One of the big reasons why I am compelled to write this article is why smart contracts and cryptos are revolutionizing the world as we saw it until very recently.
The new ways of doing business today are being a permanent revolution thanks to cryptocurrencies and blockchain technology. Blockchain technology is behind cryptocurrencies, one of the major players used for business through classic speculation in the financial sector.
It's not just cryptocurrencies
However, beyond its function as a store of value (previously being in widespread exchange use)[1], blockchain technology offers a number of revolutionary applications and possibilities.
In particular the Ethereum network , creator of ether, the second most important cryptocurrency, allows:
Carrying out smart contracts.
Building decentralized financial applications (DeFi).
Issue non-fungible tokens (NFT), which are causing a revolution in art and the art world.
Smart Bitcoin Cash (SmartBCH)
One of the new developments on smart contracts is SmartBCH. This itself has the advantages of Ethereum, as well as those that Bitcoin Cash already has.
That is:
It has low fees and instant payments.
Has characteristics of a real currency and growing adoption (it is not yet, but it is working to become a generally accepted medium of exchange).
It has the same programming language as Ethereum
(Solidity) and virtual machine (EVM) for easy accessibility for upcoming projects.
It is designed to scale to millions of users.
It is decentralized, hence the blockchain being tied to miner nodes, it is more secure than other offerings.
Smart contracts
These digital technologies are closely related to the Internet and are designed to be ubiquitous and universal. Not only do they lack physical presence; they are also intrinsically transnational, which poses a major challenge for law, as it challenges the paradigms of traditional law as synonymous with national legislation.
Smart contracts are agreements based on the blockchain. This technology makes it possible to guarantee the immutability of the terms and conditions of execution of contracts by generating a computer program that will always act in the same way, without requiring the goodwill of the other party or a third party. This eliminates human discretion in the execution of the agreement and the respect of the terms on which the contract was agreed.
Compliance with the contractual terms of a smart contract is ensured through its algorithm, without having to resort to judges, courts or arbitrators, it already executes the properties of a digital arbitrator. Examples of smart contracts can be:
A program installed in a vehicle, which prevents it from starting if the terms of the lease are not met. This would be the closest thing to a key.
A program that transfers money automatically if certain conditions are met, as some bookmakers are already doing.
The pioneer platform in the development of smart contracts was Ethereum, in 2014, although, following in its wake, other platforms have emerged, also based on blockchain technology: Hyperledger, Counterparty, RSK , Corda and now Smart BCH.
A challenge to traditional law
One of its great advantages is that these types of tools are increasingly used, due to their beneficial characteristics for those who use them (more security, more precision in the terms of the contract and lower transaction costs as well as fewer conflicts when establishing property rights).
Another advantage is that they represent an important challenge for the Law (Traditional Law), since they are developed in decentralized environments that make their regulation difficult. This makes it an open field for the development of Private Law (as it was in the Middle Ages in Customary Law).[2]
One of the advantages is that blockchain transactions are everywhere. There is not even a central server that can serve as a reference to establish the location of the data. This is so because the information is distributed among the different nodes that make up the blockchain. In this way, each transaction is recorded uniformly among the participants, once the validity of the operations has been confirmed.
This system offers a number of advantages:
The location of the smart contract, for the purpose of determining the applicable regulations, makes the contract private between the participants, thus establishing a reciprocity regulation.
The location of the property being conveyed by the contract, whether cryptocurrencies, securities or other assets registered on a blockchain.
An alternative to the national legal system
Faced with these new challenges, Private Law [3] is not new. It brings new challenges and highlights the incipient development of the so-called Lex Cryptographia to resolve contractual conflicts online.
The term Lex Cryptographia refers to the set of rules that operate through self-executing smart contracts and decentralized autonomous algorithms.
This can be a simile to medieval commercial leagues such as the Hanseatic League governed by the Lex Mercatoria.[4] In the case of smart contracts it contains rules agreed by the parties that are enforceable by technological tools and not by any authority. Therefore, it can perform tasks that were traditionally reserved to Traditional Positivist Law (whereas now it would be regulated by Private Law).
There are already some platforms that advertise themselves as alternatives to the law and the prevailing judicial system. These include dispute resolution systems independent of any national jurisdiction: Legalese, Kleros and The Aragon Network.
Once the Lex Cryptographia is consolidated, algorithms could end up displacing state law, judges and courts. Establishing a field of competence for the monopoly of the National Justice outside of it.
Advantages of algorithmic regulation
This is a novel technological tool that operates without borders and friction, and can provide a vastly faster and more efficient infrastructure for economic and information exchange.
It could also establish a before and after in the resolution of conflicts, thus outlining an inexhaustible area of possibilities for all types of conflicts, both contractual and of other similar types.
With the help of artificial intelligence, algorithms and technical rules can be customized and adapted to individual profiles, thus developing the basic principles of private law: autonomy of will and the principle of equality.[5]
In this regard, Wright and De Filippi point out that smart contracts:
"They are a new regulatory system, capable of regulating society more efficiently, which reduces the costs of law enforcement and enables a system of rules customized for each citizen, where rules are constantly revised based on corresponding preferences and profiles."
Multiple real-world applications and a historic opportunity
Beyond the criticisms regarding the volatile and speculative nature of cryptocurrencies and the controversies raised with Bitcoin-BTC, blockchain technology opens up a fascinating world of applications and opportunities destined to be put to real use (such as Bitcoin Cash).
At the same time, it can challenge the Monopoly of Law and the traditional legislative and judicial control of the State. Smart contracts are one of the great opportunities to enforce security, consumer protection, market competition, freedom and property.
Notes:
[1] See Carl Menger - The Origins of Money.
[2] See Bruce Benson - The Enterprise of Law: Justice without the State.
[3] See https://en.wikipedia.org/wiki/Private_law , also available in Bruce Benson - The Enterprise of Law: Justice without the State.
[4] Merchant law , from the Latin lex mercatoria, was initially a legal system used by merchants in medieval Europe. Through this set of rules and principles, established by the merchants themselves, they regulated their relationships. Rather than being the result of the edict of a supreme authority, it was developed on the basis of common usage. These usages and customs were common to the merchants and traders of Europe, with a few local differences. (Taken from Wikipedia: https://en.wikipedia.org/wiki/Lex_mercatoria).
[5] See Note 3.
It's a great quick intro to smart contracts and their importance, and also the great news of SmartBCH coming!