The possibility of remaking the financial system with the blockchain
hbr.org
hbr.org
I am not a fan of cryptocurrency in general (that is another argument for another day) so I am just going to focus on one claim regarding law firms: the rise of the smart contract. I do not believe it is a realistic expectation, and here is why:
The vast majority of contracts do not have syntactically testable conditions. They just don't. Whether the conditions in a contract have been met is very often a matter of huge debate - this is what "law suits" are about. Unless you can create a condition that is testable by code, you cannot have a contract that self-enforces with the block chain. The conditions set forth in contracts are extremely complex and reasonable people can differ. I cannot imagine how you would have a contract be triggered on the insolvency of a privately held corporation - good luck defining insolvency and good luck getting access to the underlying books. Copyright infringement is also a preposterous idea - the amount of semantic judgment that must be made to determine if a work is infringing is enormous. Only the very simplest of conditions - comparing numbers, checking the time, can be reliably automated, and if you are getting a lawyer to write your contracts, odds are there is substantially more complexity in the agreements than this, which is why you hired the lawyer in the first place. In addition, a fair portion of contracts that can actually be set up to work this already are - and the blockchain is not necessary. They are things like credit cards and they work pretty good without the blockchain.
This aside, are you going to trust your lawyers to write blockchain enforced smart-contracts? Every time I post my code to the world I get reamed and I spend a shitload of time writing code and learning about it, far, far in excess of [edit/deleted: any other lawyer] the vast majority of lawyers I know [edit/insertion: a handful of exceptions have come to mind, but I know literally hundreds of lawyers and practice in NYC] - among lawyers I am a giant and on HN I am beneath contempt. Why on earth would you trust lawyers to write code-based contracts? Nothing about that seems right.
Who knows, however. If 2016 taught me one thing it is that all bets are off and the points don't matter.
Are smart contracts proponents saying that they'll do away with the whole legal system, or just the solicitors' fees/time for drawing up contracts in the first place?
I presume I'd still be able to take my landlord to court for breach of contract for anything related to physical world (the bathroom is mouldy or he disputes the condition I've returned the apartment in and is withholding my deposit), but wouldn't need to pay £80 to get the contract drawn up in the first place.
And then all the 'meta' stuff, that doesn't relate to tangible things, is built-in and testable — e.g. rent cannot be increased more often than every 6 months and can only be increased by up to 15% of the current fee; at the end of the lease, the deposit minus cleaning fees should be returned within 30 days, with any interest earned.
Smart contracts are programmatically verifiable. That is why they are flawed for almost everything. They also don't allow discretion, intent, or anything that almost everyone wants to be considered in a contract.
They also wouldn't do away with lawyers fees they would just replace them with lawyers who are also programmers fees since you don't want a novice to code a smart contract since they are locked in so if its not in the contact it doesn't matter.
Smart contract proponents(well a lot of them) believe they will literally replace the whole legal system.
It seems impossibly complex to predetermine the resolution of all possible human outcomes and encode it into a smart contract within a reasonable amount of time and effort.
- whether a significant share has testable conditions
- whether eventual regulatory burdens can get diminished
- whether the benefits for a use-case make it possible to introduce testable conditions (like this: https://news.ycombinator.com/item?id=13807297, or i was recently on a hackathon organised by a power provider who fears a blockchain-based marketplace will put him out of business. I was surprised how realistic they fear was. Maybe not today but alle the necessary steps are getting worked out right now)
Also to answer your concern: I think if there is a significant demand, supply will appear. Bootcamps etc are a step. But first we need a better Programming-Language. Ethereums Javascript-like Language is awful and really not useful for contracts. It's hard to impossible to automatically verify behaviour. I think it's possible to build a practical Language that's easy to prove correct.
Perhaps this makes the metaphor even more apt than intended, however unintentionally.
For example let's say you're at JP Morgan and are operating a $10 billion conduit ("warehouse") facility. You have a series of eligibility criteria for every originator contributing loans into the program (each of which have dozens of measurable events like average FICO, seasoning, prepayment speeds, days delinquent, etc) in addition to the vast plethora of nonfinancial terms and conditions you pointed out. Every month, these originators file a monthly remit report which in theory must be accurate (failing to do so could instantly eliminate your access to the conduit and tank your business, not something to take lightly). Right now, a banker must process all of the monthly remits for each individual facility and compare them against what was agreed to in the docs. There could be a hundred contributors to the conduit and if you happen to sit on said desk there will only be 2-3 of you managing this process. It simply can't be done.
