Cryptocontracts Will Turn Law Into a Programming Language

A couple of weeks ago, I wrote a post with 10 things that amazed me about bitcoin (here). I just can’t stop thinking about the idea that I brought up in the final point of that post, specifically that bitcoin could enable the development of self-enforcing contracts. It is just such a huge game changer that a program could hold wealth in a way that is inaccessible to anyone, and then distribute said wealth based on defined and agreed mathematical rules.

One example I have been thinking about is that I could create a contract to support this blog, whereby readers could donate their support to the contract but I would only get paid out a certain amount (or perhaps a percentage of the total pool) for every post I make. In this way, donors would be able to give their support but also would have some form of assurances that they would continue to receive content for their donation. Additional complexity could also be used to enhance the effectiveness of such contracts; things like such as word requirements, per reader bonuses, cost recovery clauses, an expiry dates when unused money should to be returned to a donor etc.

While applying this to a blog is a rather mundane example, I can imagine this could be exactly how donation driven projects will be run in the future (such as charities, scientific foundations, maybe even governments). 

All of this got me thinking that this kind of programmatic wealth distribution is exactly what contracts already do. A lawyer draws up a piece of paper that says I am going to do A, so you will pay me B. What self-enforcing contracts change is that we no longer necessarily need a court system to arbitrate contract law, instead the contract will be mathematically predetermined and enforced by the commons of the cryptocurrency network. While I imagine that larger contracts would likely be built with some sort of failsafe mechanism for arbitration, there is no need for such a thing to exist. Would such a system be subject to gaming by the parties involved? Yes of course, but I still feel it would be an improvement on current generation contracts and would certainly leave the door open to expanding complexity necessary to close loopholes.

The twin technologies of cryptocurrencies and cryptocontracts are going to turn contract law into a programming language. 

Essentially what we are talking about is a real democratization of contractual agreements. Whereas today contracts are restricted to deals with enough value to justify a lawyers time (mortgages, business deals, land transfer etc…), in the future there is no limit to what could be codified into simple contracts. You could imagine forming a self-enforcing contract around something as simple as sharing a lawnmower with your neighbor, hiring a babysitter, or forming a gourmet coffee club at work. Where this could really revolutionize things is in developing nations, where the ability to exchange small-scale microloans with self-enforcing contractual agreements that come at little or no cost would be a quantum leap forward.

For more exotic examples, I was thinking of what could come if such contracts were combined with the ubiquity of data tracking today. In my example above, you could set up a contract with my blog to transfer a micropayment to support the blog every time you refer to an idea you found on my blog. Similar payment contracts could be set up for knowledge archives like wikipedia where you might agree to submit a micropayment every time you use or reference information from the site.

If we combine self-enforcing contracts with the idea of biological data tracking then things could get really wild. Imagine that you are carrying a cell phone which measures your emotional state. You then enter a contract with an entertainment company to pay them a certain amount based on the intensity of emotion which you experience during the movie or video game you are using. Suddenly you would be no longer only figuratively buying an emotional experience when you purchase something, but you are directly incentivizing emotional payout based on a self-enforcing contract. 

At every level our lives are built around spoken and unspoken agreements, yet the codification of a contractual agreement has been relegated to only the most important and expensive transactions. The emergence of cheap and plentiful self-enforcing contracts means that we can codify simple transactions and agreements. We will be able to reprogram our lives based on self-enforcing cryptocontracts. 

The coming boom in cryptocontracts comes with its own risks as well. In a world where self enforced contracts will be an everyday occurrence, we must be much more careful clicking on those terms of service agreements which nobody reads. We are going to need to be well aware of what it is we are giving away. Similarly, we must each decide what we want to codify in our own lives. Although it may be possible, it may not be wise to establish contractual arrangements around romantic or family relationships.

Ultimately, cryptocontracts will offer us a revolutionary new way to rebuild and reorganize our lives and our societies from the bottom up.

Edit: For those interested in the technology discussed here, I encourage you to check out the Ethereum project, which is working on developing a computing language to run these types of contracts on a cryptocurrency backbone. 

Edit2: I have been reading some of the comments on sites linking this article and I want to clear up one common confusion. The key difference between a cryptocontract and a standard contract is that the contract can itself hold wealth in the form of crytocurrency. All contracting parties can see the format of the contract and agree on its content, but the use of cryptography means nobody has access to the funds until the program moves it in accordance with the guidelines agreed. Another point is that these contracts could easily implement a clause for exception handling in the form of some form of court or other 3rd party mediation. 

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27 thoughts on “Cryptocontracts Will Turn Law Into a Programming Language

  1. I think the idea is good, although I find the examples a little weak. There are things you need contracts for, and borrowing a lawnmower or a gourmet coffee club at work work best by being self-organizing. Unless I misunderstood and you meant crypto-contract as a pejorative term, in the same way crypto-politics is used.

  2. Not only would one have to be careful of clicking on the terms of service on a self-enforcing contract, one would have to fully understand the code being executed or trust a 3rd party’s assertion that the code enforces what it’s supposed to and only what it’s supposed to.

  3. Read up on Ted Nelson’s Xanadu project. 50 years back he envisioned a system where content could be syndicated in a measured way and each author would be compensated automatically.
    However, remember we developers have a habit of wanting to abstract and code everything – forgetting the importance of human trust, intelligence and relationships in agreements that we make.

  4. Pingback: News From the Interweb » Cryptocontracts Will Turn Contract Law Into a Programming Language

  5. Your argument: The internet, and computers, and money, think of the possibilities! Contract lawyers will be obsolete cause computers and money.
    We already have the ability to transfer money when a condition of performance is met on a computer, but that is not a very useful tool. If someone is paid automatically upon triggering completion of some computerized task, they will undertake the minimum effort required to trigger and assert that, as far as they were concerned, they did a sufficient job. It is still up to the other party (and in disagreement, the courts) to rationally assess whether the performance required by the contract, was in fact, sufficiently met.

  6. The only aspect of the proposal I would argue, is that it requires a crypto currency. IMHO it would only require a means to electronically transmit remuneration. Current monetary systems are sufficiently electronic to allow this to work.
    I’ve one question. If we are unable to keep business and government from creating backdoors, how do we keep them from creating loopholes for their own benefit?

  7. Brilliant post! Thanks so much for sharing these thoughts. This will also be an exciting line of work to get into. I’m imagining building a company like LegalZoom that designs cryptocontracts instead of old fashioned ones.

  8. Pingback: Blockchain contracting and conveyancing systems | Legal Informatics Blog

  9. I think its a great idea. Ethereum.org is working on it. The one major problem that I would love to hear a solution to is that its all based on a speculative currency. Could you have different implementations of a blockchain for each contract or so you need many users to keep the blockchain secure. There may be other ways to have secure programmable contracts without a blockchain. If there is a way to develop this technology that is not a disadvantage to late adopters nor an advantage to early adopters, I am all for it! Any ideas of how to do this?

    • Adam, your contract could be based on current exchange rates in dollar, or better yet, it could be based on whatever currency was least volatile based on some recent measure of volatility.

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