In Code(rs) We Trust: Software Developers as Fiduciaries in Public Blockchains by Angela Walch :: SSRN


This chapter addresses the myth of decentralized governance of public blockchains, arguing that certain people who create, operate, or reshape them function much like fiduciaries of those who rely on these powerful data structures. Explicating the crucial functions that leading software developers perform, the chapter compares the role to Tamar Frankel’s conception of a fiduciary, and finds much in common, as users of these technologies place extreme trust in the leading developers to be both competent and loyal (ie, to be free of conflicts of interest). The chapter then frames the cost-benefit analysis necessary to evaluate whether, on balance, it is a good idea to treat these parties as fiduciaries, and outlines key questions needed to flesh out the fiduciary categorization. For example, which software developers are influential enough to resemble fiduciaries? Are all users of a blockchain ‘entrustors’ of the fiduciaries who operate the blockchain, or only a subset of those who rely on the blockchain? Finally, the chapter concludes with reflections on the broader implications of treating software developers as fiduciaries, given the existing accountability paradigm that largely shields software developers from liability for the code they create.

Keywords: Blockchain, DLT, Bitcoin, Ethereum, Distributed Ledger Technology, Cryptocurrency, Digital Currency, Blockchain Technology, Governance, Fiduciary, Law

Source: In Code(rs) We Trust: Software Developers as Fiduciaries in Public Blockchains by Angela Walch :: SSRN

The Stakes of Smart Contracts by Mark Verstraete :: SSRN

By consensus, smart contracts are a revolution in private ordering: they offer guaranteed enforcement, independent of the whims of territorial governments; efficient formation and interpretation; immunity from external interference; and complete deference to the parties’ wishes. Each of these claims is a myth. While smart contracts present themselves as natural and neutral, they are in fact deeply politicized. The Legal Realists tore down the foundations of smart contracts almost a century ago. Advocates for them have not solved the problems of the past—they have forgotten them.This Article offers a new critique of the optimism about smart contracts and desirability of securing mutual agreements by code rather than law. More specifically, this Article takes aim at the assertion that smart contracts can, and should, provide an alternative to traditional contract law. It contends that advocates for smart contracts rely reflexively on deeply contested assumptions from Lochner-era legal thought, including a political commitment to “freedom of contract,” insistence on a division between “public” and “private” spheres, and a minimalist view of the state’s role in managing private law systems of contract and property. More specifically, these assumptions cause smart contract partisans to fundamentally underestimate the role of the state in maintaining a functioning private law regime. This failure to recognize the inevitable extent of state intervention in private law means that smart contracts will create novel distributions of wealth and power that are normatively suspect.Furthermore, this Article draws upon two foundational moments in Internet law—early hopes for a realm beyond territorial governance, and attempts to override copyright law through technology—to demonstrate the errors that advocates and scholars alike commit based on the evanescent technology promise of this new method. Finally, this Article demonstrates that, far from realizing a utilitarian ideal of efficiency, smart contracts are constructed without democratic oversight and governance, which are essential for a legitimate system of private law.Keywords: contracts, legal theory, private law, private law theory, Lochner, smart contracts, law and technology, blockchain, Legal Realism, private order

Source: The Stakes of Smart Contracts by Mark Verstraete :: SSRN

Blockchain technology and the GDPR: the beginning of a beautiful privacy whac-a-mole?

On the first day of the CPDP2019 at 10:30 we’ll have a fantastic panel on blockchain technology and GDPR.

• What are the main points of friction between blockchains and the GDPR?
• What are the technological privacy enhancing mechanisms that could apply?
• What are the appropriate and necessary conciliations for the creation of privacy-preserving blockchains in accordance with data protection regulation?
• Is there a market for non-compliance that blockchain technologies are best suited to serve?

The speakers include: Michèle Finck, Max Planck Institute for Innovation and Competition (DE); David Ciliberti, DG JUST (EU); Alexandra Giannopoulou, Blockchain and Society Policy Research Lab, Institute for Information Law, UvA (NL); George Danezis, UCL (UK); and Konstantinos Stylianou,
University of Leeds (UK). The panel will be moderated by Mireille Hildebrandt, VUB-LSTS (BE), and chaired by Balazs Bodo.

