_gabrielShapir0 Profile picture
Aug 12, 2018 19 tweets 4 min read Twitter logo Read on Twitter
1/ It seems like a lot of approaches to blockchain-based smart contracts, recognizing that "code is law" was unworkable, are going to the opposite extreme where smart contracts will be easily stoppable through administrator-type privileges, and claiming that this is necessary
2/ to ensure legal compliance. If that is true, then the benefits of deploying a smart contract to a public blockchain (vs. someone's server) are modest. By far the biggest benefit dreamed of by cypherpunks for blockchain-based smart contracts was always their potential
3/ to reduce both ex ante and ex post transaction costs by establishing an "unstoppable" arrangement on a world computer where (assuming good ex ante due diligence into the code), the parties had close to 100% certainty that the code would execute and the funds would flow.
4/ If the smart contract can be unilaterally halted, then you are essentially back to relying on traditional methods of deal certainty--a legalese agreement + the ability to enforce it through ADR and/or courts. That system is not a "bad thing" but falls far short of the
5/ cypherpunk dream that people thought smart contracts would deliver in the early-ish days of #Ethereum. Personally, I still have hope of working out a legal framework within which an only slightly diluted version of those early dreams can be achieved.
6/ The framework is what I call "Qualified Code Deference" (as contrasted with both the "Absolute Code Deference" of "code is law" and the "No Code Deference, Only Code Delegation" of some more recent approaches).
7/ Certain contractual arrangements are very well suited to being expressed in the kind of code + escrow arrangements which on-chain smart contracts provide. For example, a syndicated loan smart contract could hold collateral in the form of ETH and automatically distribute it
8/ as interest payments to the lenders' ETH addresses on a pro rata basis. For these types of arrangements, it is possible to have a role for smart contracts that is more important than being a means of performing a legalese agreement.
9/ Rather, the legalese agreement can provide for legal deference to the results of operating the code--i.e., that the results of the operation of the smart contract are final, binding and non-appealable by the parties. That's the "code deference" part.
10/ The "qualified" part is that the legalese should state some exceptions to the deference. The exceptions can be seasoned to taste, with fewer/narrower exceptions leading to greater code deference, and broader/more numerous exceptions leading to less code deference.
11/ An example of a super-specific exception would be the situation where the private key of one of the lenders had been stolen and the lender notified the borrower before the next distribution. The legalese would set forth procedures for how to deal with this.
12/ The procedures could involve a multisig-address-update command sent to the smart contract, or could involve the parties agreeing on and deploying a new updated smart contract with a corresponding amendment to the legalese agreement to replace smart contract address references
13/ On the other hand, if the lender failed to notice the key theft or notify the borrower in time, the lender would be out of luck and someone else would end up with the lender's interest payment, with the borrower having no liability.
14/ That's a draconian result, but in some situations the parties may be willing to live with the mere possibility of draconian results in edge cases in order to get the guaranteed actuality of reducing transaction costs as such.
15/ To me that is the big value-add of deploying smart contracts on a public blockchain-based world computer. It would be a shame if we lost all possibility of parties harnessing that benefit, and we lawyers should try to find ways to preserve it for those who might want it.
16/ Of course, there are many issues to be worked out--how does an automatic stay in bankruptcy play out, etc.? But a priori I see no reason to assume that there aren't ways of addressing these issues while also using smart contracts that have no unilateral halting mechanism.
And, BTW, this is not so different from a legalese contract that limits the borrower's payment obligations to sending a check to such-and-such prearranged address. There are a lot of draconian possibilities even in current legalese arrangements. 😀
FN--an additional issue is doing the actual math on transaction costs. Code deference approaches put pressure on parties to do costly code due diligence ex ante. But that may be cheaper for some parties than hiring lawyers. Point is not to be prescriptive but to offer options.

