Written by Vasilis Kostakis, Primavera de Filippi and Wolfgang Drechsler:
The headlong pace of technological change produces giant leaps forward in knowledge, innovation, new possibilities and, almost inevitably, legal problems. That’s now the case with blockchain, today’s buzziest new tech tool.

Introduced in 2008 as the technology underpinning Bitcoin, a digital currency that is created and held electronically without any central authority, blockchain is a secure digital ledger for any kind of data. It simplifies record keeping and reduces transaction costs.

Its range of applications in commerce, finance and potentially politics continues to widen, and that has triggered a debate around how to regulate the tool.

Goodbye middleman

Because it does not require a centralised authority to verify and validate transactions, blockchain enables people who may not trust each other to interact and coordinate directly.

Diagrams showing how the blockchain electronic currency system works and how it could be adopted by the world of banking. Reuters

With blockchain, there is no middleman in peer-to-peer exchanges; instead, users rely on a decentralised network of computers that interact through a cryptographic, secure protocol.

Blockchain has the ability to “codify” transactions by deploying small snippets of code directly onto the blockchain. This code, generally referred to as a “smart contract”, executes automatically when certain conditions are met.

An early example of smart contracts are the corporate-oriented digital rights management (DRM) systems limiting uses of digital files. Having DRM on your ebook may restrict access to copying, editing, and printing content.

With blockchain, smart contracts have become more complex and, arguably, more secure. In theory, they will always be executed exactly as planned, since no one party has the power to alter the code binding a given transaction.

In practice, however, eliminating trusted brokers from a transaction can create some kinks.

One high-profile smart-contract failure happened to the DAO, a decentralised autonomous organisation for venture capital funding.

Launched in April 2016, the DAO quickly raised over US$150 million via crowdfunding. Three weeks later, someone managed to exploit a vulnerability in the DAO’s code, draining approximately US$50 million worth of digital currency from the fund.

The security problem originated not in the blockchain itself but rather from issues with the smart-contract code used to administer the DAO.

The DAO’s crowd-funding page in May 2016.

Questions arose about the legality of the act, with some people arguing that since the hack was actually permitted by the smart-contract code, it was a perfectly legitimate action. After all, in cyberspace, “code is law”.

The DAO debate raised this key question: should the intention of the code prevail over the wording of the code?

A new legal realm

Blockchain proponents envision a future in which entire companies and governments operate in a distributed and automated fashion.

But smart contracts pose a series of enforceability issues, which are outlined in a recent white paper by the London law firm Norton Rose Fulbright.

How can we resolve disputes arising over a self-executing smart contract? How do we identify what types of contractual terms can be properly translated into code, and which ones should instead be left to natural language? And is there a way combine the two?

It is not yet clear that code can address the necessary levels of complexity to replace legal language. After all, the vagueness inherent in the language of law is a feature, not a bug: it compensates for unforeseeable cases that must be assessed on a case-by-case basis in a court of law.

Traditional contracts acknowledge that no law can index the entire complexity of life as it is, let alone predict its future development. They also precisely define terms that can be enforced by law.

Smart contracts, by contrast, are simply snippets of code both defined and enforced by the code underpinning the blockchain infrastructure. Currently, they do not have any legal recognition. This means that when something goes wrong in a smart contract, parties have no legal recourse.

The DAO’s founders painfully learned this lesson last year.

The creative friction of the law

If blockchain technologies are ever to go mainstream, governments will have to set up new legal frameworks to accommodate such complexities.

Positive law prescribes behaviour and penalises non-compliance. It can encapsulate the normative ideal that a respective government seeks to achieve, demonstrate an ethical vision for society or reify the power structure of the current regime.

Technological developments, on the other hand, are often oriented toward profit and change.

There’s an inherent tension here. Laws may delay the development of technology and hence hurt the competitive advantage of an entrepreneur or even a state.

Take the case of nanotechnology regulation in the European Union versus in the United States. European law so mitigates risks that it may end up limiting the technology’s potential, losing its competitive edge against the US.

That’s another fact about the law: slow and reactive, it can be a gross annoyance.

But ever since technological advances began speeding along on an exponential curve last century, the law has played a critical role in helping societies maintain certain previously negotiated standards for cohabitation.

Our legal system may sometimes seem antiquated in today’s fast-moving world. But before changing our laws to accommodate new technologies that may (re)define our lives, it is important to have room for debate and time for social struggles to take place.

The law serves this function of creative friction. It can restore human agency against fierce technological development.

Given all the excitement over blockchain technologies, it is probable that interested parties will soon enough seek legal recognition and state-sanctioned enforceability of smart contracts.

These emerging technologies are still too new to have been subjected to a sufficiently thorough analysis of their social, economic and political implications. More time is also needed to assess how blockchain could be deployed in a socially beneficial way.

Blockchain technology seems poised to constitute an important component of tomorrow’s society. The legal system – slow-paced as it is – might be just what we need at this juncture to ensure that this new tool is deployed in a way consistent with established principles and values, with the common good at its core.

