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> Defined as a self enforcing contract, guess what they don't exist

This changed in July 2015, when the ethereum network went live.

> I'd like to see how this code is independently filing annual reports and preparing taxes sending out K-1's to its shareholders autonomously

Just wait- It's pretty likely the DAO shareholders will vote to have a contractor produce this information on behalf of the DAO.

> ... for your own "DAO" as an Investment Club

Go for it! An ethereum smart contract would be a great way to implement the operational details for this.

>This changed in July 2015, when the ethereum network went live.

I know the term exists and I know people are operating as though it is a thing. But if you and I enter a contract whether it is a written agreement or a smart contract on Ethereum network, that has no more or less bearing on the legal enforcement in the event of a breach. In either case the non-breaching party must file suit for the breach and there must be a finding of fact, and the smart contract does not replace the fact finder in a court of law any more than a traditional contract.

I know you don't speak on their behalf but DAO has raised $100+M and the answer to a simple tax question is just wait? That is my point, investments are inherently risky, but when the most basic questions regarding operation and governance can't be answered that is a red flag.

>But if you and I enter a contract whether it is a written agreement or a smart contract on Ethereum network, that has no more or less bearing on the legal enforcement in the event of a breach.

These contracts are enforced by math. Breaking them isn't a possibility.

Whether or not The DAO works out or is a scam, I think it's a sign of things to come. We're in the beginning stages of seeing our traditional corporations and nation states morphing into something new and barely recognizable.

> These contracts are enforced by math. Breaking them isn't a possibility.

Math cannot "enforce" a contract, it can't even understand the terms of the agreement, much less enforce it.

> We're in the beginning stages of seeing our traditional corporations and nation states morphing into something new and barely recognizable.

This kind of hyperbolic nonsense strains credulity.

Smart contracts are enforced programmatically, that's kind of the point.

The future is always hard to believe until it's here.

You can say you disagree and state why. But please don't call me a gullible idiot and then try to dress it up in fancy vocabulary. This kind of reply seems common in your comment history, like you're just generally angry around blockchain threads for some reason.

>Smart contracts are enforced programmatically, that's kind of the point.

Can you give hard examples of how enforcement can be done programmatically and mathematically?

For example, I contract you to do X in exchange I will pay $Y and to get things started I give you a 10% down payment. If you don't do X, even in a court of law, it would be extremely rare for a court to order you to do X, rather they will generally order you to return my deposit and any additional damages I can prove as a result of your breach. Explain how the smart contract programatically forces you to do X, or how the smart contract can calculate real world damages above and beyond the 10% deposit? Alternatively, if you do X, but I think its subpar and refuse to pay unless you redue X to my standards, explain how the smart contract can determine who is in breach you for X not being up to standard or me for not paying.

Trust me it sounds great to say math and code enforces a contract and ensures it can't be breached, the point is putting a contact on the block chain may prove the contract exists (though even that is debatable) but it can't self enforce.

More generally in law, almost everyone knows less than 10% of cases go to trial, yes the typically settle, but this is also because when there is no "issue of material facts" a judgment can be awarded without trial, this is almost never the case in breach of contract cases, because there is always a question of fact: was the contract breached or not?

As a hard example consider the typical crowdfunding protocol. The contract (in english) is roughly: if this campaign hits goal before a deadline passes, all the backers pledge their money; or if the deadline comes before hitting the goal the money is returned to backers.

In today's world we rely on kickstarter programs or staff, credit cards and banking. Codified using a smart contract these rules can be executed automatically such that the backers are never at risk. This is what we mean when we say enforcement is automated.

This is a canonical example, as seen here http://ether.fund/contracts/crowdfund

The reason the contract can be enforced is because in many of these smart contracts funds are held in escrow and are transacted only by the distributed app without the requirement or possibility of human involvement.

Also check out Section 1.5(3) in [1].

Not all contracts can be executed and evaluated as smart contracts. The kinds of work agreement contracts you describe wouldn't be a natural fit. Some folks have suggested novel alternatives which could fit into smart contracts such as voting to elect delegates, arbitration courts, reputation systems, etc. when things get fuzzy.

Obviously it's not a 1:1 replacement and I didn't mean to imply that it was.

I just think it could be a mistake to dismiss this technology and the changes that could be coming.

[1] A LAWYER’S INTRODUCTION TO SMART CONTRACTS http://www.crypto-law.com/doc/A%20Lawyer's%20Introduction%20...

>if this campaign hits goal before a deadline passes, all the backers pledge their money; or if the deadline comes before hitting the goal the money is returned to backers.

