Brazil: Smart Contracts Definition and Legality

Smart contracts have not been defined under Brazil’s legal code. However, Brazilian legislators led by Congress legislative adviser Ricardo Fernandes Paixão and university professor Everton Fraga are planning on ways to utilize the Ethereum Blockchain network to store and process electoral votes, as a part of a larger initiative to improve Brazil’s political system. Under these plans, processing petition signatures on the Ethereum network would require smart contracts, and the system would operate similarly as other decentralized applications that exist on the network. The electoral system of Brazil would act as a decentralized application of its own with an independent digital token, that is used to process every vote on the Blockchain. More on this available here.

The dissemination of smart contracts will still face challenges regarding to auditing of their functioning, which will require a joint effort by computer scientists and lawyers alike. The primary functioning of smart contracts may be defined by its non-retroactive nature. This means that once both parts have signed a contract it will be enforced automatically, following only the pre-established orders on the code. If for any reason the involved parts desire to revert the transaction, returning to its status quo, they must engage in a new smart contract in order to do so. In the scope of smart contracts, their efficiency depends on the fulfillment of objective requirements such as possibility, determination and economicity. As they are instantly and fully enforced once they are signed by the involved parties, subjective requirements for their validity have no practical or factual relevance.

Naturally, such an ascertainment goes strongly against Brazilian Law. It is unacceptable to the Brazilian legal system for a contract without validity to be executed with full efficacy without any chance for the parts to claim full or partial nullity due to non-fulfillment of subjective or formal requirements, for two main reasons: i) there is no able time for this to be done after the signing of the contract; ii) after the enforcement of the contract, the goods or values may be in a situation that makes it impossible for the contract to be reversed. From a traditional legal viewpoint, there is no such situation as that described in point ii): once the claim for nullity of a contract is recognized by a judge, he/she may issue a court order forcing the other part to to take the necessary measures for the goods and values to return to the status quo. It just happens that a smart contract creates a possibility in which there is no human part to be coerced and therefore the good or value to be completely out of reach for state jurisdiction. When a smart contract becomes the owner of a purely digital good or value, only a pre-determination by code and technical mechanisms might allow for such good or value to be transferred to someone else.


Previous Section Next Section

Have a comment, edit, or item to add? Share your thoughts by commenting below!

comments powered by Disqus