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3/5 Bitcoin and the connection to contracting

By Craig Wright | 15 Jul 2017 | Bitcoin & Blockchain Tech

What is an “Electronic Contract”?

When contrasting contractual principles, it is clear that unless a contract is required to be in writing (Columbia Law Review, Apr., 1929 Pp. 497–504; Columbia Law Review, Jun., 1907, pp. 446–449; McKendrick, E, 2005, p 184), that little additional uncertainty could be created where the contract is completed electronically. In fact, electronic evidence must hold greater weight than verbal evidence (Lord Justice Auld, Sept 2001, Cpt 11). What is not clear is the extent of the weight attached to the various forms of electronic evidence. The strength of a digital signature algorithm and the security surrounding the mechanisms used to sign an electronic document will respectively influence the weight associated with any piece of electronic evidence. The nature and form of the signature will also influence the weight that the court attaches to it. Attached signatures would clearly be simpler to attribute and hence hold a greater evidentiary weight.

It has been argued that the digital contract may appear on the computer screen to consist of words in a written form but merely consist of a virtual representation (Allison et al, 2003). The ECA has removed the uncertainty and doubt surrounding the question as to the nature of electronic form used in the construction of a contract. In this, the ECA specifies that the electronic form of a contract is to be accepted as equivalent to a contract in writing. The result of this legislation and the subsequent case law is that payment to a merchant who offers to accept consideration by the exchange of peer to peer electronic cash (in the form of Bitcoin) remains clear in at least the basic uses of Bitcoin for a simple exchange.

An electronic contract has a twofold structure. When it is thought of electronically, the contract is a sequence of numbers and code saved to some electronic or magnetic medium. In the case of Bitcoin, this is documented widely on the Blockchain in a manner that cannot be redacted nor altered. The contract becomes perceptible through a transformation of the numeric code when broadcast to a computer output device such as the Bitcoin wallet (Bainbridge, 2000; Reed, 2004; Brownsword, 2000). Prior to the passing of the ECA, this dichotomy exasperated the uncertainty contiguous with whether an electronic contract can be regarded as being a contract in writing.

The English legal doctrines of offer, acceptance and consideration when coupled with an intention to create legally binding relations define the necessary conditions for the creation of a contract. There is no necessity for the most part [Excluding contracts such as for the transfer of real property, which are covered by a variety of specific acts] that any contract be concluded in writing.

The question as to whether contracts performed electronically are legalistically equivalent to writing comes more to a question of evidential weight and the application of the parole evidence rule (Durtschi, 2002; Lim, 2002). By stating that electronic contracts are equivalent to writing, the ECA has in effect, forbid the introduction of extrinsic evidence which could change the terms of the electronic contract.

The question would remain as to a determination of whether the electronic communications contain the final agreement between the parties. Where some, though not all, of the terms are agreed in the electronic communication, a partial integration will result in the allowing of extrinsic evidence (Treitel, 2003).

The ECA did little to suppress the disputes surrounding the evidential weight attached to an electronic signature due to the receipt of several objections [Eg., London Borough of Newham for the National Smart Card Project (2003)] prior to the passing off the bill. Accordingly, when the Act was passed on 25 May 2000 its provisions as to the weight of electronic signatures did not meet the objectives of the EC Directive on Electronic Signatures and where less detailed. Section 7(1) provides:

‘In any legal proceedings-

(a) an electronic signature [176] incorporated into or logically associated with a particular electronic communication or particular electronic data, and

(b) the certification [177] by any person of such a signature, shall each be admissible in evidence in relation to any question as to the authenticity of the communication or data or as to the integrity of the communication or data.’