Property Without Law: Personalized Property Rights Through Smart Contracts on the Blockchain

Emerging technologies for the automatic enforcement of contracts, conventionally referred to as smart contracts, have the potential to realize Professor Alan Schwartz’s ideal of an efficient contract law for sophisticated parties, as they reduce the cost of textualist enforcement, added contingencies, and privately-provided templates, and offer a way to get around mandatory rules relating to such matters as contract modifications, penalty clauses, and substantial performance. They also enable contracting parties to create personalized property rights free of legal restraints. Through automatic enforcement, a contract term can be directly included in contracts with subsequent transferees of the asset. Smart contracts thus turn mere contractual rights into de facto property rights that “run with the (digital) asset.” Breach is made impossible by the very nature of the automatic enforcement system, and notice is assured by distributed and readily accessible ledgers.

Compared to traditional property rights, these “property-without-law” rights are more easily customizable ex ante—as they are not bound by the numerus clausus principle—and stronger ex post—because courts cannot modulate enforcement. We document this phenomenon, explore its potential and vulnerabilities, discuss examples in intellectual property, real estate, organizations, and financial contracts, and re-examine the role of property law in a world where technology, rather than law, turns promises into assets.