"Crypto’s Founding Fallacy: How mistakes in the 'smart contract' genesis block weaken the whole chain"
Via Medium:
Regardless
of how strong or immutable their code, today’s “smart contracts” (and,
by extension, entire crypto ecosystems) are built on a shaky conceptual
foundation.
Crypto’s
founding fallacy is over-reliance on a doctrinally-flawed conception of
contract and law advanced by an early crypto theorist — Nick Szabo.
Some key features and consequences of this fallacy include:
Thesis
A: Nick Szabo’s understanding of contract rests on a misunderstanding
of contract formation and enforcement basics, such as:
(A)(1) impossibility of “coding around” third party enforcement;
(A)(2) usage of legal forms to create alegal processes (which
actually results in legal relations that are orders of magnitude more
complex than traditional contracts, while offering a fraction of
traditional contract protections & benefits)
(A)(3)
incorrect usage of Legalese to “write your own law” results in more,
not less, legal scrutiny (→ more, not less, transaction costs).
Thesis B: Crypto’s reliance on Szabo’s “smart contract” theories & nomenclature harms crypto far more than it helps crypto.
Thesis C: A better, cheaper, more secure path forward is available: simply embracing legal indeterminacy.
1. Goodbye “Smart Contracts”
A good starting point to capture the turmoil around “smart contracts” is this exchange, just a few months ago—
The fact that crypto theorists are getting woke to the messy reality of “smart contract” legal theory is very encouraging. This heightens the likelihood that regulators and other stakeholders will tread more carefully, too.
2. Goodbye #SzaboLaw
Most recently, Vlad Zamfir wrote a broader repudiation of Szabo’s approaches to CryptoLaw. It’s a complex but logical and readable argument, so we encourage everyone to get familiar with it.
Zamfir identifies several different fallacies in what he defines as “Szabo’s law” (this
is an initial read/restatement of Zamfir’s position — Zamfir himself
doesn’t call SzaboLaw a “founding fallacy,” offering a more blunt
assessment instead).
Szabo’s
law is simple: Do not implement changes to the blockchain protocol
unless the changes are required for the purpose of technical
maintenance.
There
are many ways to think about “smart contract” vis-a-vis “SzaboLaw.” The
most immediately useful is to understand both as manifestations of a
more general Szaboian theory of law and state.
In
Zamfir’s framing, SzaboLaw is simply the legal foundation for immutable
smart contracts running on immutable blockchains. There’s a catch,
however. The only way
global public blockchains can accomplish a fully immutabilist objective
is to maintain an inherently unstable and unsustainable (&
ultimately futile) anti-legal/alegal stance.
As Zamfir points out, SzaboLaw has been a useful heuristic for highlighting bigger stakes in blockchain global governance debates. For instance, it has allowed us to articulate the authoritarian threats posed by strict immutabilist ideology much better.
We
can ask better questions, such as: can/should autonomous software
systems (like truly immutable blockchains) interface with
existing/legacy dispute resolution protocols (like, Law) or should they
continue to strive for sui generis autonomous and alegal posture with respect to the aforementioned legacy systems? In either case, how?
