Regulating and Advancing Smart Contracts: A Comprehensive Study of Legal Frameworks, Technological Progress, and International Cooperation

Abstract

Blockchain technology has significantly transformed the financial sector through the advent of smart contracts—self-executing digital agreements that automate and secure transactions via decentralised networks. Despite their transformative potential, the widespread adoption of smart contracts is impeded by regulatory fragmentation, technological limitations, consumer protection concerns, and issues of legal enforceability. This dissertation offers a comprehensive analysis of these challenges and proposes strategies to facilitate the integration of smart contracts into global financial systems. The study begins with an examination of the current regulatory landscape, identifying inconsistencies and gaps that obstruct effective implementation. It underscores the need for regulatory harmonisation and standardised protocols to address legal uncertainties and enhance operational efficiency. Key initiatives for fostering international regulatory collaboration, including information-sharing platforms and cross-border regulatory sandboxes, are evaluated for their potential to streamline compliance processes and improve interoperability. Technological advancements are also a critical focus of this research. The dissertation explores how Layer 2 solutions—such as zk-Rollups and Optimistic Rollups—and emerging technologies like artificial intelligence (AI) and machine learning (ML) can address scalability and efficiency issues. These innovations hold promise for enhancing smart contract performance, security, and adaptability, making them more suited to complex financial transactions. Consumer protection is addressed through an analysis of disclosure requirements, dispute resolution mechanisms, and fairness in smart contract transactions. The study emphasises the necessity of transparent practices and robust protection measures to build trust and foster broader adoption. Finally, the dissertation investigates the legal status and enforceability of smart contracts, advocating for legislative clarity and judicial recognition to provide certainty for stakeholders. It also explores the advantages of international coordination in establishing a consistent legal framework for cross-border smart contract applications. By integrating insights from regulatory, technological, and legal perspectives, this dissertation offers actionable recommendations to support the effective adoption and integration of smart contracts into the global financial ecosystem. It aims to contribute to the development of a more cohesive and innovative financial landscape, driving progress and efficiency in international transactions.