Cross-posted from The Conversation.

Lead Image: Name Coin/Flick

The Conversation

2 Comments Can blockchain, a swiftly evolving technology, be controlled?

  1. AvatarDouglas Jack

    Here is a long comment for those who would like to understand Blockchain & Bitcoin as part of colonial reactive money but not as just responsive human systems of broad-based ‘democratic’ (Greek ‘power-of-the-people’) control. Western nations are under the control & propaganda indoctrination of oligarchs. Humanity’s memory of its 100s of 1000s of worldwide ‘indigenous’ heritage has been violently suppressed & erased, so we don’t even know our natural connection with each-other, the biosphere, life & the earth.

    BASIC QUESTIONS: WHAT IS BITCOIN BLOCK-CHAIN? BLOCK-CHAINS ? Let’s face the fact that; Bitcoin & other ‘block-chain’ virtual-currencies are fragments, built in ‘reaction-to’ unjust violent financial systems but don’t understand money & capital as human systems they once were.. Encrypted, Anonymous, perpetual-mining-for-unbreakable-code digital ‘money’ (Greek ‘mnemosis’ = ‘memory’) is an ‘oxymoron’ aka ‘contradiction-in-terms’ due to our civilization’s violent structural colonial legacy. However with major financial corporation now hiring the bulk of Blockchain programmers & themselves being owned in an extreme hierarchy, it is only a matter of limited time, before digital currencies are under their command & control. Until the ‘block-chain’ movement begins to address the basic ‘value’, which we are concerned with, we are only feeding into the paranoid fear of the present oligarch owned monetary system. Crypto-currency architects being subsumed by colonial institutional indoctrination, haven’t understood humanity’s long ‘indigenous’ (Latin ‘self-generating’) ‘economic’ (Greek ‘oikos’ = ‘home’ + ‘namein’ = ‘care-&-nurture’) heritage. I address the typically unknown basics of indigenous economy below. Human language is filled with opposites based in colonial propaganda violence, which unfortunately restricts what we can conceive of as viable human systems. https://sites.google.com/site/indigenecommunity/structure/5-collaborative-language

    INDIGENOUS (Latin ‘Self-generating’) As we work towards a just, fair, transparent & equitable blockchain human value system let us step out of the ‘exogenous’ (L ‘other-generated’) colonial indoctrination & perpetual-reaction, which envelops our concept of the humanly possible & embrace the 100s of 1000s of years of ‘indigenous heritage from which we’ve been strategically alienated. Crypto-currencies can learn from humanity’s worldwide universal indigenous heritage. Both ‘Capitalism’ (L ‘cap’ = ‘head’ = ‘wisdom’) & ‘Socialism’ (‘Living & working together’) are both descended fragments of a once integrated system of indigenous economy. Both are dysfunctional by themselves. It takes both left & right wings to fly. Take a closer look at what our indigenous heritage of accounting & governance entails as well as join us in this compilation of abundant & sustainable heritage. This is a world-wide integrated systematic heritage of integrated holistic whole system design complexity with no mean substance. https://sites.google.com/site/indigenecommunity/home/indigenous-circle-of-life

    TARGETED FOR ANNIHILATION US, Britain, Canada, Australia & New Zealand (5 eyes) oligarch hegemony, is formed & maintained through Zombie-Apocalypse-colonial-genocide to maintain dominance over the western world’s ‘money’ (Greek ‘mnemosis’ = ‘memory’) is strategic & many centuries old. Recently Iran having declared it will no longer trade oil, goods & services in USD is the latest oligarch target for total annihilation. Just weeks after Saddam Hussein declared Iraqi trades in the EURO, the catastrophic bombing & dismemberment of Iraq started. Weeks following Muammar Gaddafi’s declaration of Libyan trades in the African DINAR, the bombing dismemberment & massive foreign mercenary occupation began. Money is the oligarch’s greatest insecurity & vulnerability. Both Iraq & Libya were the richest countries per capita with the most distributed income (universal housing, education, medical-care, employment etc.) of their continents.

    WHO, WHAT, WHERE, WHY & HOW Destruction-direction comes from the Windsor, Rothschild & Vatican aristocrat ‘trillionaires’ ($ = # seconds in 32,000 years) & underling networks of ~ 1000 ‘billionaire’ ($ = # sec 32 yr.) each who in turn have ~ 1000 multi-millionaire $ submissives. Trillionaire oligarch ownership of the US-Federal-Reserve, Bank-of-England & Bank-of-International-Settlements with practically unlimited power to print money enables such atrocities as perpetual-war, nuclear-arms, Pesticides, Genetically Modified Organisms etc. etc. Colonial destruction of their legacy is 7 millennia old starting in Babylon & accelerating right including this day. Zionist oligarchs according to their Oded-Yinon-Plan, Project-for-a-New-American-Century & New-World-Order are after a world-head-office in Jerusalem with subservient destabilized Arab nations beholding to Zionist economic imperialism. Rather than command & control we are strengthened as a world people by reaching for our collaborative relations. https://sites.google.com/site/indigenecommunity/relational-economy

