There are two problems though:
1. For long-duration contracts, tying up that much capital is considered capital-inefficient by traditional financial system standards. It's tied up for a duration it could be making interest elsewhere, even if just the risk-free rate with T-bills or LIBOR. Conversely, it is very redundant and guarantees counterparty performance, there's no chance of a breach of contract.
2. Smart contracts that are settled by real-world data or events are subject to the oracle problem - you must trust both the data source, and its transmission onto the blockchain. If the oracle performing that function provides incorrect data, either accidentally or maliciously, it will cause the smart contract to settle incorrectly, and there's no recourse or claw back possible.
So smart contracts are not without their challenges, but they don't depend on real world law enforcement to guarantee settlement.
>it will cause the smart contract to settle incorrectly, and there's no recourse or claw back possible.
"Smart" contracts are subject to applicable contract law, and are susceptible to all normal causes for invalidating or reverting a contract under such law. Try telling a judge in a contract dispute case that code is law and they have no authority to rule on the contract, maybe they'll thank you for the laugh.
>but they don't depend on real world law enforcement to guarantee settlement.
You're missing the parent's point: smart contracts can't teleport objects to you, or compel people to perform services for you. If you pay for a good or service and it's not delivered or performed, or you believe it wasn't adequately delivered or performed in accordance with the contract terms, you would go to court to enforce the contract as with any other.
I will never understand why people believe these things have magic powers to alter the real world.
Smart contracts are by default anonymous. Good luck taking an anonymous counterparty to court. That's the reason why smart contracts must be fully- or over-collateralized, because you can't rely on courts and contract law to back you up. Even if it's legally applicable, the actual ability to apply it may be difficult or impossible.
> You're missing the parent's point: smart contracts can't teleport objects to you, or compel people to perform services for you. If you pay for a good or service and it's not delivered or performed, or you believe it wasn't adequately delivered or performed in accordance with the contract terms, you would go to court to enforce the contract as with any other.
No I'm not, that's why I included discussion of the oracle problem. If you don't understand how oracles coordinate real-world delivery of a good or service to on-chain payment, then you need to go read up on this stuff some more. (I'm not advocating for oracles, I'm generally a skeptic, but any discussion of blockchain DvP must include them)
Yes, you did. You're doing what blockchain enthusiasts always do, speak in abstract terms about how things should theoretically work, not how things actually operate in the real world. You lack even the most basic understanding of what contracts are or how they work.
This is just the latest iteration of the oddly-pervasive belief that the online world is another universe disconnected from normal reality, and therefore not subject to real-world law or power. People are always shocked to find that it isn't true.
There are certain things that can be more easily audited, verified or enforced on-chain. For example, payments could be automated (potentially based on verifiable data), or secured lending could happen programmatically.
At the end of the day, yes, you still want to have legal enforcement, i.e., if someone defrauds you on chain, that's still a crime and should be enforced, or if someone fails to deliver, you should still have a contract claim against them.