Exploring the Applicability of Blockchain Smart Contracts in International Sale of Goods: Opportunities and Challenges Coexist

Exploring the Applicability of Blockchain Smart Contracts in International Sale of Goods: Opportunities and Challenges CoexistBlockchain smart contracts, a typical product of the blockchain 2.0 era, have initially shown their application potential in international sale of goods scenarios, but their applicability boundaries remain unclear

Exploring the Applicability of Blockchain Smart Contracts in International Sale of Goods: Opportunities and Challenges Coexist

Blockchain smart contracts, a typical product of the blockchain 2.0 era, have initially shown their application potential in international sale of goods scenarios, but their applicability boundaries remain unclear. This paper will research the applicability of smart contracts under the United Nations Convention on Contracts for the International Sale of Goods (CISG) based on the international sale of goods scenario, analyze its legal framework and application prospects, and explore its opportunities and challenges in this scenario.

I. Smart Contracts and Blockchain Smart Contracts: Conceptual Differentiation and Legal Applicability Costs

First, we need to clarify the conceptual differences between "smart contracts" and "blockchain smart contracts" and acknowledge their legal applicability costs, contracting costs, and security risks.

1. Conceptual Differentiation: Smart Contracts and Blockchain Smart Contracts

Traditionally, the core characteristic of a smart contract is "automatic performance." In 1996, Nick Szabo first proposed the concept of smart contracts, defining them as "a digitally signed contract that automatically executes the terms of the contract." Szabo used a vending machine as an example to illustrate the fundamental characteristic of automatic performance of smart contracts: a customer's trust in the merchant's fulfillment of the delivery obligation is transformed into trust in "the vending process set by the merchant after the coin is inserted," which means the merchant will not change the pre-set delivery process. This digital commitment based on procedures can improve transaction efficiency, but it may be betrayed due to program errors or malicious modifications by the merchant.

However, the "smart contracts" mentioned today often refer to "blockchain smart contracts." Blockchain technology, characterized by its immutability, decentralization, trustlessness, asymmetric encryption, and timestamps, provides a strong credit mechanism based on technological endorsement for the automatic performance of smart contracts. Using the vending machine example, the inclusion of blockchain technology ensures that customers need not worry about the merchant maliciously altering the set process after it is set, thus safeguarding the customer's rights after payment.

Therefore, differentiating between "smart contracts" and "blockchain smart contracts" and conducting contextualized and typological analysis can help us maintain a cool head, acknowledging their legal applicability costs, contracting costs, and security risks.

2. Legal Applicability Costs: Contracting Costs, Security Risks, and Anonymity

Blockchain smart contracts have high contracting costs and certain security risks, making them more suitable for highly digitalized usage scenarios.

(1) Contracting Costs: The automatic performance characteristic of blockchain smart contracts requires that the code setup be as rigorous and complete as possible in the early stages, with a low tolerance for ambiguous language, making it difficult to leverage the wisdom of "considered ambiguity" in contracting. The expression format of computer code also means there are technical barriers in the review process for both parties to the contract regarding the consistency of their intended meaning and the expression of the code.

(2) Security Risks: Ultimately, smart contracts are computer code, written by humans. Human limitations in rationality mean that code cannot be completely free of vulnerabilities. The Ethereum platform suffered a "TheDAO incident" with significant losses, where hackers exploited the code vulnerability of the DAO smart contract, a venture capital firm, illegally acquiring $50 million dollars. After analyzing nearly 1 million smart contracts at 10 seconds per contract, it was found that 34,200 were easily susceptible to hacking, with 2,365 having obvious vulnerabilities.

(3) Anonymity: Blockchain smart contracts have an anonymous characteristic in their form. Blockchain technology achieves decentralized power descent through distributed ledgers, and this "public disclosure" requires anonymous methods to offset the adverse effects of "disclosure." Through techniques such as public keys, private keys, and digital signatures, parties to a transaction can trade anonymously, thus mitigating the adverse effects of public disclosure on privacy disclosure. This anonymous mode, differing from traditional contracts, makes it difficult to link blockchain accounts to specific personal accounts, leading to greater challenges for counterparties in conducting due diligence before transactions and seeking redress after disputes.

II. Blockchain Smart Contracts and International Sale of Goods: Applicability Analysis under the CISG Framework

As the most widely applicable uniform substantive law in the field of international commercial contracts, the CISG has widespread applicability in international goods trade scenarios. By exploring the alignment of blockchain smart contracts with the CISG, we can better assess the institutional costs of blockchain smart contracts in international sale of goods scenarios, grasp their applicability prospects, and develop a better legal framework for their contextualized application.

