CFTC Official Warns Smart Contract Designers Over Predictive Code

Smart contract coders could be held liable if they knowingly use blockchain technology to create functions that are deemed as predictive "Event contracts," according to a U.S. regulator.

Speaking at an event in Dubai on Tuesday, Brian Quintenz, a commissioner at the U.S. Commodity and Futures Trading Commission, explained his views on how old laws can be applied to new technologies such as blockchain and smart contracts.

In his remarks, Quintenz noted that smart contracts can be "Easily customized and are almost limitless in their applicability" to the extent they can even be used to replicate traditional financial instruments.

He pointed out, allow "Individuals to create their own smart contracts predicting future events more broadly."

"Essentially, these contracts would allow individuals to bet on the outcome of future events, like sporting events or elections, using digital currency. If your prediction is right, the contract automatically pays you the winnings," he said.

Quintenz noted these activities could fall under the category of what the CFTC calls a "Prediction market," where individuals use "Event contracts," binary options, or other derivative contracts to bet on the occurrence or outcome of future events.

Event contracts based upon war, terrorism, assassination, or other similar incidents may be contrary to the public interest - in which case, the CFTC can prohibit an exchange from offering the contract."

"If the contract is a product within the CFTC's jurisdiction, then regardless of whether it is executed via a written ISDA confirmation or software code, it is subject to CFTC regulation."

Quintenz went on to add that in hypothetical events of such violations, he believes that smart contract coders who build such functionality on top of a blockchain network could potentially be held responsible and be prosecuted.

Quintenz encouraged smart contract coders to engage with CFTC staff to see if they can offer such products while staying complaint with CFTC regulations.