I've spent a lot of time looking at smart contracts and block chain and have walked away a bit skeptical. There are some very real and very serious issues this in theory can address, I just think there are better ways to do it.
OK; but what makes blockchain special for automating this as opposed to more generic software?
I'm a bit confused about the blockchain excitement. I can see it has potential for oiling transactions between unfamiliar parties. However, for big banks is it ever the case that the parties don't know each other? They'll have to agree on a common set of protocols to implement a block chain based solution, so what does it buy them over and above a more conventional API?
In multi-party scenarios, you often find intermediaries whose primary function is to act as a centralized, trusted exchange for the other parties, performing the job of the banker in the sentence you quoted. One reason this is needed is that without them, there's a lot of room for collusion between parties that deal with each other directly.
These intermediaries do currently use "more generic software", but you still need a company to run and operate that software. Blockchains can replace such companies, or at least replace one of their main reasons for existing.
In many cases, it would be possible to come up with an application-specific approach to securely and verifiably operating multi-party transactions without intermediaries, but that's not done much because it's generally just easier to use the intermediary model. Also, implementing secure decentralized transaction systems is outside of the the core competencies of the companies that need such capabilities.
Blockchains provide a generic, non-application-specific approach to implementing a secure, shared, distributed ledger, so that applications can focus on generating the transactions and not worry about the issues involved with securing a shared ledger.
Exactly. While laws and contract terms are written in natural language, this is an AI-complete problem. Not to say we won't solve AGI or important parts of automated legal dispute resolution, but the blockchain and even blockchain-based distributed computing is incidental.
Beautiful way of putting it.
I want to take it one step further, however:
While laws and contracts are written for human consumption this will be a problem. In the same way that DRM is always going to have to allow for users to view video with analog eyeballs and hear sound with analog ears, if laws and contracts are to be sensible to humans, they must be written in something a lot like normal language. I always argue that legalese is something more than normal language, but the point is that even in this stance, the interpreter is still a human being with semantic judgment faculties, and not a compiler or run-time interpreter.
You know why I do not anticipate that this will ever come to pass? The people in power that write laws and enforce contracts are human beings.
As soon as you are in a situation where one of the parties protests that "strict compliance with the terms is not enough, common sense must apply" your situation is AI-complete.
While databaseing case facts, contracts, documents, laws, jurisprudence, etc. has escalated in recent years, fundamentally a law firm is not providing those as key services - they are ancillary profit centers. One hires a contract manager to manage contracts, not a top-flight firm.
The value proposition of a law practice is dependable competence in a wide spectrum of related sub-fields. As those profit centers are commoditized and margins fall, firms will merely shift pricing, technology and talent sourcing strategy, not fall apart, because in many cases, the amount of people with competence in those fields is countably limited. Most top flight firms will be fairly straightforward with you if you ask: they don't compete on price. They compete for clients on quality of service and prestige.
The fantasy that law will act autonomously with little intervention is charming and sensible to non-practitioners. The rules are the rules, after all, what could go possibly go wrong? In practice, the answer is often 'everything'.
Also, saying that I haven't heard of Law 2.0 is like asserting a particular developer hasn't heard of Web 2.0. It's... a strange accusation, to say the least. And one that distinguishes you as an outsider.
As an individual if I want a lawyer for anything right now, I am most likely going to wind up with a complete technophobe who is barely computer literate enough to copy and paste the boilerplate legal document they make for me.
Canned contracts are great and a wonderful money saver until they are needed. It's just lucky that most contracts individuals are involved in are never needed.
Look halfway down this article on the proposed health care replacement bill for an example of current legislative version control.
https://www.bloomberg.com/view/articles/2017-03-07/the-repub...
I think there is a strong push for standard provisions, definitions, etc. The problem is that while every relationship is similar, there are always enough edge cases that forms are often only good as starting points. W/r/t to building knowledge bases for law firms, parsing existing contracts so that they are searchable and usable as sources of knowledge is a hard problem.
I like to present it from the "business process" angle but after you get through the side effects of "protocolizing" things like cash and composable financial instruments, the new things we can do are currently under the umbrella of contract law. One simple example is 2-of-3 multisig for escrows.
From a legal perspective, as you point out, they are ridiculous, because they can't encode legally "interesting" contracts.
