Sunday, July 05, 2015

Smart Contract Cryptolaw to accelerate the Automation Economy

Smart contracts are agreements between parties posted to the blockchain, possibly for automated execution. The agreements can be and among humans and technology entities (like machine to machine communications). Smart contracts don't make anything possible that was previously impossible, but rather, allow solving common problems in a way that minimizes trust. Minimal trust often makes things more convenient by allowing human judgements to be taken out of the loop, thus allowing complete automation. Ethereum and Eris Industries are open-source software projects developing smart contract platforms. Some examples of smart contracts are betting on the high temperature tomorrow, without an intermediary, automated mortgage rate resets, inheritance payouts, and peer-to-peer insurance.

Economy Outsourced to Smart Contract DAOs/DACs?
Smart contracts bring up the distinction between technically-binding and legally-binding frameworks, where code contracts run inexorably even if conditions have changed whereas human contracts are more flexibly binding. The quintessential example of a smart code contract is a vending machine. If the vending machine is not broken, every time you put in money, you get your selected item. The machine is not thinking of when or how to comply with your request, there is no discretion, the machine always complies. The key shift is that we want to be aware of is that we are starting to have a world not just where we have vending machines, but where smart contracts might be running big sectors of our economy, for example the whole mortgage industry.

Cryptolaw: intersection of Technological and Legal Frameworks
Cryptolaw then is the intersection of technological and legal frameworks. One key question is whether we want a separate legal system for smart contracts since they may be unenforceable in our current legal system. For example, a decentralized program already launched and running is difficult to control, regulate, or sue for damages. Further, smart contracts impact not just contract law, but the notion of the social contract within society more generally. What kinds of social contracts do we humans want with technological entities?

Compliant and A-compliant Smart Contracts
As with blockchain applications being in two modes, enterprise and individual, the thinking is that there may be two modes of smart contracts: compliant and a-compliant. Compliant smart contracts would have the four parameters of mutual assent, consideration, capacity and legality, and features such as a kill switch, automated consumer protection, assurity funds escrowed, and identity transparency. The other mode, a-compliant smart contracts, would be operating outside but not necessarily in opposition to, the current legal structure. Another way of looking at this is by the counterparty, are these human-human, human-entity, or entity-entity contracts? We may have a future world where there are new forms of legal entity status like personhood granted to smart contract entities like with corporations.

Material inspired by: Primavera de Filippi and Gavin Woods.
More Details: Cryptocitizen: Smart Contracts, Pluralistic Morality, and Blockchain Society

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