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Comment by root_axis | Hacker News Reader

Smart contracts are DOA, it's not an economic issue, it's a technical one; the rules of the smart contract can only be enforced on the blockchain, any concerns outside of that must necessarily fall back on the traditional legal system for enforcement thus eliminating any utility the smart contract intends to provide.

edit: I'm not saying there is no value in systems of arbitration outside the traditional legal system, I'm saying that a blockchain is super wasteful and expensive relative to a centralized system that can accomplish the same guarantees because they share the same legal underpinning, i.e. the courts. There is no legal difference between a smart contract and word document.

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I wouldn't write this off so quickly.

The analog is Visa. What would ordinarily be a huge lawsuit is settled by a private commercial arbitration process--namely, a chargeback--in case of dispute.

Courts are tremendously expensive and burdensome. There is real economic value created when someone figures out how to move what would otherwise have to go to court, to a separate arbitration process that's perceived as "fair" by everyone involved. I'm not saying that's the right solution for everyone or everything, only that courts should be a last, not first, resort, in case of dispute.

Right so it's done by people, following a set of policies, all of which ultimately are subordinate to written laws. So like what's the alternative you're suggesting?

Smart contracts enable this mechanism to be pre-agreed upon and have the authority automatically and securely deferred to the pre-arranged arbiter. This improves transparency, reduces transaction costs, and starts the process of commoditizing oracles/arbitration.

So instead of a lawyer or arbitrator we get another kind of arbitrator, or an "oracle" which is at root is a human making decisions and putting them into a digital system of some sort.

Both of which, like every other extant thing, are subject to review by the courts if their actions make people sufficiently unhappy.

And, though now it's confusing, opaque, and unreliable, this system will be cheaper and more transparent because...

Because it limits the scope of the arbiters responsibilities and capabilities, and precisely specifies their purpose.

Those benefits you're describing are the result of a writing a contract, not of embodying the contract in a digital construct [edited for clarity]

Sure. What is your point?

EDIT: I guess i'll respond to your edit with another edit. I understand your point, that you can say the same things using a traditional contract, but they don't have the same force. For example, the smart contract can automate and execute the disbursal of funds based on the attestation of some pre-defined oracle. While it's true that this oracle is not decentralized, it is now isolated and scoped. It's role is proscribed to solely this - attestation, and everything else is actuated around that oracle, in a secure and trustless way. I believe that the ability to circumscribe and scope responsibilities in a computational way has valuable benefits, insofar as it commoditizes and modularizes the processes involved. I think of it like a shipping container. Shipping containers commoditize and modularize shipping. Smart contracts commoditize and modularize adjudication.

So what does the smart contract bring that the regular written contract doesn't?

All of my responses in this thread have thus far been enumerating them.

As yodon explained, those benefits are handled just as well by ordinary contracts. I've still never got a straight answer from anyone about what smart contracts _actually_ bring to the table.

See my edited response to yodon. I'll also add, that they free up innovation in a valuable way. Take Augur, for example. If you're not familiar, Augur is a decentralized prediction market. In order for a non-crypto startup to create something like a prediction market, they'd need to develop serious banking relationships with banks. The banks could simply refuse to work with them, charge them exorbitant fees, and otherwise encumber the process.

However, since Augur is built on the Ethereum network, they didn't need to ask anyone's permission, and they don't ever need to have custody of anyone's funds. This is an example of 'permissionless innovation', to use the buzzword of the day. Permissionless innovation is understood to be one of the most important drivers of economic dynamism, and right now any sort of application that touches the financial sector is heavily burdened by the fact that our financial system is predicated on trust. Smart contracts solve that problem. This is a very subtle point, but it is extremely significant, in my opinion.

> The analog is Visa. What would ordinarily be a huge lawsuit is settled by a private commercial arbitration process--namely, a chargeback--in case of dispute.

Which remains a process with human-based wiggle room.

Yes. And that is a feature in my view.

You should read some of Larry Lessig's work on this topic. If every law was enforced strictly to the letter, the world would be a very different place than it is now. You would get a ticket for going 0.1 mph over the speed limit. You couldn't spend $1 over your credit limit on your card. Your landlord would penalize you for being 1 day late. Every cancellation policy at every hotel would always be rigidly enforced.

The point is lowering the cost in the common case while still providing recourse in exceptional circumstances. That, in my mind, is still a huge net positive.

