdf Ametrano, F M., Hayek Money: The Cryptocurrency Price Stability Solution, u nf ll (August 13, 2016) Available at SSRN: https://ssrn.com/abstract=2425270 or m oi http://dx.doi.org/10.2139/ssrn.2425270 Digital Transformation in Government and Blockchain Technology, speech z at nh (8) delivered by Minister for Cabinet Office Matt Hancock at D Digital Catapult, London on the 26th @ Cross, z Kings April 2016 Available at: ingovernment-and-blockchain-technology m co (9) l gm https://www.gov.uk/government/speeches/digital-transformation- Perugini, M L & Dal Checco, P., Smart Contracts: A Preliminary Evaluation, an Lu December 2015 Available at: https://ssrn.com/abstract=2729548 n va ac th si 92 (10) Szabo, N., Smart Contracts, 1994, unpublished Szabo, N., The Idea of Smart Contracts, 1997 Available at: http://szabo.best.vwh.net/idea.html (11) Richard R Orsinger, The Rise of Modern American Contract Law (2015) www.orsinger.com/PDFFiles/the-Rise-of-American-Contract-Law.pdf (12) Vitalik Buterin, Ethereum White Paper (2014), http://blockchainlab.com/pdf accessed 22 January 2019; for a more detailed explanation of blockchain technology, see, e.g., Primavera De Filippi and Aaron Wright, Blockchain and the Law (HUP 2018) (13) Martin Fries, Smart Contracts: Brauchen schlaue Verträge noch Anwälte (2018) lu an (14) Cardozo Blockchain Project, Research Report #2: „Smart Contracts‖ & Legal n va Enforceability‘ (2018) https://cardozo.yu.edu/sites/default/ Reiner Schulze and Dirk Staudenmayer (eds), Digital Revolution: Challenges for Contract Law in Practice (Nomos 2016) p ie gh tn to (15) Christiane Wendehorst, Consumer Contracts and the Internet of Things in w (16) Stéphane Blemus, Law and Blockchain: A Legal Perspective on Current oa nl Regulatory Trends Worldwide, (2017) d (17) Under German law, the enforcement of such an act is governed by § 888 code lu an of civil procedure (ZPO) which is regulating actions that may not be taken by u nf va others, cf Merih E Kütük and Christoph Sorge, Bitcoin im deutschen Vollstreckungsrecht (2014) ll z at nh 2005; oi m (18) The Law on Electronic transaction No 51/2005/QH11 dated November 29, (19) The Civil Code Law No 91/2015/QH13, The Civil Code Law No z 91/2015/QH13; @ m co l gm (20) The Law on Postal services No 49/2010/QH12 dated June 17, 2010; an Lu n va ac th si