Having recently celebrated its ten-year anniversary, Bitcoin should be considered a qualified success. In October 2020, each unit1 was worth about $10,700, and the entire market capitalization was approximately $200 billion.2 Bitcoin is a significant economic force with sizable market value. Despite this success, however, Bitcoin has not been widely adopted as a method of payment, which was its intended use.3 By providing a template for a durable cryptocurrency, Bitcoin also blazed a path for other cryptocurrency projects. In terms of market capitalization and current importance, Ethereum is comfortably in second place.4 In October 2020, it had a market capitalization of approximately $40 billion.5 Unlike Bitcoin, however, Ethereum was not designed primarily to serve as a method of payment. Ethereum supports a system of sophisticated “smart contracts” that would not work on the Bitcoin system. Smart contracts and cryptocurrencies have sparked considerable interest among legal scholars in recent years, and a growing body of scholarship focuses on whether smart contracts and cryptocurrencies can sidestep law and regulation altogether.6 Bitcoin is famously decentralized, without any central actor controlling the system. Its users remain largely anonymous, using alphanumeric addresses instead of legal names. Ethereum shares these traits and also supports smart contracts that can automate the transfer of the Ethereum cryptocurrency (known as ether). Ethereum also supports specialized “tokens” that can be tied to the ownership of assets, goods, and services that exist completely outside of the Ethereum blockchain.

The goal of this Article is to evaluate the degree to which cryptocurrencies and smart contracts can operate outside the reach of law and regulation. By some accounts, cryptocurrencies and smart contracts will revolutionize private law.7 Some argue they have the potential to displace contract and property law. For example, in a previous article, I argued that Bitcoin represents a system of private property that exists wholly outside of traditional legal structures.8 In this Article, I will argue that a complete revolution is not inexorable.9 Facing the technical and complicated nature of this subject, we should keep in mind a simple fact: cryptocurrencies and smart contracts are computer data and computer programs. To a large extent, they will have legal force only if given force by judges, regulators, and legislators. Part II describes Bitcoin and how it creates a system of property that exists outside of legal structures. Bitcoin is special because it controls no external assets (like securities, dollars, or gold). It is purely “notional” property that exists only on a computer file. Part III describes Ethereum and how it builds upon the principles of Bitcoin. The primary innovation of Ethereum is smart contracts, which allow for variable and conditional transfers of cryptocurrency.

To be of commercial value, however, smart contracts must incorporate economic or financial information (e.g., interest rates or exchange rates). Ethereum allows users to incorporate this information using third party “oracles.” While oracles allow for sophisticated transactions, their presence illustrates some of the limits of smart contracts. Part IV extends the discussion of Ethereum and explains how many developers use it as a way to effectuate property transactions. Tokens are specialized smart contracts used to represent ownership of assets or certain privileges. Conceivably, ownership in any asset— homes, cars, etc.—could be represented by Ethereum tokens. Rather than using a deed of transfer, owners could simply transfer the representative tokens. Part V develops what this Article calls a “remote-computer model” of Bitcoin and Ethereum. Because Bitcoin and Ethereum are computer programs and computer data, we can view each as constituting a single computer. This hypothetical computer is remote in the sense that judges, regulators, and legislators can exercise little control over it directly. The remote computer controls ownership of cryptocurrency units, leaving direct cryptocurrency transactions outside the scope of traditional legal institutions. That being said, smart contracts often purport to control external resources and rights. For example, a smart contract might purport to control the transfer of land or stock in a corporation. These transactions have effects outside the hypothetical remote computer and can potentially be subject to control by legal institutions.