Thank you very much for your thoughtful and detailed response & set of critiques.
Tags: Smart Contracts, Cryptolaw, Blockchain, Law, Free Market

Thank you very much for your thoughtful and detailed response & set of critiques. You are absolutely right that many Szabo-ites believe “smart contracts”/crypto/blockchain “removed the necessity of a third party [and that] That’s not entirely what happened.”

Yet the mantra of “write your own law” is so seductive that it often leads down the following slippery slope. We know elimination of the “trusted third party” is impossible. We cannot ever completely bypass “notaries, banks, governments” and other legal bodies. And so the rhetoric must shift to “minimization of trust” in third parties — doing as much as possible to create autonomous legal regimes, while acknowledging that legal forms, processes, institutions will still exist in the background and will continue to structure our self-designed crypto legal world.

As everyone knows, however, minimization of reliance on third parties is radically different from elimination of trust in third parties. Our actual reliance on third parties is already greatly minimized in existing contract law.

And so this is the rub of the current “smart contract” debate. Proponents know the “elimination” of the 3rd party is simply not tenable, both in theory and in practice. And so instead, the only way to maintain theoretical coherence is to shift to “smart contracts” as 3rd party “minimization” engines.

But there’s absolutely no robust/verifiable theory for how the “minimization” is supposed to work. Nor can there be one!

Here’s why:

As you point out in your response, the way SCs and Ks try to minimize trust in third party intermediaries is to opt out of some dispute resolution forums (e.g., courts) by opting in to others (e.g., arbitration). However, even before SCs came on the scene, nobody could adequately measure to what extent the arbitration-ization of global contract law actually took K disputes out of legacy legal forums (e.g., courts) and placed them into the purportedly cheaper, faster, easier dispute resolution channels (e.g., arbitration). The same is true with SCs. As contract forms, they can try to opt out of supposedly inefficient and costly legacy forums, but that is literally impossible to do. Parties can always invoke off-chain legal remedial mechanisms to address perceived on-chain injustices.

Proponents of SCs will keep emphasizing that existing dispute resolution protocols (Law) are “costly,” “unpredictable,” “inefficient.”

There is abundant empirical support for these claims (though when we move to “efficiency,” everyone should see that we’re no longer talking about “delays” and “transactional friction” but are actually talking about social values that our systems are built on).

But when they claim that SCs “solve” these problems with legacy systems by working around them, that is just wishful thinking.

By the very essence of our subject matter, there’s no empirically-grounded argument that will ever be able to show how SCs are “better” than Ks at achieving party objectives.

That’s because party objectives are fluid, and parties can always change their minds regarding what their objectives were — irrespective of whether the medium they chose for expressing those objectives was a K and/or SC.

Just like by the very essence of a confidentiality agreement, we can never know just how many confidentiality agreements are currently in force, and their effectiveness at achieving the parties’ confidentiality objectives.

The only way that SCs can realize the maximalist dream of “self-enforcement” is through RoboCop enforcement regimes:

That is NOT a cheerful future, and we should do everything we can to prevent it.