Let's pretend the campaign hits its goal and gets all the funding. There are still a number of breaches that can occur after the fact at which point the contract/math/programming is not going to be able to enforce anything one way or the other.

For example, as part of my pledge to the campaign the campaign promised me (and thousands of other backers) prizes. The contract can't do anything to enforce me getting my prize or it can't return my funds because they have been released to to company already. We have seen this time and again where the projects fail and refuse to return the money, the contracts themselves state the backers remedy is at law.

Another example, I pledge $10,000 and funds get released to the campaign, but turns out I am a minor and as such a contract is legally unenforceable against me, not only that it turns out I used my parents credit card without permission, the smart contract isn't going to be of any help here either. Funny enough this only raises another potential breach, bc without my $10k the goal wasn't reached, so some backers now want their money back and others don't, is the campaign in breach if it doesn't return the funds? That is a question of fact for the court not one a smart contract can resolve.

How about if I back something, funds are released, and then I do a charge-back and the CC company reverses the charge, I am likely in breach, but again nothing the smart contract can do about it.

>I just think it could be a mistake to dismiss this technology and the changes that could be coming.

Trust me I have no problem with technology and escrow accounts, they certainly help facilitate the performance contracts. But marketing of "smart contracts" as something self-enforcing based on math and programming? That doesn't exist even in the canonical example of smart contracts.

You bring up a few interesting points.

In my example there wouldn't be any room for a CC chargeback because we can assume all of the transactions are denoted in ETH itself. This is one of the qualities that enable the smart contracts to transact currency automatically. The programming language used to codify the smart contracts includes primitives to transact ETH.

The possibility of a minor transacting is interesting and I know there has been some discussion on implementing an identity framework on Ethereum (https://github.com/tradle/about/wiki/Identity-on-Ethereum). One can imagine then a contract which further limits participants by age.

I think you'll find though that many early adopter/enthusiasts don't care about age or jurisdiction. It's not obvious why US law should apply.

As a thought experiment though, I should ask about the properties which US courts hold that enable them to enforce contracts. Ultimately doesn't it come down to a court order, which if ignored ends in garnishment, imprisonment, or worse?

In theory, in a blockchain-enabled contract world, garnishments would either no longer be necessary or could automatically be enforced.

At the scary extreme you could even imagine a future where security drones owned by the "Sovereign State of Etheria" which fly around enforcing smart contracts with hunt/capture/kill orders. Slock.it is the most popular example bridging the real world/IoT with a DAO. And would this really be altogether different from how contracts are enforced manually in egregious cases?

I'm not stating any of this is good or bad, I'm just illustrating what is possible now and imagining what is conceivably possible in the future. I don't have a position in Ethereum (never owned any) nor The DAO, and I'm certainly not "marketing smart contracts". But you seem to insist that none of this is possible for some reason, and from what I can tell it certainly is.

If my interpretation of anything I've read about the technology is wrong though, I'd appreciate the corrections.

To find some common ground we should be able to agree on: how many contracts end up in litigation because one or both parties misinterpret the language of the agreement? Wouldn't it be desirable if there was a system that left no room for misinterpretation?

I think the point the user was making is that most of the language of the agreement is not readily convertible to code for most conceivable agreements (including "deliver goods that are a good faith attempt to produce what was promised"; obviously you can code for "send something by $DATE" or "purchase X units of stock Y")

What is being automated is the least risky parts of a crowdfunding arrangement (counterparty risk on the part of the crowdfunding company and the bank its client accounts are held with). But the ability of humans to override payments (e.g. if the card was stolen, or the fundraising campaign is judged to be a scam) is a risk mitigation feature rather than a bug of a real world payment system. Guaranteeing one side of a contract is honoured instantly, efficiently and anonymously can actually increase the likelihood of contracts not being honoured in many real world use cases.

> Smart contracts are enforced programmatically, that's kind of the point.

That is a tautological statement. Smart contracts are not "enforced" programmatically in any sense of the word that is distinct from all other pieces of software since the rules of all programs are "enforced programmatically" by definition. "These contracts are enforced by math" is a meaningless platitude.

> But please don't call me a gullible idiot and then try to dress it up in fancy vocabulary

I didn't call or imply that you're a gullible idiot. I chose my words for their specific meaning, not for the sake of "fancy vocabulary". I might be mistaken but I think you're misinterpreting the meaning of the phrase "strains credulity", I'm not calling you gullible, I'm saying that your statement invokes feelings of skepticism because it's grandiose, wildly speculative, and generally unsubstantiated.

> The future is always hard to believe until it's here.