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with _gabrielShapir0

_gabrielShapir0 Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @lex_node

Aug 29, 2018
1/ People who think effective tokenization of securities is right around the corner have another thing coming. The complications and unanswered questions are numerous and have not been done justice in work I've read on the subject.
2/ This is true even with corporate stock, with respect to which Delaware & Wyoming have amended their respective corporate statutes in a way that facilitates blockchain functionality. Thus it is all the more true with other kinds of securities where no such work has been done.
3/ Token protocols generally follow a quasi-bearer-asset logic whereby, from the standpoint of the network, the power to spend a token = ownership of the token = right to transfer ownership of the token.
Read 13 tweets
Aug 10, 2018
@mengwong @backofthenapkin 1/ Cyber/cypher-punk operates in legal gray areas, and sometimes in the zone of civil disobedience. So the struggle of being a lawyer/cypherpunk is real, and the two identities are in tension.
2/ Many " blockchain lawyers' " work so far has consisted of trying to legitimize the tech by (a) re-centralizing it to achieve compliance or (b) publicly (& sometimes gleefully) decrying blockchain entrepreneurs' tendencies to violate laws (e.g. securities laws in ICOs).
3/ Even among the lawyers with a cypher/cyber-punk ethos who #BUIDL, I think there has been a tendency to 'not go far enough' in either honoring the radical roots/goals of blockchain technology or acknowledging the gap between legal solutions and cypher/cyber-punk ones.
Read 14 tweets
Jul 19, 2018
1/Kernel of truth in "code is law": Smart contracts improve finality/efficiency only if we can legally defer to/rely on their results. If we always have to check the code against words and words always win, smart contracts can't REPLACE traditional contracts, only perform them.
2/ But if we want to defer to smart contracts, since "code is law" is crazy, we need a rule that says the results of running the smart contract are legally binding EXCEPT in the event of x, y or z. And we need to say that in words, in a traditional legal contract.
3/ But it turns out that figuring out the right x, y, z exceptions is hard. You need to capture all cases where the smart contract materially glitches without having the exceptions swallow the general rule that the smart contract may be deferred to/relied on.
Read 8 tweets
Jul 17, 2018
Tweetstorm: 1/ The 2017 DGCL amendments enable Delaware corporations to put their stock ledgers on a blockchain. This is pretty cool, but seems to have been driven by a book-entry stock vision, and so I think we can improve upon it.
2/ I believe an on-chain ledger is not enough to fully realize the benefits blockchain can provide to traditional corporate stock. Getting rid of stock certs and tracking ownership transfers on-chain means stock is book-entry (vs. certificated), and book-entry has downsides.
3/ For example, under UCC 8-301, delivery of an uncertificated security to a transferee does not occur until the issuer registers the transfer. This means book-entry transfers rely on a third party.
Read 14 tweets
Jun 27, 2018
1/ Tweetstorm re: the 'code is law' approach to the new EOS constitution that can be found here: medium.com/@bytemaster/th…
2/ Note generally: the old constitution REQUIRED that all EOS smart contracts be Ricardian--i.e., accompanied by a natural language translation. This new constitution does not, yet everything it says about smart contracts seems to simply presume that they will be Ricardian. Weird
3/ "The Intent of Code is Law where intent is documented by code, Ricardian Contract, user interfaces, and actual use."
Read 14 tweets
Jun 27, 2018
1/ Larimer's suggestion that block producers campaign with promises of compensating key-theft victims (coindesk.com/dan-larimer-eo…) would violate Article IV of the original EOS Constitution. That's okay though--he has eliminated Article IV from his new proposed EOS constitution.
2/ Orig. EOS Constitution: "Article IV - No Vote Buying -No Member shall offer nor accept anything of value in exchange for a vote of any type, nor shall any Member unduly influence the vote of another."
3/ Remember: the anti-vote-buying provision in the Constitution has been EOS's primary defense to the plutocracy criticisms leveled by @Vlad
and @Vitalik at medium.com/@Vlad_Zamfir/a… and vitalik.ca/general/2018/0…
Read 6 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

:(