On contracts, "smart" or not
"Blockchain" as a technology has started getting popular with the seemingly improbable resilience and rise of Bitcoin.
Yet its popularity really skyrocketed after the successful launch of Ethereum and its "smart contracts". One has to admit that the very name is irresistible and an instant marketing hit. Smart contracts have been attracting lawyers to everything "blockchain" better than a pot of honey would attract cuddly stuffed teddy bears!
I admit I, too, instantly fell for "smart contracts" (cuddly teddy bear that I am). Yet with time, I started seeing, through the marketing snare laid out by their name, "smart contracts" for what they are: just basic pieces of code that are supposed to move "cryptoassets" between blockchain addresses when specific conditions are met ...
"What has that to do with contracts though?", I asked myself
Contracts rely on accountability
Though not a legal professional, I live in a world governed by laws and am able to understand legal concepts. Because this is what contracts are - concepts from the world of law.
In this world of ours - which, by the way, should be praised for creating propitious conditions for some people to become IT professionals and dedicate themselves to studying blockchain - "legal entities" enter into "agreements". "Legal entities" might mean individuals or organisations. And "agreements" often involve "moving assets" from one party in the agreement to the other when specific conditions are met ...
One fundamental difference between a simple "agreement" and a "contract" must be that the latter is enforceable. That means that the world of law has put in place institutions able to assess whether parties to a contractual agreement have kept their respective commitments and provide redress in the contrary ...
Implicit to that functionality is the ability to assign responsibility to well-defined legal entities. Id est the ability to hold accountable well-defined legal entities, whether individuals or organisations.
If you didn't respect a contract you have signed, the legal institutions will seek redress from you.
If a company has not fulfilled its obligations with respect to a contract it entered into, the legal institutions will seek redress from that specific company.
The ability to clearly assign who failed to do what should have been done is essential for the magic of contracts to be able to operate.
Public permissionless blockchains are incompatible with contracts
Think a little bit about the above: for agreements to be enforceable (which is the raison d'être of the contracts), accountability is a sine qua non.
"Social actors", whether individuals or companies or other types of organisations need to be linked, as unambiguously as possible, to their acts (or lack thereof).
On the other hand, the credo of Bitcoin, Ethereum and most other public permissionless blockchains is ... anonymity and privacy ... Protecting the anonymity of those holding the keys to a blockchain address is in the DNA of these networks. To what extent they actually manage to preserve anonymity is irrelevant in this context.
What matters is that they are built with the goal of protecting users from being held accountable.
The reasons for that are the history of the cypherpunk movement and provide some useful context. This lead to an interesting corollary: public permissionless blockchains have been created to provide essential tooling for defying the world of laws.
Thus "contracts" - objects of law - and public, permissionless blockchains such as Bitcoin and Ethereum are, alas, not "awkward companions". They are fundamentally rivals.
For "Smart contracts" on the public Ethereum blockchain to be integrated with our law-governed world, the Ethereum network needs to renounces its claim to being "censorship resistant", anonymous and privacy-enforcing. In other words, it has to betray its founding ethos. Failing that, using the word "contract" is misleading: absent personal accountability, the law cannot reliably enforce agreements.
Bringing blockchain to the law
It is my latest passion and I wrote already about it in my previous post: the "law abiding blockchain". Such a network has to be able to assign responsibility. Such a network needs to be operated and used by "law subjects", whether individuals or companies. Even if the identity of those operators is protected and not freely available to anyone, law enforcement needs to be able to access it under constitutionally sound circumstances.
It follows that the time is right for building new blockchain networks, alongside - but on different principles - than the public, permissionless precursors. Blockchains to be operated by law abiding companies and used by law abiding citizens - even though they are entitled to expect their privacy to be protected.
Other posts you might enjoy:
- Reinvent blockchain
- The Exit Machine
- Individual Responsibility: the S. Zizek vs J. Peterson debate - part 2
- Economic value creation on blockchains
- Understanding blockchain's social impact
- Revisiting Steemland: a fairer and more transparent art market as a new "export"
- Game Theory 102 - Blockchain and Cooperative Games