Not really. The future is pretty believable most of the time, it's relatively rare to face a paradigm shift that alters our expectations of the future in a fundamental way; most of the time, things move along more or less as expected from an arbitrary point in time (of course, the farther you go in time from a given point, the more unexpected things may become, but they are also exponentially more difficult to predict with any expectations of certitude).

> This kind of reply seems common in your comment history, like you're just generally angry around blockchain threads for some reason.

I won't comment on your assumptions about my emotional state, but I'll say that I think blockchains are a very cool technology (including bitcoin), but I find the excessively bombastic claims about how these technologies are going to alter the course of human history to be absurd and worthy of rebuffing.

> "These contracts are enforced by math" is a meaningless platitude.

Not quite. For example, assuming you accept cryptocurrencies have an actual monetary value, now I can pay any amount of money I want to a "smart contract" that will then proceed to pay that money to whomever solves a mathematical problem of interest to me (for example, I could give it to someone who gives me the cheapest route to visit 50 cities of my choosing, given the point to point cost). Once the contract is defined and created, the following is true: a) I no longer can choose not to pay, even if I change my mind, b) Only someone who solves the problem I posed will be able to claim that payment, and c) They will be able to cash in the prize without ever needing to reveal their identity to me.

Now there is two potential problems with this. First, it might very well be that the kind of "contracts" we care about for running organizations are beyond what can be expressed and enforced by smart-contracts (specially "enforced" in the sense of the example above, versus simply "reported"). Second, the above guarantees hold only as long as the underlying network holds, and that is a social system in the final degree, made of people who can as a whole destroy or subvert it. However, regarding the not-turtles-all-the-way-down argument about the cryptocurrency networks being social systems in the end, well... so is the Internet, the international trade system, the national governments, etc. Smart-contracts are not magic, but they are a different way of organizing resources and bootstrapping trust between parties. Will they eliminate the need for governments and traditional corporations? Probably not. Some people said that about the internet too, and they were, in the short to medium term at least, wrong. But if it has even 1% of the impact in the world the Internet had, well...

If you pay a contractor to do something AFK and they take the money and run, how do you enforce the contract?

You're referencing US law here, but it looks like most of the people involved in the DAO are neither US citizens nor US residents. Slock.it is a German company and dao.link will be incorporated in Switzerland.

The exact details differ, of course, by where it is incorporated (and also where it is doing business, as there are requirements for foreign corporations doing business in various jurisdictions), but generally similar kinds of application, registration, disclosure, management/agent desgination, etc., requirements exist in most jurisdictions.

I think there are many legitimate concerns about this project, but what you are saying address none of them. In fact your first questions mean you don't understand it.

I think as a lawyer who practices a great deal of corporate transactions, I have a much better idea than most on the legal structure and compliance issue with corporations on a state by state basis.

But instead of telling me my question shows I don't understand, please answer any of the following:

-Are the token holders shareholders?

-If shareholders do the token holders also get to vote for the board, or are their tokens/shares non-voting?

-How many members are on this board? Since it is all autonomous how do you know the DAO has the minimum amount of board members are required by law? If say DAO is a DE corp (min 3 board members) and DE amends the law, how is DAO's code going to keep up?

Viewing this as a corporate attorney is the wrong approach as it's not a "corporation" and there is not really any legal framework as the idea is too new (CFTC commissioner just mentioned to "do no harm" to blockchain tech).

1. no, but they have a vote and can transfer a token which also represents their vote

2. there is no board

3. there is no board

I think the key thing to emphasize as well is that "The DAO" is just a program which now has clearly defined rules for managing its assets in the form of cryptocurrency. When it interacts with the real world, it will do so by transferring or receiving digital assets and entering into real-world contracts with outside parties (Contractors). Whether those contracts with outside parties are enforceable, and how they will be enforced is within the realm of "to be determined" at this point. That does not at all mean the prospects for this type of setup/idea (DAO) are negative going forward.

> When it interacts with the real world, it will do so by transferring or receiving digital assets and entering into real-world contracts with outside parties (Contractors).

Is the DAO a legal entity with recognized agents with authority to enter into contracts on its behalf? If not, how can this possibly work?

Like I said "to be determined" is what I understand, however they appear initially to be employing a real-world company avatar: DAO.Link, based in Switzerland. [0]

[0] http://www.coindesk.com/the-dao-just-raised-50-million-but-w...

Edit: Also, do keep in mind that the Contractor would be able to see the contract is in effect by viewing it in the "blockchain". The question is only a matter of real-world enforcement in the specific case of the smart contract criteria not being satisfied at contract completion, due to incorrect/false data inputs to it by people in The DAO.