ABSTRACT: Individual user control of data has become a central issue in the European Data Protection Regulation (GDPR), creating a more demanding data protection framework for involved actors, all while coming in conflict with fundamental characteristics of blockchains. Thus, the difficulty lies in designing a system without compromising core values of both privacy regulation on the one hand and blockchain technology on the other. Given the right incentives there is no doubt GDPR compliant distributed ledgers can, and will be designed. The real question is what happens if there is persistent market/social/political interest in those blockchain implementations which do not care for, or are unable to achieve GDPR compliance. Considering the interdisciplinary nature of the main question, the proposed panel consists of invited experts selected to cover various privacy-related fields including law and computer science.

• What are the main points of friction between blockchains and the GDPR?
• What are the technological privacy enhancing mechanisms that could apply?
• What are the appropriate and necessary conciliations for the creation of privacy-preserving blockchains in accordance with data protection regulation?
• Is there a market for non-compliance that blockchain technologies are best suited to serve?

All Smart Contracts Are Ambiguous by James Grimmelmann :: SSRN

Smart contracts are written in programming languages rather than in natural languages. This might seem to insulate them from ambiguity, because the meaning of a program is determined by technical facts rather than by social ones.

It does not. Smart contracts can be ambiguous, too, because technical facts depend on socially determined ones. To give meaning to a computer program, a community of programmers and users must agree on the semantics of the programming language in which it is written. This is a social process, and a review of some famous controversies involving blockchains and smart contracts shows that it regularly creates serious ambiguities. In the most famous case, The DAO hack, more than $150 million in virtual currency turned on the contested semantics of a blockchain-based smart-contract programming language.

Source: All Smart Contracts Are Ambiguous by James Grimmelmann :: SSRN

European Review of Private Law – Kluwer Law Online

The European Review of Private Law has a special issue on Smart contracts.


ICO Issuers, Class Action Lawsuits Find Succor from US Regulator

Following action against Decentralized Exchange EtherDelta, last week also saw the US Securities and Exchange Commission issuing settled orders against two companies, Airfox and Paragon, for the sale of unregistered securities after raising capital through an Initial Coin Offering. The regulator may have given class action lawsuits against token issuers much needed guidance, one of which was filed against Paragon earlier this year. On the flip side, Washington has also given those who raised capital through the contentious vehicle an opportunity to make good allowing for the retroactive filing of their token as a security.

Source: Volume 2 Issue 45 – Diar

hearing | Hearings | United States Committee on Banking, Housing, and Urban Affairs

THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS will meet in OPEN SESSION to conduct a hearing on “Exploring the Cryptocurrency and Blockchain Ecosystem.”  The witnesses will be Dr. Nouriel Roubini, Professor of Economics and International Business, New York University Stern School of Business; and Mr. Peter Van Valkenburgh, Director of Research, Coin Center.All hearings are webcast live and will not be available until the hearing starts. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the committee clerk at 202-224-7391 at least three business days in advance of the hearing date.

Source: hearing | Hearings | United States Committee on Banking, Housing, and Urban Affairs

Blockchain Technology as an Institution of Property – Ishmaev – 2017 – Metaphilosophy – Wiley Online Library

This paper argues that the practical implementation of blockchain technology can be considered an institution of property similar to legal institutions. Invoking Penner’s theory of property and Hegel’s system of property rights, and using the example of bitcoin, it is possible to demonstrate that blockchain effectively implements all necessary and sufficient criteria for property without reliance on legal means. Blockchains eliminate the need for a third‐party authority to enforce exclusion rights, and provide a system of universal access to knowledge and discoverability about the property rights of all participants and how the system functions. The implications of these findings are that traditional property relations in society could be replaced by or supplemented with blockchain models, and implemented in new domains.

