Several recent meetings and discussions about the blockchain have made me realise the growing antagonism that exists between the law and the blockchain. This conflict is largely the result of misunderstandings, which need prompt clarification.
Traditional systems of law have created an extremely bureaucratic reality, which has become increasingly difficult to navigate. Legal costs are rising, while legal subjects do not feel that the growing complexity of the legal system aids the certainty of their legal situation. In addition, the structures that lawyers create are ambiguous and vulnerable to doubts in interpretation or discretionary decisions of judges.
The common view is that the law, which was supposed to be an instrument for protecting the rights of individuals, has changed into an alienated and dysfunctional system that serves lawyers more than it does communities.
At this point DLT technology appears, providing an opportunity to simplify and automate many business processes. Instead of complicated multiple-page contracts, it offers a fully transparent coded smart contract. It promises security in economic relations without the need for any lawyers. This vision is inspiring the imagination to such an extent that some blockchain supporters are beginning to see it as a tool for redefining the law and breaking with reality, which is dominated by useless lawyers.
Meanwhile, traditional lawyers see the blockchain as a manifestation of a new barbarism, which by reducing rights to code, causes our civilisation to regress. It takes us back to times when the legal system was automated and insensitive to the nuances and complexity of reality. For some lawyers, the fascination with the blockchain and with smart contracts is only an outward display of naiveté and lack of understanding of the complex mechanisms existing in reality. Our civilisation’s progress means that the law simply has to become more complex. It is an unwanted but a natural consequence of development.
This maybe exaggerated picture captures the essence of the antagonisms that exist between the law and the blockchain. On the one hand, we have hopes to simplify the system, which are dictated by frustration, while on the other, realism and experience suggest that the increased complexity, although frustrating, is to some extent unavoidable.
In spite of appearances, the confrontation between the law and the blockchain may prove very useful for both the law and the blockchain. It would be worthwhile if both sides of the conflict could realise how much they could help each other and how much they could need each other.
Can the blockchain help the law?
The above frustrations have not been dreamt up. The law is actually becoming an increasingly estranged and complicated system, and even relatively simple social interactions require costly legal services that do not deliver the expected legal certainty. This ineffective system has ceased to help individuals and provide protection to them, and has instead become a problem all in itself, thereby limiting human creativity.
Lawyers who are absorbed in their daily professional duties, often fail to notice things from this perspective. This is a major mistake, though. Ultimately, the frustration which is growing could turn against the law as a whole, leading to the destruction of the system of values upon which it has been built.
In order to prevent this, the legal system urgently has to find alternative ideas for its further development. The currently dominant model will be unsustainable, though, in the long run. It is impossible to continue generating ever longer legal acts or issuing ambiguous legal opinions, or writing increasingly incomprehensible legal agreements. Such a system of law will collapse under its own weight and cease to provide the public with what it was made for, namely security and legal certainty.
I suggest that lawyers should look at the blockchain from this very perspective. Then it becomes apparent very soon that the blockchain may metamorphose from being an enemy of the legal system into one of the tools that could save it.
The blockchain has within it the potential to simplify many business processes, because it reduces the need for intermediaries. Meanwhile, the elimination of those intermediaries may significantly reduce red tape in many economic relations, while still allowing achievement of the same economic goals. Therefore, if the blockchain could potentially relieve, at least partially, the legal system, then the law should shepherd it, provided, of course, that the blockchain does ensure legal certainty to individuals and guarantees social justice.
In other words, lawyers must open their minds and concede that at least some of the goals that underpin the law could be better achieved in the 21st century by other instruments. If the smart contract code will be able, at least in certain areas of reality, to fulfil the postulates of justice and legal certainty more fully than traditional legal tools, then resistance to its development is unwarranted. If we want to achieve the objectives for which the law has been established, then as lawyers we should seek out the tools that will relieve the heavily overburdened system by guaranteeing at least the same level of legal security to individuals. Blockchain is potentially one such tool.
Can the law help the blockchain?
In order to better understand how lawyers could help the blockchain, we must consider the specific way in which justice has been understood and that has become dominant in our legal system. For those who propose replacing traditional law with smart contracts, the complexity of the law probably constitutes a fundamental defect of the current system. Nonetheless, I will try to demonstrate below that the complexity of the law – however frustrating it might be – is a method for increasing the level of justice in our communities.
