Are smart contracts legally enforceable?

law and ledger is a news corner focused on cryptocurrency legal news. Kelman Law – A law firm focused on digital asset commerce.

The following opinion editorial was written for Kelman.Law by Alex Forehand and Michael Handelsman.

Can smart contracts be legally enforced?

If you’ve ever asked whether smart contracts are legally enforceable, the answer is often “yes.” However, enforcement depends on traditional contract principles, not just the fact that the contract is encoded on the blockchain. This article provides an overview of smart contract enforcement and practical tips for creating more enforceable contracts.

What are smart contracts and why is legal enforcement important?

A smart contract is a self-executing digital contract stored on a blockchain. Although the code automates enforcement, courts use traditional contract law principles such as offer, acceptance, consideration, and intent to bind to evaluate its enforceability.

Smart contracts signed with cryptographic keys can meet signature intent requirements under UETA and the Electronic Signatures Act. This legal recognition ensures that blockchain contracts are not automatically unenforceable just because they exist digitally.

National approval of smart contracts

Some states have explicitly confirmed the enforceability of smart contracts. for example, Arizona Revised Statutes §44‑7061 It states that the legal effect of a contract cannot be denied simply because it contains smart contract clauses. This law strengthens the legal status of blockchain contracts and provides clarity for both developers and users.

Other states have taken the position that existing contract laws adequately manage the complexity of smart contracts and instead only permit the use of blockchain technology and smart contracts, but do not explicitly recognize their enforceability.

Courts value consent, not just judgment.

Recent case law has shown that courts are focusing more on fundamental issues of consent and control than on technical complexity when evaluating blockchain-based systems.

in Van Loon v. Treasurythe Fifth Circuit concluded that Tornado Cash’s immutable smart contracts could not be treated as “property” because no person or entity exercised the type of control rights traditionally associated with ownership. The court emphasized that this system lacks the essential attributes of ownership or control, since no actor can exclude others from using the underlying contract.

This treatment reflects a broader judicial instinct to view immutable smart contracts as autonomous technological tools rather than traditional contracts rooted in human agency. This distinction highlights the growing need for a clearer legal framework around who and how blockchain-based actions can be enforced, when the code itself operates without a central decision-maker.

Issues with smart contract law

Even if smart contracts are theoretically enforceable under traditional contract principles, they present a set of legal challenges that traditional contracts do not. With valid “terms” embedded in the code, parties can be bound to terms they don’t realistically understand, raising significant questions about whether meaningful consent was reached.

The immutability of many blockchain-based contracts can also complicate liability analysis, particularly for arrangements with no identifiable operator or controlling entity, as highlighted below. CFTC v. Oki DAO (Van Loon) and similar cases investigating decentralized actors.

Some smart contract arrangements may trigger statutes of fraud and require a signed document to be enforceable. In these situations, courts will have to decide whether the on-chain action qualifies as a legally sufficient “writing” since there is no traditional signature or writing.

And while automation may reduce the need for day-to-day human involvement, it will not eliminate conflict. Even if performance issues arise or the code fails to capture the parties’ actual expectations, traditional dispute resolution mechanisms (arbitration, litigation, or contractually defined off-chain governance) should serve as the final backstop.

Practical tips for enforceable smart contracts

To maximize the enforcement power of smart contracts, consider the following:

1. Contains plain language contracts that reflect on-chain code.
2. It uses a hybrid structure that combines off-chain contracts and on-chain execution.
3. Embed a dispute resolution clause for arbitration or court fallback.
4. Verify that your signing mechanism (such as cryptographic keys) is UETA or E-Sign compliant.
5. Implement transparent governance for upgradeable and changeable features.

Conclusion: Are smart contracts legally binding?

Yes, as long as it meets traditional contract law criteria. Courts will enforce smart contracts that demonstrate clear consent, appropriate disclosures, and valid signature mechanisms. The fact that a contract is executed on a blockchain does not automatically give it legal effect.

By combining on-chain automation and off-chain legal clarity, parties can maximize the enforceability of smart contracts while mitigating legal risks in 2025 and beyond.

At Kelman PLLC, we encourage our clients in the digital asset field to remain aware of the ever-changing legal landscape in the cryptocurrency field. We continue to monitor developments in cryptocurrency regulation across jurisdictions and advise our clients as they navigate this evolving legal landscape. For more information or to schedule a consultation, please contact us. here.