    INDIGENOUS WORLDWIDE ECONOMIC HERITAGE SYSTEM Few realize ‘indigenous’ (Latin ‘self-generating’) humanity’s ‘Sylvalization’ (L ‘sylva’ = ‘tree’) for 100s of 1000s of years had international ‘fractal’ (‘building-blocks’ in which the ‘part-contains-the-whole’) systems of economic governance. Included in human heritage are traditions of integrated accounting modules recognizing the essential services of female/male young/old across all human value systems such as capital, currency, social-security, education, communications etc. These accounting traditions are designed to recognize & heal humanity & the earth. https://sites.google.com/site/indigenecommunity/relational-economy/participatory-accounting
    1. All humanity’s indigenous ancestors lived in ~100 person intergenerational interdisciplinary multihome-dwelling-complexes based in privacy & proximity. Grandparents & grand-children could easily interact & complement each other’s strengths of wisdom & mobility.
    2. Labours were organized in an Economic-Democracy of specialized Production-Society/Guilds PS/G with every person being an owner progressively across their lifetime of contribution within their fields of expertise.
    3. String-shell time-based accounting Value-units aka ‘Money’ such as Wampum, Quipu, Cowrie shells integrated Capital (decision-making), Currency (compensation), Condolence (Social-Security), Collegial mentored apprenticeship experiential education, math-based Communications, Costume & other values into one integrated accounting & valorization cycle.
    4. ‘Economic’ (Greek ‘oikos’ = ‘home’ + ‘namein’ = ‘care-&-nurture’) accounting included ‘domestic’ (women & men), industrial & commercial contr-ibutions so everyone’s contribution was included, not just commercial & industrial labours typically of men. String-shell was transparently issued in the PS/G & multihomes similar to a Block-chain system. Our strength is not in false political-democracy but in the intimate multihome corporations in which we already live. Once we master ownership in our own homes then we have a multi-million dollar presence in each multihome from which to address community, state, nation & international issues. https://sites.google.com/site/indigenecommunity/relational-economy/8-economic-democracy
    5. Indigenous 3-dimensional Polyculture Orchard Sylvalization brought huge decentralized productivity at 100 times or 10,000% more food, materials, energy & water-cycle in comparison with 2-D ‘agriculture’ (L ‘ager’ = ‘field’) scarcity. Polyculture’s a) 92-98% solar energy photosynthesis, b) roots descending 10s of metres into the earth’s substrate pumping water, mining-minerals & developing extensive nutrient colonies, c) climate generated from continental orchard cold-spots attracting warm-moist ocean winds inland, d) Condensation of warm-moist winds on trillions of square-kilometres of fractal leaf & bark surfaces create huge abundance. 60% of ocean to continent water transfer is through condensation on fractal leaf & bark surfaces. 2-D ‘agriculture’ (L. ‘ager’ = ‘field’) a) only photosynthesizes 2 – 8 % of solar energy. b) Ager roots only descend short centimetres. c) Agriculture creates deserts through shallow roots leaving earth’s substrate hard-packed & ~ 95% of un-photosynthesized solar energy pushing dry winds from continent towards the sea. d) Presenting little surface area, agriculture condenses next to no moisture. https://sites.google.com/site/indigenecommunity/design/1-indigenous-welcome-orchard-food-production-efficiencies

    COUNCIL PROCESS Imagine a block-chain, like the Stringshell before, which is issued by intimate people working together, who know each other & celebrate the gifts of every person to make the collective human economy based in harmony with the biosphere. To step outside the reactive con-tainment of our ‘exogenous’ (L ‘other-generated’) colonial minds, we will need to understand the 100s of 1000s of years of ‘indigenous’ mind. We need to be able to formally engage the complementary parts of human mind, which each & all of us represent. Council process involves formally meeting our perceived opponents & even our friends to explore (mine) our differences & similarities. Mohandas Gandhi founded ‘Satyagraha’ (Hin-di ‘truth-search’) based on bring all sides together in dialogue & would ask the question simultaneously, “What are your best intentions & how can we help you fulfill these?” As well India’s liberation from colonial overlords was founded in ‘Swaraj’ (Hindi ‘self-sufficiency’) or ‘becoming the change we want to see in the world’. When Satyagraha ‘communication’ & Swaraj ‘action are combined, then we have integrity between what we say & what we do.
    When all of us individually & collectively begin to engage ‘dialectically’ (‘hearing both sides’) in debate within each of our schools, industry, courts, media & government, simultaneously with ‘becoming the change’ from the ground up, then we can begin the process of learning to act accordingly. Its essential that we debate the issues before us in each relationship rather than abstractly or politically for external factors.

  2. Avataroolang

    Blockchain tech is agnostic; if it has or is become the plaything of big banks, it’s only because you haven’t explored the technology to enhance and support cooperative based organization. Blockchain tech, even Ethereum and Bitcoin, are decentralized with no single point of control.

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