The starting point for the development of legal systems were simple rules that attempted to bring order to reality. A long time ago, “Thou shalt not steal” and “Thou shalt not kill” could have satisfied the norms of criminal law. Their simplicity is compelling, but does not withstand being confronted with a reality that is much more complex and generates facts that are difficult to assess under those simple norms. Does killing in self-defence still break the above rule? Should a person who has caused an accidental death be subject to the same penalty as a killer who acted with premeditation? Should I be responsible for a passer-by’s death caused by the collapse of a building that I own? In practice, we could continue to generate similar factual backgrounds without end.
The development of the law is largely the outcome of responses made to such nuances of reality. From this perspective, the law’s complexity becomes a testament to the wisdom codified in legal norms. By identifying more and more nuances, the law that is being created tries to get closer to reality, taking into account its complex and often ambiguous nature. Through openness to the complexity of reality, we are also able increasingly to protect individuals’ rights, taking into account the unrepeatable and unique nature of each of us.
Our understanding of the law is thus based on the fundamental premise that the level of justice in a given society is directly proportional to the extent in which the legal system is sensitive to the mentioned nuances of reality. This sensitivity has its price in the form of an increasing complexity. New rules or exceptions that are introduced into the system interact with its other elements, causing a need to regulate mutual relations, etc. The complication of the legal system is, in a way, a measure of how far our civilisation has advanced.
The second key driver of the legal system’s complexity is technological development. Virtually every technological breakthrough gives rise to many new rules that enable its safe and fair management. The extraordinary developments in technology of recent years have led to a radical acceleration in the law-making process.
The implementation of public policies contributes also to the above factors. Law is the instrument that serves the implementation of those policies. Political, international and increasingly often community organisations create regulations with which they try to influence reality in particular ways.
Our current paradigm has assumed hitherto that the only way to increase justice and individuals’ sense of legal security is through further regulation. This paradigm is beginning to crumble. The system’s complexity has reached such levels that it has ceased ensuring justice and security to the public.
Many supporters of the blockchain and of smart contract technology are being tempted completely to undermine the existing paradigm and to return us to the old days when simple legal norms prevailed. The danger, which I see in this, is the unthoughtful approach that the system’s simplicity and efficiency are the only measures of its justice. Such an approach would be wrong. Simplicity and efficiency should not be the overriding objectives of the law, as they often conflict with the protection of individual rights, and fail to adequately reflect the complexity of new technologies or implement public policies that are more ambitious. Smart contracts will undoubtedly make business easier, cheaper and more effective. Nevertheless, will they be able to take into account, if necessary, the specificity and uniqueness of the entities that are parties to such contracts? Will they be able to reach beyond the anonymous layers of blockchain addresses and perceive the entities with their sometimes very complicated life situations?
Let us, therefore, not over-simplify the world, because it will turn against us. If the blockchain wants to make a better version of the system, it should not go pursuing its ambitions too much. There are many elements of the system that could and should be automated. However, we should not simplify the system at the expense of what we have already achieved: sensitivity to the nuances of reality, relative technological security, and ambitious public policies. In the face of dramatic attempts to simplify the legal system, the protection of those achievements becomes one of the main tasks of lawyers.
This is also very important from the blockchain’s perspective. If the blockchain develops as an ill-thought-out tool for simplifying the system, eventually it will turn against it. The paradigm thus formed would not provide enough of a sense of justice. Lawyers, specifically, could protect the blockchain from this threat by marking out the not to be crossed boundaries.
It seems crucial at this moment to find a way of reconstructing the law that would, on the one hand, enable us to preserve its internal “wisdom” and openness to reality’s complexity, while on the other shield us from the consequences of overregulation
Blockchain enables the introduction of the necessary trust into the system through code. This creates a unique opportunity to increase many processes’ efficiencies. This, in turn, also creates an opportunity to unburden the legal system.
It seems that we have a common goal. Blockchain offers a chance to repair the legal system, but needs safety valves that would protect it from the dictates of simplicity and efficiency over justice and the rights of individuals. The antagonism that exists between the blockchain and traditional law is therefore only illusory, and lawyers should begin working more closely with the blockchain’s developers.