SMART AFTER ALL: BLOCKCHAIN, SMART CONTRACTS, PARAMETRIC INSURANCE, AND SMART ENERGY GRIDS

Blockchain technology—the technology behind Bitcoin—is a secure and resilient mechanism for conducting peer-to-peer electronic transfer of anything of value, with a resulting immutable transaction record. While blockchain is best known for payments and digital currency, one of the blockchain’s “killer apps” will be blockchain-based smart contracts. Blockchain-based smart contracts can be used to automate and execute “ifthen” contractual relationships by coding these relationships onto the blockchain in order to automatically trigger their secure execution. The potential use cases are limitless; blockchain-based smart contracts can be used for everything from automobile leases, to voting, to recording of land titles. A threshold question for the wide-scale use of blockchain-based smart contracts is whether such smart contracts are legally enforceable. This Article argues that existing laws, specifically the federal Electronic Signatures in Global and National Commerce Act (“ESIGN”) and state laws modeled on the Uniform Electronic Transaction Act (“UETA”), render blockchain-based smart contracts enforceable and therefore immediately usable. With the enforceability of blockchain-based smart contracts established, this Article examines potential applications in the insurance and energy industries, in order to demonstrate the utility of such contracts. In the insurance industry, blockchain-based smart contracts can enable the automation of simple life insurance policies, thus reducing costs of administration, and provide a platform for new insurance products such as blockchain-based parametric insurance contracts. Within the energy industry, blockchain-based smart contracts can further enable the adoption of microgrids and technology such as smart meters, which can expand *Alan Cohn is Of Counsel at Steptoe & Johnson LLP and Adjunct Professor, Georgetown University Law Center; he is also an advisor to several blockchain technology companies. Travis West is an Associate at Steptoe & Johnson LLP, Harvard Law, J.D. 2016, and Chelsea Parker is a Project Assistant at Steptoe & Johnson LLP, Princeton University, B.A., 2014. Cohn is co-chair, and West and Parker are members, of Steptoe’s Blockchain and Digital Currency Practice. © 2017, Alan Cohn, Travis West, & Chelsea Parker. GEORGETOWN LAW TECHNOLOGY REVIEW Vol 1:2 274 accessibility to different models of electric power distribution and provide resilience against accidental or deliberate disruption. In this way, blockchainbased smart contracts have the potential to both streamline and increase the efficiency of existing processes and open new models of service delivery. ABSTRACT .............................................................................................................................. 273............................................................................................................................. 273 INTRODUCTION .................................................................................................................... 274 PART I: WHAT IS A BLOCKCHAIN AND WHAT IS A SMART CONTRACT? ....................... 277 Blockchain Defined ......................................................................................................... 277 Blockchain-Based Smart Contracts ................................................................................ 280 PART II: SMART CONTRACTS, UETA, AND ESIGN ......................................................... 284 UETA and ESIGN .......................................................................................................... 286 How Do UETA and ESIGN Apply to Blockchain-Based Smart Contracts ............. 288 PART III: SMART CONTRACTS, PARAMETRIC INSURANCE, AND THE SMART GRID ..... 290 Insurance .......................................................................................................................... 290 Smart Contracts and the Energy Industry ..................................................................... 297 CONCLUSION ........................................................................................................................ 303