Many people seem to think that smart contracts can be used to replace more economic-oriented contacts, like "paying dividends to shareholders". Unfortunately here they are also useless -- the only contracts you can effectively have are zero-sum contracts; you can't have an unfunded future obligation.
Even the most basic of financial contracts, like "I'll give you $500 now and you give me $50 a month for the next 12 months", can't be effectively encoded unless I (the debtor) has $600 at the time of the issuance of the contract, so why am I taking a loan for $500? The best you can do is create a certain class of non-deliverable futures, but in the process, tying up the funds until the contract matures, and essentially preventing the use of credit in the process, which makes them useless except for toy applications.
The more interesting and viable use cases are actually more complex contracts. As a simple example consider a syndicated loan, where loan payments are distributed amongst a group. A smart contract could automate that distribution.
There are much more complex examples with multi-directional cashflows between multiple parties, where smart contracts could absolutely take care of the day to day execution of the contract.
There seems to be some confusion over the term "contract" in this context, though. Many people tend to jump to thinking it means "anything that could possibly be written in a legal contract," but the reality is that the subset of things which could be easily automated by smart contracts is enormous, worth trillions of dollars annually, even though there's a much bigger chunk that's not currently automatable.
If there's no payment, you get an immediately collectable judgment against debtor, or trigger a transfer in other payment streams (from an employer, etc.) or transfers in non-cash collateral (which, depending on the success of block chain, could eventually include block-chain titles to cars, property, other securities, etc.). Usually, banks only lend to the cash poor but asset rich, so that's not so different.
I see blockchain eventually becoming key for short term rental -- hotels, cars maybe. But the legal complexity between the law of hotel rooms and rental houses is huge.
You're right that many contracts are not well specified. These are "bugs" in contracts. People will have to write bug-free smart contracts. There will be a library of contract templates (github-style). This stuff already exists with contracts - lawyers have software that spit out standard forms and fills in the name of their party. And we pay them $500/hour to do it.
I think if you meditate about what qualifies as "taxable income" you'll be much less sure about this. There are also accountants who are paid $500/hr, and it isn't because computers can't tally a column in a spreadsheet.
Having scanned through the article they basically point out why their premise is wrong. "lawyers argue that regulation through code alone is inflexible and doesn’t permit any role for useful discretion".
>In the case of cryptocurrencies, we’re seeing far more aggressive investments of venture capital than we did for the internet during similar early stages of development.
Also this is provably wrong. Blockchain VC sits at around 2b over the course of 8 years and it has basically all but dried up. Internet companies had passed that by 96 after 2 years. 8 years after the start of the commercial internet was 2002.
The idea that intent is an important part of determining the punishment/morals of the crime came out of the French Enlightenment. I'd really rather not roll back this. The difference between an accident, manslaughter, and first degree murder are non-trivial and VERY IMPORTANT.
Also fuck you if you want to train an ML bot to that job. You clear don't get it.
And how long until you can train the ML bot to do better than a randomly selected jury at predicting what a larger jury would make of a case?
"Your parcel was delivered, but the contents were damaged. According to the picture provided by the purchaser the person inside died while in transit."
What? A person? "It was a mannequin. It's a piece of plastic."
The bot prints out a thermal receipt onto a tray. "You are charged with: Manslaughter. Fifteen to twenty years. Sign here."
> Also fuck you if you want to train an ML bot to that job. You clear don't get it.
Very interesting :) - can you elaborate more?
In a recent contract I worked on the definition of "material adverse effect" took up a page of single spaced 12 point times new roman text and had about two dozen other definitions involved. Each one of those terms, at its root, comes down to a judgment call that is subject to disagreement among reasonable people. This is why we have trials.
Not exactly what the internet ordered.
And tourists on a per capita basis contribute far more per day than long-term residents, since they're in high spending mode. They also consume fewer government services like welfare and medical care, so they don't cost the taxpayer as much.
Airbnb also makes it much easier to rent out spare units that would otherwise sit empty. It makes it easier to rent out that extra bedroom, or your unit while you go on vacation for two weeks. That increases total housing supply. Short term housing is still part of housing supply. People need affordable options when they're transitioning from one long term unit to another. It's not always a same day transition.
Markets in general benefit mankind, by allowing more efficient exchange. This is Econ 101 stuff, for which there is mountain of real world evidence.
Uber is definitely not fucked because customers don't wanna use Uber.
thank the internet.
What protocols are people using on the internet that are peer-to-peer?