Source: Blockchain Technology as an Institution of Property – Ishmaev – 2017 – Metaphilosophy – Wiley Online Library

Cryptoeconomics: Can blockchain reinvent justice systems? | Answers On

Kleros co-founder and CEO Federico Ast explores the role of blockchain, cryptoeconomics, and collective intelligence in building the future of justice.

Human communities of every era have had to solve the problem of social order. For this, they developed governance and legal systems. They did it with the technologies and systems of belief of their time.

Athenians of the Classical period believed that all citizens had the right to participate in the lawmaking process and as jurors in popular trials. They used a sophisticated piece of civic technology called kleroterion for random selection of jurors and avoiding manipulation of the system. Modern justice systems were created in the 17th and 18th centuries, at a time of consolidation of nation states.

These systems worked fine for many years, providing rule of law for industrial development and economic prosperity. But in early 21st century, they started to reach their complexity limits. The advent of the Internet and the creation of a global, digital, real time economy started to show the cracks in legal systems built in an era of paper contracts, horse transportation and national jurisdictions.

In today’s global economy, a large and increasing number of transactions are conducted online across jurisdictional boundaries. Clients from different countries hire contractors from all over the world for building software and other services. Investors from different countries participate in crowdfunding campaigns from everywhere. In their book Digital Justice (2017), experts Ethan Katsh and Orna Rabinovich-Einy estimate that disputes arise in 3 to 5% of online transactions, totaling over seven hundred million in 2015 alone.

Existing dispute resolution technologies are too slow, too expensive and too unreliable for an online real-time world. Even alternative methods like online dispute resolution (ODR) have failed to address this problem. ODR promised to bring resolution to this new type of disputes, but in the end it just streamlined existing court procedures, without really bringing an innovation.

Cars, not faster horses

Henry Ford famously said (although some people doubt the veracity of this): “If I had asked people what they wanted, they would have said faster horses.” A better justice system may not come from further streamlining existing processes but from fundamentally rethinking them from a first principles perspective.

In the last decade, we have witnessed how collective intelligence could be leveraged to produce an encyclopedia like Wikipedia, a transport system like Uber, a restaurant rating system like Yelp!, and a hotel system like Airbnb.

These companies innovated by crowdsourcing value creation. Instead of having an in-house team of restaurant critics as the Michelin Guide, Yelp! crowdsourced ratings in users.

Satoshi Nakamoto’s invention of Bitcoin (and the underlying blockchain technology) may be seen as the next step in the rise of the collaborative economy. The Bitcoin Network proved that, given the right incentives, anonymous users could cooperate in creating and updating a distributed ledger which could act as a monetary system. A nationless system, inherently global, and native to the Internet Age.

Cryptoeconomics is a new field of study that leverages cryptography, computer science and game theory to build secure distributed systems. It is the science that underlies the incentive system of open distributed ledgers. But its potential goes well beyond cryptocurrencies.

Kleros is a dispute resolution system which relies on cryptoeconomics. It uses a system of incentives based on “focal points”, a concept developed by game theorist Thomas Schelling, winner of the Nobel Prize in Economics 2005. Using a clever mechanism design, it seeks to produce a set of incentives for randomly selected users to adjudicate different types of disputes in a fast, affordable and secure way. Users who adjudicate disputes honestly will make money. Users who try to abuse the system will lose money.

Kleros does not seek to compete with governments or traditional arbitration systems, but provide a new method that will leverage the wisdom of the crowd to resolve a large number of disputes of the global digital economy for which existing methods fall short: e-commerce, crowdfunding and many types of small claims are among the early adopters.

Political institutions are the result of trying to solve the practical problems of social coordination. Human communities of all times developed the institutions better suited to their problems, their technologies and beliefs. Athenians of the Classical period built their court system on their belief of citizen participation and the technology of kleroterion for random selection. The founding fathers of the United States built American courts based on the best knowledge of the political theory of their time.

In a time of globalization and digitalization, cryptoeconomics may become the pillar for building the institutions of the Internet Age.

Learn more

This article was written by Federico Ast, co-founder and CEO of Kleros. Kleros is a current member of the Thomson Reuters Incubator, part of Thomson Reuters Labs.