Visa is a payment network, not an issuer (like Discover or AMEX). They don't issue credit cards to consumers, they just act as the underlying technology in the five-party model connecting merchants to consumers and their banks and the merchant's bank. Chargebacks are disputed with the issuing bank, not Visa...

I know this. But Visa sets the rules of the game. They make the rules, everyone else participates.

Visa isn't really a technology company. That's how they started, but these days, I think of them as more of a "facilitation platform" responsible for getting everyone into one legally sound network and defining common standards for things, everything from data interchange to how long customers have to request chargebacks, how long banks have to respond, what are valid reasons for revoking an authorization, etc.

My point is that the courts make the decisions, not the state of a blockchain or any other computer system. Since a blockchain is just like any other computer system with regard to legal capabilities, using it is a net negative because of all the well-known problems of a blockchain system.

Except the merchant loses the chargeback disputes the majority of the time. Chargeback is great if you are a consumer and a nightmare if you're a business.

Why specifically traditional legal system? We have things like credit card anti fraud or arbitration courts that work outside of it. Of course these entities need a way to enforce their rulings, but this issue is built into the traditional legal systems, not smart contracts, and can be changed (no idea how to do it correctly, though - just like we're not yet sure how to do smart contracts correctly).

Also, saying that there is no utility because in some edge cases, a traditional system is required, that's like saying a computer is useless because sometimes you need to have things on a paper.

> We have things like credit card anti fraud or arbitration courts that work outside of it.

These things are within, and subordinate to, the legal system.

>> These things are within, and subordinate to, the legal system.

Small point: They are not within. They are private arrangements in addition to the legal system. They are creations of contract between individuals and represent the wills of only those individuals. The legal system is created by legislatures and legal societies (bars), bound by ethical rules, and are representative of the people generally.

The distinction is important. People should not think that arbitration committees or VISA's dispute resolution process is in any way part of the legal system. The legal system belongs to the country, to the democracy. Arbitration services belong only to themselves.

I am no fan of arbitration agreements and the trend of avoiding courts for big corporations. But in this context, simply as a technical matter, arbitration is within and subordinate to the legal system.

You can sue anyone for any reason at any time, period. The degree to which you might succeed depends on laws. To the extent a contract demands arbitration it's because it is a contract, which is defined by the legal system. The system of arbitration depends on those laws to be effective, and the backstop for it is always the courts.

This isn't true in the reverse. Congress could outlaw or limit arbitration tomorrow. No arbitrator could dissolve Congress.

The contract is, by extension, guaranteed by violence. You can have private security firms. (I'm not saying that it's good or bad, just that it's a possibility).

> Smart contracts are DOA, it's not an economic issue, it's a technical one; the rules of the smart contract can only be enforced on the blockchain, any concerns outside of that must necessarily fall back on the traditional legal system for enforcement thus eliminating any utility the smart contract intends to provide.

Nope.

If a normal contract isn't honoured you can go to a judge and ask him to enforce it in some way. It the judge agrees, his decision is then supposedly implemented by the state (police, sheriff of some other state agency) who somehow arranges for the value to be transferred to you - maybe by transferring the value from a bank account, or maybe by forcing the sale of assets. In reality, if you've gone through this process, you will know it's not easy or cheap to make it happen.

In smart contracts the judge is replaced by the mathematics behind the contract. There is no "getting a judge to agree" - it just happens. The actual transfer value is done by the block chain, but the value transferred is not money - it's in the virtual currency. Unlike getting to state officers to their thing the outcome is absolutely guaranteed, totally automatic and free or very close to it - you _will_ get your virtual currency.

The only nit is the value of the smart contract depends on virtual currency being worth money, otherwise it's all a bit meaningless. But if it is worth money something very real has happened - the smart contract has enforced its terms by moving money from them to you. And contrary to what you say, it didn't need help from the state, guns, or anything else beyond the block chain.

Your reply appears disingenuous to me. Obviously the smart-contract has control over the tokens, the problem is that tokens are the only thing they can control or even be trusted to reason about. People don't care about tokens, they care about all the other assets that blockchain enthusiasts are always talking about tokenizing like houses, art, land-deeds, shipping containers etc etc. None of that is workable. If your only point is to tell me that blockchain tokens can be moved around autonomously on the internet... great, welcome to a decade ago, now why is that useful?

> People don't care about tokens, they care about all the other assets that blockchain enthusiasts are always talking about tokenizing like houses, art, land-deeds, shipping containers etc etc.

