By deploying such an immutable contract to be the custodian of customer funds, such an entity is essentially making a hard/inescapable precommitment to doing for users, whatever the contract happens to do. In a sense, the central entity's owner is not the true custodian of people's locked funds; rather, the contract itself is, and the contract can be independently audited by anyone who cares, before anyone begins using it, to prove that it will only ever be able to act in the public interest, rather than in the corporation's interest.
The central entity get to initially craft those rules however they like, and so can certainly design the contract to act favorably to them; but then the contract gets (immutably) deployed, and everyone else then gets the opportunity to look at the rules of the contract-as-deployed, to decide for themselves if they're equitable. If they're not, nobody will bother to interact with the contract.
But crucially, this "community of node operators" consists of a multilateral coalition of people and companies operating under every different society / government jurisdiction on the planet, with no single government that can compel enough operators at once to actually get the majority required to compel the state of the blockchain to change.
In other words, blockchains are systems with democratic recourse, but not authoritarian recourse. They can be altered from the bottom up to fix problems caused by immutability, if basically "a referendum run against a representative sampling of the population of Earth" agrees with the alteration; but they cannot be commanded to change from the top down, just because some individual entity with a conflux of power wants it to happen. No legal system can force a smart contract to do what you like; but common sense and human empathy can still override bad machine decisions when necessary.
I vote for rule of law, 100%.
> In other words, blockchains are systems with democratic recourse, but not authoritarian recourse.
No, "lawful" and "authoritarian" are not synonyms. No, letting people "vote" with their money is not democracy.
You pervert the meanings of the words sufficiently that you have literally reversed their meanings. Laws are created by the people's representatives, who are elected democratically.
I didn't say they were. But laws that the majority of the public agree with / would enforce themselves if given the chance, don't really need to be laws; in such cases, bottom-up action (not in a lynch-mob sense, but in a "petition that literally everyone signs, so people just agree amongst themselves to make it happen" sense) will correspond 1:1 with what any government optimizing for "the public good" would institute top-down as law. You can ignore the existence of bottom-up-supported top-down laws when speaking about the interface between "law" and decentralized technology, because regardless of whether the law can influence the decentralized system, the cultural zeitgeist of societal pressure that underlies the law, still can.
As such, it's only laws that the majority don't agree with — i.e. top-down dictated laws in authoritarian societies, un-audited regulations from corrupt bureaucracies, etc — where things behave differently in a decentralized system than they would under rule of law.
(Good secondary example of this: BitTorrent trackers. The majority of people seemingly don't agree with the sort of corporate IP "use rights" that underlie the illegality of media piracy; so most/all BitTorrent trackers do nothing to prevent the sharing of copyrighted materials. But the majority of people do generally agree that CSAM is unethical to distribute; and so public BitTorrent tracker operators do bother to prevent their nodes from enabling the sharing of such files.)
Also, I think you're potentially forgetting that there are multiple "rules of law" to talk about here. A decentralized system is inherently a single system shared across participants who exist under multiple countries — i.e., a multilateral system. If you want "rule of law" to pertain to such a system's logic, then whose rule of law would that be? Do you want China, Russia, and Saudi Arabia to all have a say in what transactions you're allowed to do?
(To be very pedantic, a world government could easily dictate what happens on a blockchain, because they would have authority over every single node operator. So one could technically say that blockchains aren't abandoning the rule of law per se... but rather are just holding "the rule of law" to a very high standard — ignoring any law that everyone on earth can't all agree on.)
> No, letting people "vote" with their money is not democracy.
Nobody said anything about voting, or money. Blockchains exist on a lower level than the abstractions they enact. Fundamentally, changes are made to how a blockchain works not because people vote, or stake, or whatever else; but rather because blockchain-node-software operators voluntarily opt in to upgrading their nodes to versions/variants that have a given feature, and then to enabling a proposed hard-fork upgrade point that makes that feature happen.
These blockchain node operators are peers in a network, and the "democracy" they participate in is one of voluntarism — i.e. choosing to run a piece of node software that encodes particular rules, or not; choosing to validate/mine for a particular network, or not. Networks that people don't care for, die, because people voluntarily stop running the nodes. Network changes (which really means "node software changes") that people don't like, don't get adopted by node operators, because doing so is always an explicitly opt-in process.
This isn't representative democracy. This is direct democracy. Each software change is a default-deny referendum, "proposed" by coding it into a piece of node-software, which operators "sign" by upgrading+configuring their node software. The network only changes if enough people actually do upgrade+configure their node software, for the fork block that was created using the novel code to reach fixation in the network over the fork block that would be created by anyone in the network still running the old code.
If you store a lot of cash in your home safe, eventually you will need more space - this is one reason banks exist. If you try to move a lot of cash quickly from one person or location to another, you will have a hard time - this is another reason banks and money transfer exists. If somebody breaks into your home safe, they probably will have immediate access to your cash - see smart contract wallets[1] and social recovery wallets[2] as an example of a more secure "crypto safe."
I agree that a concern in blockchain is that regulation and services may restrict users ability to withdraw to the base layer, see my other comment[3]. To me this is not a failing of the blockchain. It would be like governments restricting the use of internet or E2EE chat protocols - which is happening in some parts of the world - this does not mean the protocols have failed to meet their goals.
[1] https://www.argent.xyz/learn/what-is-a-smart-contract-wallet...