> Like I said "to be determined" is what I understand, however they appear initially to be employing a real-world company avatar: DAO.Link, based in Switzerland.

Sounds to me like DAO.Link (which appears to be an offering of Slock.it) is the actual legal business entity involved, and that the legal basis and enforcement mechanisms for assuring that it acts as expected by the participants of the blockchain-based entities it interacts with is...somewhat murky.

"The DAO" in this instance sounds like it'd be a great target for a fuzzer. ;)

> I think as a lawyer who practices a great deal of corporate transaction

Well, I think we can both see these systems are an attempt to circumvent individuals like yourself (At least partially, some human legal representation will likely still be used.)

Taxi drivers similarly complained a lot about the legality of Uber.

(BTW, my wife is also a corporate lawyer.)

This isn't a complaint about the legality of the DAO, but that the description of it as a "corporation" is simply false. A corporation refers to a specific type of legal entity, which the DAO simply is not.

All the questions will_brown asks are simple and straightforward and meaningful for any corporation. They are in some cases murky and/or inapplicable for the DAO, because the DAO is very much unlike a corporation.

I'm not sure if you are trying to compare my legal knowledge to that of a Taxi driver, or suggesting my position is not based on law but an irrational fear of competition, or maybe you are implying taxi drivers were wrong about Uber so I must be about DAO.

Maybe it helps my point, maybe not, but Uber is certainly illegal in many jurisdictions. Take Miami-Dade county, there are 10,000 Uber drivers and nearly 3,000 tickets have been issued ($1,010/ticket) something like $2.9M in fines. Moreover, Uber sends out training for Miami Drivers on how to avoid getting stopped/ticketed/impounded in Miami as an unlicensed ride for hire and when Uber drivers do get ticketed/impounded Uber provides the drivers a lawyer for their case (oddly its their FL corporate lobbyist not a traffic/criminal defense lawyer). Finally, the Miami-Dade ordinance carries a potential penalty of 45 days jail.

> I'm not sure if you are trying to compare my legal knowledge to that of a Taxi driver ...

Certainly not, I see no evidence that you don't have a strong understanding of the law, far beyond my own.

I guess what I'm saying is that Uber and the DAO both operate in a legal grey zone- And both of them likely have aspects that directly conflict with current law. However, I think it's clear that the legal system is a "living institution" and has been surprisingly welcoming of new innovative business models and technologies recently (as with Uber and things related to the DAO like Bitcoin) and is one of the reasons I still feel relatively optimistic about the future of the US economy.

What made Uber succeed, to a large degree, is that clearly a lot of societal pressure had built up over decades due to poor experiences with the taxi system- I think it's undeniable that this had an influence on the positive legal rulings around Uber, so far as those exist in many parts of the country.

Similarly, alternative governance systems like the DAO will keep appearing and I think eventually are likely to get some support from the existing legal system.

> Take Miami-Dade county...

Yikes! Glad I don't live there anymore, as my lifestyle depends significantly on access to ride sharing services.

> I guess what I'm saying is that Uber and the DAO both operate in a legal grey zone-

What is required to be a corporation is not really a legal gray zone. The DAO doesn't operate in a legal gray zone as to that characterization, its just flat inaccurate.

Insofar as the DAO is a mechanism for constructing contracts between actual legal persons (either natural persons or corporations), it may operate in a poorly-tested area as to whether valid contracts are formed, how those contracts are interpreted and what law they are governed by, and whether and to what extent they are enforceable, true.

I hear you, but I don't think I've ever used the word "corporation" in this forum or claimed that the DAO is a corporation, or directly disputed any claim made by another comment as to whether the DAO is or isn't a corporation.

Whether or not the DAO meets the definition of a "corporation" doesn't seem like a very interesting question to me, and I think it's too early to know how/if it matters if the legal system uses the word "corporation" to refer to the DAO.

I would define DAO as blockchain based investment club software[1]. The problem is, whether you called DAO a corporation or not, DAO raised $100+M on the basis of being an autonomous corporation, something that can not exist under the law any more than a corporation owned by cats. If the investors are not educated enough to know they invested in a legal fiction, its safe to say they bought it hook link and sink that DAO offers more transparency, shareholder control or flexibility than existing corporate structures...and even if they could exist, there is nothing to suggest any of that is true.

If people want to pool their money in a corporate structure (LLC or partnership) and vote on various investment opportunities, that's great, but its nothing new or paradigm shifting. Corporations without shareholders/owners? Nothing new, but that does not make them autonomous.

[1] https://en.wikipedia.org/wiki/Investment_club_software

Actually, his first question indicates that the people calling this a "corporation" have no idea what that word means.