LIBERTARIAN ANSWER MAN TIME
Smart Contracts discussion with a libertarian friend, B:
… it’s not smart, and it’s not a contract. It’s just code as far as i can tell. You ever coded? It’s just a bunch of defined if-then instructions.
And what is a contract, pray tell?
If-then instructions that are legally enforceable.
Conventional contracts are if-then instructions that sometimes use a third-party for interpretation and/or enforcement.
So-called “smart” contracts are if-then instructions that use pre-agreed neutrally-observable data (i.e. the Fed’s prime rate at a certain time and date) and/or m-of-n parties’ interpretation for self-enforcement.
Right and as I’ve said many times the use case is narrow because most conditions are more nuanced and require words and language and interpretation. Plus they usually apply to real assets that digital code can’t touch. Plus most contracts don’t allow for escrow which smart contracts need.
But notice now you ARE saying smart contracts are a type of contract where half the time the people using this term retreat and say it a not a legal contract. So which Is it.
Yes, but it’s not impossible to avoid this in some and perhaps eventually, many use cases.
No. 99% of contracts are not automatable. You give up too much. If you saved something to balance it out, maybe. But you don’t. It solves no problem. Bitcoin SOLVES A PROBLEM (as explained here: https://www.facebook.com/nskinsella/posts/10158404058053181) : money solves the problem of barter: the double coincidences of wants problem and the inability to engage in rational economic calculation (which requires free market prices). But the state has taken over money and has made it inflatable. Bitcoin solves this problem because it can’t be inflated, because of its decentralized nature. So we need money (thus gold, then dollars); and we need a sound money (thus bitcoin). But contracts work fine. What “problem” do smart contracts solve? What problem do NFTs solve? None that I can see. It’s all bullshit and hype.
That’s mostly true at the moment, but there is no reason in principle why title transfer of real assets couldn’t eventually be executed on-chain, e.g.:
But what is the advantage to doing it this way other than ”it’s cool”? It doesn’t solve any real problem.
“No. 99% of contracts are not automatable.”
That’s true- RIGHT NOW. But there are many fine details that can be automated.
For example, sometime in the future, the buyer and seller of a home engage Legal Services, Inc for a Purchase-Sale Agreement and choose a “PSA” to their mutual satisfaction. Then the buyer engages Mortgage Brokering Service, Inc that digests the industry-format PSA smart contract language which then suggests suitable lenders and their specific requirements to lend at whatever leverage and rate based on the borrower’s financials, required insurance coverages, appraisals, etc.
After committing to Mortgage Bank Lender, Inc, the buyer executes Mortgage Agreement smart contract (“MA”) which merges with the PSA contract function to oversee the transaction. The MA function may have survey, title and home insurance requirements file which the buyer submits to Home Insurance, Inc (or a brokerage) to purchase a homeowners insurance policy that meets the MA requirements, and which perhaps hires a home inspector. The home inspectors report may require a higher payment from the borrower or a decrease in the sales price, etc, whatever they agreed upon in the PSA when the report is submitted to the PSA’s smart contract function.
Yadda yadda yadda until the PSA-MA contract functions conditions are satisfied and the escrowed funds are released to the seller’s wallet while the title to the property is signed to the buyer’s public wallet address.
It honestly does sound like pie-in-the-sky at this stage, but that’s a basic framework of what eventually can be automated. Closings can be a matter of hours instead of months (e.g. if the lender forgoes a home inspection requirement).”
“That’s true- RIGHT NOW. But there are many fine details that can be automated.”
I disagree. But then I’ve negotiated, written, and enforced thousands of actual, real-world contracts, so nevermind me.
“For example, sometime in the future, the buyer and seller of a home engage Legal Services, Inc for a Purchase-Sale Agreement and choose a “PSA” to their mutual satisfaction. Then the buyer engages Mortgage Brokering Service, Inc that digests the industry-format PSA smart contract language which then suggests suitable lenders and their specific requirements to lend at whatever leverage and rate based on the borrower’s financials, required insurance coverages, appraisals, etc.”
But why would they do this? They can do it now with existing legal structures. What is the advantage? I see only downside and no upside.
“Yadda yadda yadda until the PSA-MA contract functions conditions are satisfied and the escrowed funds are released to the seller’s wallet while the title to the property is signed to the buyer’s public wallet address.”
You are talking like a Rothbardian Space Cadet who thinks it’s “neat” that we “can” somehow simulate normal contracts in code. So what. This is like [x] in the day ridiculously musing that we should just phrase all our arguments in symbolic logic. GEE I WONDER WHY THIS NEVER TOOK OFF
I agree with you that much of this is “fine”, as-is to a large degree at the present which is why I am skeptical of a radical departure, and I believe that there are so many pieces of the chain that will have to work perfectly together from day one, and that you cannot launch this piece-meal, or have it initially limited to very small economic functions.
But I don’t confuse my skepticism for a dismissal of the “smart contract” concept en totale.
I don’t dismiss it either, just the hype and ignorance around it. I think that over time more things will become automated with forms, AI, arbitration, even automation, but it will develop incrementally and in the end its use case will be very narrow. This is because most people don’t understand a few things:
1. most contracts are very complicated and require verbal language (words) to express the terms (and can’t be done with simple symbolic logic; if anything contractual verbiage gets more nuanced and complicated over time, not simpler) and arbitrators/judges/courts to decide when there is a dispute.
2. most contracts involve real world assets, not digital ones, so can’t be fully automated
3. most contracts do not have an escrow component, that is, what you owe in the future is uncertain and even when it’s certain, the thing owed doens’t exist yet and may never exist. So there is now way to automate how to handle uncertain future conditions.
Contracts just set up a framework for how to decide who owns some uncertain future assets, and who decides it, and how to enforce. This cannot be automated–or, even if or to the extent it can, it doesn’t solve any real problem that needs solving. It’s just “neat” and might attract nerds who like to watch Star Wars but no one in the real world cares about this shit