The Compatibility of Smart Contracts with the Fundamentals of Islamic Law of Contracts

Abstract

Blockchain technology has affected many industries, including the financial and legal sectors. It has enabled the emergence of what is known as a "smart contract." A smart contract is code-based agreement that will self-perform once the conditions are met without any need for legal systems or courts, and it cannot be stopped or altered. With this immutability and self- performance nature, smart contracts present many challenges for the legal sector and the Islamic law of contracts. Under Islamic law a contract must have three elements in order to be considered valid: an offer and acceptance, contracting parties and a subject matter. If there was any breach of one of these elements, the contract will be considered void. As a smart contract cannot be controlled by one party and its execution cannot be halted, the party’s legal capacity must be determined before engaging in the smart contract. if one or both parties lack the required capacity at the time the smart contract is formed or executed, the smart contract will execute this void contract. This project aims to explore the nature of smart contracts, identify the legal issues that may arise and investigate to what extent these issues can be tackled within the existing structure of the Islamic law of contracts.