1. Introduction: The New Face of Digital Transformation
With its decentralized structure and immutable records, blockchain technology has begun to reshape many sectors, especially finance. One of its most transformative applications is the use of smart contracts, which promise automated, transparent, and cost-effective execution of transactions. However, how smart contracts align with legal systems — particularly Turkish law and international arbitration mechanisms — remains a developing and complex area.
2. What is a Smart Contract?
A smart contract is a self-executing code written in a programming language that operates on a blockchain network. Once predetermined conditions are met, it performs an action automatically.
Key features include:
- Automated execution
- Immutability
- Decentralized control
- Speed and reduced transaction costs
Yet, these features raise several legal questions, especially regarding how smart contracts can comply with traditional legal requirements such as consent, capacity, form, and interpretation.
3. Evaluation Under Turkish Law
a) Legal Nature and Validity
Under the Turkish Code of Obligations (TCO), a valid contract requires mutual and matching declarations of intent. Although smart contracts do not take the form of a traditional written document, Turkish law embraces freedom of form, meaning a smart contract may still be legally valid if it reflects the parties’ intent and produces legal consequences.
b) Legal Capacity and Representation
While smart contracts are usually entered into by natural or legal persons, sometimes entities such as DAOs (Decentralized Autonomous Organizations), which lack legal personality under Turkish law, may act as parties. This raises concerns about legal capacity and enforceability.
c) Interpretation and Dispute Resolution
Because smart contracts are written in code, interpreting their legal meaning may require technical expertise. However, under Turkish law, courts prioritize the actual intent of the parties when interpreting contracts. Therefore, any legal dispute may require translating the technical code into legal language.
4. Smart Contracts in International Arbitration
a) Embedding Arbitration Clauses in Code
Arbitration clauses can be embedded into smart contracts, such as: “In case of disputes, ICC Arbitration Rules shall apply.” However, for such clauses to be effective, they must be clear, enforceable, and unambiguous.
b) Issues of Jurisdiction and Enforcement
Automating dispute resolution raises procedural concerns:
- How will notice of arbitration be served?
- How will arbitrators be appointed?
- How will evidence be collected?
Traditional arbitration rules offer answers to these questions, but integrating them into code-driven processes presents new challenges.
c) Use of Blockchain Evidence in Arbitration
Blockchain records are timestamped and immutable, making them highly reliable as evidence. While international arbitration increasingly accepts digital evidence, questions may arise regarding its authenticity, relevance, and link to the parties’ intent.
5. Legal Outlook and Future Prospects
- Need for statutory recognition: Turkish legislation does not yet define or directly regulate smart contracts. Legal reform may be necessary.
- Alignment with international standards: Jurisdictions like the EU and UK are drafting regulations on blockchain and smart contracts. Turkey should closely follow these developments.
- Digitalization of arbitration institutions: Institutions like the Istanbul Arbitration Centre (ISTAC) must strengthen their technological infrastructure to handle digital evidence and online proceedings.
6. Conclusion
Blockchain and smart contracts introduce both challenges and opportunities to modern legal systems. Thanks to the form flexibility under Turkish law, smart contracts can be valid legal instruments. However, interpretation, enforcement, and dispute resolution require a hybrid approach integrating legal principles with digital tools.
On the international arbitration front, embedded arbitration clauses, blockchain-based evidence, and online proceedings are becoming the norm. To adapt to this digital era, lawyers, technologists, and regulators must work in coordinationto ensure that innovation complies with the rule of law
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