Sunday, March 01, 2015

New Legal Regime for Blockchain-based Smart Property and Smart Contracts?

Beyond the already wide-ranging digital currency and financial transaction applications for blockchain technology, there is another class of applications that could allow a complete reconfiguration of law and government. Blockchains are a new form of decentralized information technology, the trustless cryptographic public ledger system that underlies digital currencies like Bitcoin. Some of these potential application in law and government are that in the future, all property (hard and soft assets, and intellectual property) could be registered and transacted via blockchains as smart property. Likewise, all forms of legal agreements, contractual relationships, and governance could be enacted through code-based smart contracts.

An important consideration raised by the possibility of smart contracts and systems of cryptographically-activated assets is whether a new body of law and regulation is required to distinguish between technically-binding code contracts, and more flexible legally-binding human contracts. Contract compliance or breach is at the discretion of human agents in a way that it is not with blockchain-based or any kind of code-based contracts. Since it could be nearly impossible to enforce smart contracts with law as currently enacted (for example, a decentralized program already launched and running is difficult to control, regulate, or sue for damages), the legal framework is essentially pushed down to the level of the contract. It is not that lawlessness and anarchy would ensue with smart contracts, but the implication is that legal frameworks would become more granular and customized to the situation. Parties agreeing to a contract could choose a legal framework just as jurisdiction is selected as a parameter now. Thus smart contracts impact not just property law and contract law, but more broadly the notion of the social contract within society.

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