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Law of the Blockchain

Photo by Sebastian Pichler on Unsplash

“Are you planning to follow a career in Magical Law, Miss Granger?” asked Scrimgeour.“No, I’m not,” retorted Hermione. “I’m hoping to do some good in the world!”― J.K. Rowling, Harry Potter and the Deathly Hallows

Almost ten years ago, Satoshi Nakamoto released a paramount document that blueprinted a strange new concept and currency called Bitcoin. Unlike traditional currencies, Bitcoin has no physical form, but is entirely digital, decentralized, and relies upon the mathematical principles of cryptography. The nine-page report evaluates and critiques orthodox systems of finance and goes on to lay a framework for a system of trust-less digital transactions.

Satoshi theorised a world without banks, and Bitcoin was his proof that this was possible.

However, what many failed to predict at the time was that this whitepaper would soon serve as the foundation for the emergence and proliferation of online services utilizing and combining cryptographic and decentralized technologies under the banner of blockchain protocol or decentralized ledger technology.

The public debate as to whether blockchain technology is mere hype or possesses genuine productive merit is a distinction that will ultimately be settled through the emerging possibilities and solutions emanating from the cryptosphere — this newfound, burgeoning tech has introduced many new concepts and words to the technological lexicon, pushing new and potentially disruptive ideas to the verge of global significance. Perhaps we are at the horizon of a swift and necessary evolution of the archaic arms of industry all the way from finance, real-estate and healthcare, to transportation and government.

Here we focus on one such possibility surrounding the implications of decentralization: the upcoming convergence between traditional and newer systems of jurisdiction, all of which center around the blockchain.

Taking Out the Middleman

The Paul Bergrins, John Merritts, Joseph Caramadres, and Jeffrey Wertkins of the world have made a radical series of headlines using the criminal justice system as a basis for publicity and notoriety, largely because between criminal action and judicial consequences exists a chasm of sluggish bureaucracy, permitting these scandals to carry on for months, and as in the case of Bergin, sometimes years. The cracks in the old model only encourage the opportunist with intimate knowledge of the system to take advantage and remain in the shadows until fate says otherwise. And then there are many others like them, the rusted cogs in the machine, invisible due to circumstance, perspicacity, or both.

The grimacing thought of a justice system rife with irony has established a popular desire to bring about changes that may lead to a shift in arrangement between commoner and practitioner of law that is less opaque, arcane, and lethargic, or in the case of blockchain and smart-contract-based legal processes, completely unnecessary. Smart-contracts may be thought of as an agreement written in code (if so-and-so conditions are met, then execute so-and-so instructions), and enable parties to pursue business interests, proffer deals, receive payments, settle disputes etc., without the need for a legal intermediary.

To understand how this might work, let us take the example of a worker, Bob. Bob’s client, Alice, has asked Bob to deliver 12 boxes of goods to a warehouse 200 miles away. Once Bob completes the task, he will be paid. Alice has stipulated a time of 2 days for the delivery but offers a bonus if the delivery happens within a day.

Due to Alice and Bob’s newfound interest in programmable smart contracts, Alice quickly writes a program that will release a payment to Bob upon completion of this task. A simplified version of this program might look like this:

1. IF the 12 boxes of goods have reached the desired location AND2. Delivery has occurred within 24 hours of signing contract, then release Payment + Bonus ELSE 3. IF delivery has occurred within 48 hours of signing contract, then release Payment

The contract is then added to the blockchain and signed by both parties. Alice uses GPS technology to track the shipment. If all things work out, Bob receives his payment automatically once the conditions have been met.

In the same way Bitcoin has eliminated the need for banks and middlemen, smart-contracts do away with the requirement for legal entities such as lawyers; however, we must also consider the fact that smart-contracts are prone to violation. Despite all the attention and hype, it is important to acknowledge their limitations present within the smart-contract and blockchain model. In their present state, smart contracts represent a more sophisticated way of forming incomplete contracts, meaning their terms and conditions, much like traditional contracts, may not necessarily be programmed to include all possibilities arising out of a particular situation or agreement.

For example, what if Bob has a problem while delivering the boxes? What if the delivery location provided by Alice turns out to be incorrect, or the GPS system used by Alice fails to work? What if Bob’s delivery truck meets with an accident preventing Bob from finishing the assigned task in time? Suppose Alice refuses to pay Bob for his failure in achieving the desired outcome, however genuine Bob’s excuse may have been, would there be a way for Bob to receive any sort of justice without resorting to a traditional legal system?

As far as the execution of smart-governance is concerned, an electronic system of arbitration or a system for the resolution of disputes through a trust-less medium seems of utmost importance and almost central to the idea of reducing transaction costs in an organization, market, judicial system, or broadly speaking, the global economy.

In our example, Bob had the knowledge and foresight to add an additional clause to Alice’s contract stipulating an arbitrator that may handle the case if things did not go according to plan. Such a clause for arbitration enables Bob to electronically issue a small bond, or payment, to leverage the help of a predetermined anonymous arbitrator (a person, or service) who goes over the case and selects a winner in whose favour the smart-contract would ultimately execute. If either Alice or Bob are not satisfied with the outcome, they may issue a further, more expensive bond to seek another session of arbitration.

What’s the verdict?

Services such as Kleros and Aragon offer “a decentralized court system allowing arbitration of smart contracts by crowdsourced jurors relying on economic incentives” . A very specific service dedicated to decentralized jurisdiction may eventually witness its applications in a variety of fields ranging from social networks to insurance.

The word blockchain is often construed to be synonymous with transparent. To that effect, many industries whose survival and success lay intertwined with such a characteristic will naturally gravitate towards it. The Industry of Justice, much like its counterparts in commerce, transportation, entertainment, government, and so on, would benefit immensely from the value brought forth by the blockchain.

With all that said, we must always keep in mind that the survival of old institutions depend on the survival of old systems. To paraphrase Planck, no progress may come without funerals. The disruption to hegemony won’t leave everyone happy, but Hermione will have at last had the opportunity to do much good.