Smart contract platforms != Law

…Smart contracts as law?

EtherScripter is out. Not too shabby.

But then there’s this:

“Traditional law is a form of agreement. It is an agreement among people and their leaders as to how people should behave. There are also legal contracts between individuals. These contracts are a form of private law that applies to the participants. Both types of agreement are enforced by a government’s legal system.

For example, if you loan someone money and they don’t pay you back, you might take them to court. In practice, this is messy and unpredictable. Court cases require expensive lawyers to argue about the law, are often measured in years and even if you “win”, you have the problem of collecting.

Hopefully you wrote down the terms of that loan as a contract. However, the authors of laws and the writers of contracts face a special kind of challenge. Ideally, there should never be any confusion about the meaning of the agreement. But laws are written with words, and words are famously imprecise.”

Indeed they are. Imma let you finish, but Led Zeppelin IV was the greatest album of all time. Continuing:

“In a world where private and public law can be perfectly observed and enforced, a lot becomes possible. You might imagine a town defining all its local laws in EtherScript. New laws and modifications could only be made by a voting system defined by the town Charter, also written in EtherScript. Residents could have perfect certainty about how laws apply to them and how they are enforced when choosing to live there.”

I’m currently working on an article with David Mondrus for Bitcoin Magazine on this very topic and correspond – several times daily – with people developing DAOs. For now, though, just a couple of comments.

Will smart contract functionality and blockchains render government obsolete? Would we rightly call them law? 

….Probably not

In my view, no.

That’s not to say that smart contracts couldn’t change the existing legal order – or rather, the existing legal order would change to wrap itself around them – or that they couldn’t co-exist. Certainly they could. All new technologies have the law wrap around the human behaviours to which they give rise, one way or another, whether by recursion (litigation) or by statute.

It’s worth noting there’s a school of thought called legal pluralism, to which I subscribe, which holds that legal rules are capable of arising from a range of sources while existing concurrently in the same territory. I highly recommend Werner Menski’s work on the subject if you’re interested in finding out more. Formal and informal norm- or rule-based systems can compete; customary and positive law have existed side-by-side in developing nations for years, with different countries recognising/incorporating customary rules for formal purposes to varying degrees, with mixed results.

More deliberate experimentation in occidental systems is being advocated today from more libertarian quarters, with an emphasis on the use of technology; see, e.g., my friend Zachary Caceres’ work at the Startup Cities Institute in Guatemala as a particularly good example (and see projects like the Honduran ZEDE to get an idea of the sort of thing they want to achieve.)

Code can play a part in this evolving legal framework, but there’s no way it’ll replace law in toto.

Codification != code

Law’s wetness is intentional: the rules are designed to take into account qualitative considerations which are not easily reducible to code. Take for example EmpoweredLaw’s Pamela Morgan, and her proposal for a wills registry. These documents are often executed by people at the end of their lives, who may be suffering from a number of health issues including cognitive deficits.  Generally, private individuals executing wills under those circumstances ought to ensure a doctor or lawyer is present to confirm the testator still has testamentary capacity, and (e.g.) do so in the presence of two witnesses who also sign: elements which are designed to withstand a deposition or cross-examination in the event of a challenge. Before that platform gets deployed, you need to deal with a great many real-world considerations. A fully autonomous DAO isn’t well suited to that.

And yes, words are “famously imprecise.” But this too is deliberate: words mean different things under different circumstances. “XYZ Corp must have all necessary licences and approvals to operate and perform the obligations under this agreement” means a very different thing on the day it’s signed than it does several years later when the relevant regulatory regime has been legislatively rewritten beyond recognition. A default trigger based on a borrower’s solvency (or lack thereof) can be interpreted in several different ways, depending on prevailing accounting methods or a rapid change in the value of the borrower’s assets. And so it goes.

Can you design a DAO that doesn’t build in a backdoor for the developer to step in and give effect to a court order, and is totally autonomous? Of course you can. But commercially, why would you want to?  Consumers want accountability when something goes wrong, and devs, if you develop a DAO that goes horribly wrong, you may be liable when your critter goes off the rails on account of some unforeseen exploit or a mistake (even if you’re not responsible, you might still get sued anyway).

In sum, DAOs are great, but if you don’t write in flex, you get a pretty crappy commercial contract.

So if they don’t replace the law, what will a smart contract platform do? Clue’s in the name. England has a fair and ancient legal system with highly developed contract jurisprudence which would quite readily countenance a DAO possessing a developer backdoor (I’m informed a couple of other  countries recently acquired legal systems as well). I highly recommend using these legal systems, at least to start out, rather than writing one of your own. It’ll make life much easier.

PJB

 

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