To review, “smart contracts” are a feature of some blockchain-based systems, which allow an interaction between multiple parties to be encoded as a set of rules which will be executed automatically by the system, so that neither the parties nor anyone else can prevent those rules from being enforced. ... To give just one example, a legal contract need not try to anticipate absolutely every relevant event that might occur. If some weird thing happens that is not envisioned in a regular legal contract, the parties can work out a modification to the contract that seems reasonable to them, and failing that, a judge might decide the outcome, subject to established legal principles. Similarly, a single error or “bug” in writing a regular contract, causing its literal meaning to differ from what the parties intended, is unlikely to lead to extreme results because the legal system will often resolve such a problem by trying to be reasonable. Contrast this with “smart contracts” where a bug in a “contract’s” code can lead to a perverse result that may allow one party to exploit the bug, extracting much of the value out of the arrangement with no recourse for the other parties. That’s what happened with the DAO in Ethereum, leading to a controversial attempt to unwind a legal-according-to-the-rules set of transactions, and dividing the Ethereum community. <http://freedom-to-tinker.com/2017/02/20/smart-contracts-neither-smart-not-contracts/>