1. Applicability of CISG and Legal Justification for Blockchain Smart Contracts

The CISG, characterized by its non-enforceability and neutrality, provides flexible and ample space for the supplementation and adjustment of blockchain smart contracts under the CISG. The CISG prescribes the conditions for the formation of a contract, adopting the "offer-acceptance" model. Blockchain smart contracts can fulfill the function of making an offer to a specific recipient and making an acceptance, meaning that blockchain smart contracts can achieve specific identification of counterparties through procedural language.

(1) Offer and Acceptance of Blockchain Smart Contracts: Take the example of insurance giant AXA's insurance product named Fizzy, which is aviation delay insurance based on the Ethereum public chain. Users pay premiums and make commitments, which can automatically process claims when flight delays exceed two hours. This indicates that current blockchain smart contract applications can issue information to specific counterparties. Unlike traditional contracts, commitments in blockchain smart contracts may require the application of executable code. For example, when Company B decides to accept the offer for the purchase of Echo-Pen by Company A, it needs to execute the transaction through the digital signature provided by the key and express its intention to accept by doing so.

(2) Time of Formation of Blockchain Smart Contracts: For blockchain smart contracts that do not involve traditional contracts, the time of formation of blockchain smart contracts should be clearly defined as the time when the contracting parties take the specific actions required by the contract. For example, when a certain amount of currency is put under code control, the contract is deemed concluded.

(3) Specific Determination of Content of Blockchain Smart Contracts: Blockchain smart contracts can achieve specific determination of content, but due to their coded nature, there may be difficulties in proving the consistency of the code-level meaning with the parties' intended meaning.

(4) Validity Determination of Blockchain Smart Contracts: Article 4(1)(a) of the CISG states that the CISG does not govern the validity of contracts. Therefore, in cases where the CISG does not govern the validity of contracts, the validity of blockchain smart contracts that stipulate the application of the CISG will need to revert to other laws supplementary to the agreement between the parties.

2. Special Issues under the CISG Framework

The special nature of blockchain smart contracts raises special issues with regard to the determination of consent, the determination of the effective date of the contract, the determination of the validity of the contract, contract amendment, the performance of seller's obligations, and the exercise of the right to withhold performance, and relevant rules need to be given consideration.

(1) Determination of Consent: Special care should be taken in determining the consistency between the parties' inner intentions and the code-level expressions. Drawing on the rules for standard-form contracts, it is required that providers of blockchain smart contracts fulfill their obligation to bring to the attention of the other party any clauses that diminish the other party's rights or reduce their own liability, so as to infuse the fairness principle into blockchain smart contracts with their "technocratic" attributes.

(2) Determination of the Effective Date of the Contract: The formation process of blockchain smart contracts is relatively complex, involving negotiation, text-level consistency, and code writing in the early stages. Does the contract become effective when the parties reach agreement on the intended meaning but the code level is not yet fully constructed, or should it only become effective when the code level is fully written and set up? The parties should ideally clearly stipulate the effective date in the contract to reduce uncertainty about the effective date.

(3) Determination of the Validity of the Contract: Blockchain smart contracts anonymize information about the parties in order to offset the "public disclosure" of distributed ledgers. However, this anonymization can also lead to contract invalidity due to the lack of legal capacity of the contracting parties.

(4) Contract Amendment: Blockchain smart contracts have the characteristics of automatic performance and irreversibility, which are the basis for their efficiency but also hinder contract flexibility due to technical limitations. Currently, there are two main ways to amend blockchain smart contracts: pre-defined amendment procedures and the use of new code to overwrite old code. However, both methods have limitations and require further exploration of more flexible amendment mechanisms.

(5) Performance of Seller's Obligations: The anonymity and irreversibility of blockchain smart contracts create tension with the seller's right to warranty obligations. Articles 41 and 42 of the CISG stipulate the seller's right to warranty obligations, which reminds us that even if the quality of the goods meets the contractual agreement, we cannot be sure that the seller is the true owner of the goods. Therefore, automatic performance based on blockchain smart contracts may still not be consistent with the requirements of "complete performance," and the buyer still needs to bear the risk of title defects in the goods.

(6) Exercise of the Right to Withhold Performance: Article 71 of the CISG provides for the anticipatory breach regime, whereby a party to a contract, after the conclusion of the contract, if there is a serious defect in its performance ability or creditworthiness that