You were talking about smart contracts. My answer was about smart contracts I've seen deployed - things like the lighting network and Ethereum's ICO's. If you are saying using the blockchains to manage land-deeds will never work, well maybe you are right. As far as I am aware using a blockchain to directly manage the things you mention hasn't been made to work yet, and to be honest I don't see how it could be made to work.

But using a block chain indirectly to control some of these things seems possible. That's what Ethereum ICO's endeavour to do, and perhaps out there is an ICO out there that works now (I haven't been following). If so it works via the mechanism I described. The ICO turns the "thing" being controlled (CPU Cycles, storage, or whatever) into a tradable commodity which is another way it the flow of the commodity is controlled by money. As you must be aware successful virtual currencies control the flow of money, which in turns means they can be used to control the flow of the commodity. Smart contracts control flow of virtual currencies. QED - smart controls can control commodities.

None of this depends on governments, guns or violence. Instead it depends on there being a market. The reason the value in the virtual currency is secure is because there are lots of people willing to pay for it. The reason purchasing CPU Cycles is secure is because there are lots of people willing to sell you CPU cycles and so a vendor doesn't deliver CPU cycles the customers just move on, the vendor dies but the market continues on happily.

How this could be extended to land-deeds is, as you say, difficult to imagine. But claiming this means "Smart contracts are DOA" is just plain wrong - they work for lots of things, just not the examples you happened to be thinking about.

Your comment is a non sequitur. Blockchains already depend on physical matter, human social behavior, game theory, and yes, the legal system. Mining farms require legal protection to prevent marauders from commandeering them.

An example of a blockchain/legal system hybrid is colored coins, where a token represents a real world asset. The legal system is required to enforce whatever contractual obligations are implied by that token. But it still adds value over a purely legal approach as at least ownership and transfer of it is transparent.

> it still adds value over a purely legal approach as at least ownership and transfer of it is transparent

It adds dubious value over a shared database.

But someone always controls that shared database. Distributed ledgers continue functioning regardless of private or governmental change and are resistant to rent seeking behavior making them unsustainably expensive or ungainly.

> An example of a blockchain/legal system hybrid is colored coins, where a token represents a real world asset

Equally pointless. What if I steal your private keys and authorize the sale of your house tokens to myself for dirt cheap?

The answer is that it doesn't matter what the blockchain says because it is the prerogative of the courts to resolve these disputes.

For these to work, the economic and technical issue at hand have to be one and the same. You either do, or don't, get the money once X,Y,Z conditions are met (conditions must be verifiable on the blockchain). Outside of that, you're right, it requires outside mechanisms to enforce.

> conditions must be verifiable on the blockchain

And that's where it all falls to bits. Without trusted oracles there is no way to get real world information onto the blockchain.

There are people working on this problem, with some progress and success. Also, reducing the contract problem to the oracle problem is an important advancement, and even if you end up simply trusting oracles, you've made a substantial improvement, imo.

There's a familiar pattern here.

1. Person points to the fact that all existing blockchain implementations are wildly impractical, or logically impossible, or are just more convoluted and confusing versions of the current system with blockchain layered on top.

2. People point out that "there are people working on this problem" and not to worry.

3. A year or two passes.

4. Person points to the fact that all existing blockchain implementations are wildly impractical, or logically impossible, or are just more convoluted and confusing versions of the current system with blockchain layered on top.

Or maybe you're just not very familiar with the state of the art? Token curated registries and Schelling-voting prediction markets can be and are being used as oracles effectively. Oracles are being used all over the place with many different architectures - some centralized, some decentralized. People are iterating on solutions as we speak, and many of them are operational and functioning smoothly as we speak.

When I say these things are 'being worked on', I don't mean they are abstract, purely theoretical ideas being discussed on github threads and dueling whitepapers. Many of them actually exist and are being used to safeguard funds and enforce contracts right now. I say it's being worked on because I don't think we have achieved the final vision of exactly the best ways of doing these things yet, it's an evolving process. Do not mistake that for a lack of progress.

The significance you are missing is tools are being developed for a world where everything occurs in an anonymous internet marketplace. If you are running a business based on anonymity, the traditional legal system is of no use to you. This type of system that was dreamed of for decades - an anonymous world which is free from government intrusion. The internet, crypto, decentralized marketplaces, and smart contracts are just the enablers to building such a world. Just look at the dark net markets as an example. Thats a basic setup. People are building new tools to allow for more complex transactions.

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