Law and Ledger is a news segment focusing on crypto legal news, brought to you by Kelman Law – A law firm focused on digital asset commerce.
The following opinion editorial was written by Alex Forehand and Michael Handelsman for Kelman.Law.
Can Smart Contracts Be Enforced Under the Law?
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 a contract is coded on a blockchain. This article provides an overview of smart contract enforceability and practical tips for drafting contracts that are more likely to be enforceable.
What Are Smart Contracts and Why Legal Enforceability Matters
A smart contract is a self-executing digital agreement stored on a blockchain. While the code automates performance, courts evaluate its enforceability using traditional contract law principles: offer, acceptance, consideration, and intent to be bound.
A smart contract signed with a cryptographic key can meet the intent-to-sign requirement under UETA and the E-Sign Act. This legal recognition ensures that blockchain contracts are not automatically unenforceable just because they exist digitally.
State Recognition of Smart Contracts
Some states have explicitly confirmed smart contract enforceability. For example, Arizona Revised Statutes §44‑7061 states that a contract cannot be denied legal effect solely because it contains a smart contract term. This statute strengthens the legal standing of blockchain agreements and provides clarity for developers and users alike.
Other states have taken the stance that existing contract law adequately governs the complications of smart contracts, and, instead, merely recognizes the use of blockchain technology and smart contracts, without expressly granting their enforceability.
Courts Focus on Assent, Not Just Code
Recent case law makes clear that, when evaluating blockchain-based systems, courts focus less on technical complexity and more on the fundamental questions of consent and control.
In Van Loon v. Department of the Treasury, the 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 dominion traditionally associated with ownership. The court emphasized that no actor could exclude others from using the underlying contracts, and therefore the system lacked the essential attributes of something that can be possessed or controlled.
This treatment reflects a broader judicial instinct to view immutable smart contracts as autonomous technological tools rather than as conventional agreements rooted in human agency. That distinction underscores an emerging need for clearer legal frameworks to address how—and against whom—blockchain-based conduct can be enforced when the code itself operates without a centralized decision-maker.
Challenges in Smart Contract Law
Even when a smart contract is theoretically enforceable under traditional contract principles, it raises a set of legal challenges that do not arise in conventional agreements. Because the operative “terms” are embedded in code, parties may be bound by conditions they never realistically understood, raising real questions about whether meaningful assent occurred.
The immutability of many blockchain-based contracts can also complicate liability analysis—particularly in arrangements with no identifiable operator or controlling entity, as highlighted in CFTC v. Ooki DAO (Van Loon) and similar cases examining decentralized actors.
Some smart-contract arrangements may also trigger the statute of frauds, requiring a signed writing for enforceability; in those contexts, the absence of a traditional signature or written instrument forces courts to decide whether on-chain actions constitute a legally sufficient “writing.”
And while automation may reduce the need for day-to-day human involvement, it does not eliminate disputes. When performance misfires, or when code fails to capture the parties’ actual expectations, traditional dispute-resolution mechanisms—arbitration, litigation, or contractually defined off-chain governance—must still serve as the ultimate backstop.
Practical Tips for Enforceable Smart Contracts
To maximize smart contract enforceability, consider:
- Including a plain-language agreement that mirrors the on-chain code.
- Using a hybrid structure that pairs off-chain contracts with on-chain execution.
- Embedding dispute-resolution clauses for arbitration or court fallback.
- Ensuring signing mechanisms (e.g., cryptographic keys) comply with UETA or E-Sign.
- Implementing transparent governance for any upgrades or mutable features.
Bottom Line: Are Smart Contracts Legally Binding?
Yes — when they meet traditional contract-law standards. Courts enforce smart contracts that show clear consent, proper disclosure, and valid signing mechanisms. The fact that a contract executes on a blockchain doesn’t automatically give it legal force.
By combining on-chain automation with off-chain legal clarity, parties can maximize the enforceability of smart contracts while mitigating legal risk in 2025 and beyond.
At Kelman PLLC, we encourage clients in the digital-asset space to stay closely tuned to the ever-changing legal landscape of the crypto space. We continue to monitor developments in crypto regulation across jurisdictions and are available to advise clients navigating these evolving legal landscapes. For more information or to schedule a consultation, please contact us here.
