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. http://www.slideshare.net/lablogga/blockchain-consensus-protocols

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

Counterparty/Ethereum: Why Bitcoin topped $450 today (was under $350 last week)

In the heated development space for Bitcoin 2.0 protocol projects (Figure 1), on November 12, 2014, Counterparty announced that they ported the open-source Ethereum programming language onto their own platform. Ethereum is regarded as one of the most advanced Bitcoin 2.0 projects, a general-purpose Turing-complete cryptocurrency platform. Turing-complete in this sense means able to run any cryptocurrency protocol and any cryptocoin, essentially a universal crypto-platform (the platform wins, not any specific cryptocurrency). Now Counterparty can do this too, serve as a Turing-complete platform, and possibly in a better way than Ethereum since Counterparty is already running on the existing architecture, the Bitcoin blockchain (with 90% cryptocurrency market cap), the de facto standard, already-launched, worldwide, secure platform.

Figure 1: Sample List of Bitcoin 2.0 Protocol Projects. 

(Extended from work by Piotr Piaseki)

This is Good News for All Parties (not just Counterparty): Bitcoin 2.0 is Just Beginning 

This does not mean 'game-over' for Ethereum, or 'game-won' to Counterparty. It is a sign of the dynamism in the space and the rapid innovation that open-source software communities enable (both Ethereum and Counterparty's software is all open-source). Every different project is able to examine and work with the code of the other projects and bring in any and all implementations. It means that good ideas can take seed more rapidly, be improved through iteration, and allow space for the next good ideas. Ethereum and Counterparty both have deep visions for the whole future architecture of the blockchain, and establishing early 'plumbing' foundations can help everyone progress to the next levels. In the seething hive of Bitcoin innovation, these kinds of announcements would be expected to continue, both since the blockchain industry is in early stages of development, and especially due to the open-source code liquidity of the industry.

Smart Contracts

The great benefit is that now Counterparty may be able to quickly launch the ability to do smart contracts on their platform, since Ethereum is known for its intricate focus on smart contract functionality. Smart contracts is the capacity to do more elaborate transactions on the blockchain, moving beyond simple buy-sell currency arrangements to more sophisticated contracts such as a loan with ongoing payments and interest rate resets. However, even before the Ethereum port, Counterparty did have some degree of smart contract capability (certainly for the basic smart contracts that are not even yet widely-used), as does the Bitcoin blockchain itself, and other solutions like Colored Coins and Coinprism. Other Bitcoin 2.0 protocol projects such has Ripple have their own smart contract facility, Codius.

The key point is that the blockchain industry is currently building out the infrastructure, the enabling layers in a protocol stack, the plumbing of the new layers of the Internet. There is tremendous functionality fungibility across blockchain protocols and platforms. In the blockchain plumbing layer, it might be possible to do some degree of smart contracts and tokenized altcoin issuance and multi-sig wallets on all cryptoplatforms. The questions are therefore 1) which Bitcoin protocol 2.0 platforms will emerge as standard after the intense innovation and development phase, and 2) which platforms will prove to be the most secure and raid/theft-free, and 3) at the higher level, which will be the new value-added services (the Netscape, Amazon, and Uber of the future) built atop the Bitcoin protocol plumbing protocol layers.

Take-Away Message 

The important take-away message is that the Bitcoin 2.0 protocols space may only heat up with more announcements to be expected, and more projects forming, merging, dying, and cross-implementing. Also that there could continue to be substantial volatility in the price of Bitcoin. The Counterparty announcement should be seen as support for the overall blockchain industry and underlines the clear demand to move beyond Bitcoin 1.0 currency (even as this segment is still developing) to Bitcoin 2.0 contracts. This has always been part of the initial vision set forth by Satoshi Nakamoto:

"The [Bitcoin] design supports a tremendous variety of possible transaction types that I designed years ago. Escrow transactions, bonded contracts, third party arbitration, multi-party signature, etc. If Bitcoin catches on in a big way, these are things we’ll want to explore in the future, but they all had to be designed at the beginning to make sure they would be possible later." (Nakamoto). 

Reference: Nakamoto, S. (2010). Re: Transactions and Scripts: DUP HASH160 ... EQUALVERIFY CHECKSIG. Bitcointalk.