Enter the Crypto Legal Matrix

Crypto sees “Law” as the problem & “CryptoLaw” as a solution. Crypto should see law as a matrix, instead.

(This is a part of a bigger analytical project, CryptoLaw, which is available on Crypto Law Review.)

1. Seeing the Legal Matrix

What CryptoLawyers should see once they start their self-directed law study is that “law in action” is often radically different from so-called “law on the books” — especially in emerging tech-law nexus areas like CryptoLaw.

Law School

This may come as a surprise to coders who are used to rigid logics, and expect similar rigor from legal forms and processes.

But for lawyers all over the world, the messy gray areas between “law in action” and “law on the books” is … home turf. These gray areas are why the world needs lawyers, and why lawyers can never be replaced by code.

Gray areas are not bugs in the system; they are the system.

Sample Legal Gray Matter = Rule (containing Exception (that breaks & affirms Rule, simultaneously))

To succeed in a system run by lawyers, it’s extremely important to understand how lawyers actually work to resolve particular disputes.

Instead of falling back on wildly inaccurate cliches about ‘lawsuits,’ ‘trials,’ impartial ‘all-law-knowing judges’ and mythical ‘triers of fact’ — crypto folks should understand that law people are just people.

Human law and human justice are imperfect, but they are not problems to be “solved” or coded around. The alternative — algorithmic justice — is far more inefficient, costly, and oppressive than the dizzying patchwork of legal regimes we have at present.

Human law people work hard to get you the best outcomes they can, while educating you about the importance of faith in certain baseline rules that structure the Legal Matrix.

Crucially, good lawyers will tell you that there isn’t one correct way of doing legal battle. Instead, in a big enough legal fight, every tool and tactic is fair game — including tweaks to certain rules that structure the Legal Matrix itself.

Law Library.

While legal communities, by and large, are some of the most conservative and path dependent institutions in the world, they are also remarkably adaptable.

Law maintains its firm grip on Power by mutating. Sometimes these mutations are so slow, they are imperceptible. Sometimes, the mutations are lightning fast. Fast or slow, law people understand that to maintain their firm hold on power, they have to adapt.

2. Legal Practice = Bending The Law

Now that we’ve plugged into the reality of law practice in the global Legal Matrix, we can see that legal practice is nothing more than skilled manipulation of the law and legal processes.

In a very real sense, day-to-day law practice is nothing more than a lawyer folding and bending “the law” to advance particular clients’ objectives.

Please note, we’re using the words “bending” and “manipulation” in their literal senses (bending ≠ breaking; manipulation = changing an object’s or phenomenon’s properties with one’s hands).

Far beyond just CryptoLaw, law practice in general means seeing the Legal Matrix and understanding how it works.

Legal Matrix

Once lawyers start to understand how the Legal Matrix is structured, they learn how to stop bullets in a very literal sense (think civil actions against weapons manufacturers, criminal law, death penalty appellate work, etc.).

Law Practice

Non-lawyers might have thought what lawyers or judges do is just “apply” some more or less fixed and immutable version of “the Law.”

But application necessarily implies interpretation, which introduces subjectivity and opportunities for bending rules in this and/or that direction, often simultaneously.

Good Lawyering

Substantively and/or procedurally (e.g., alternative pleading), the Legal Matrix doesn’t hide the fact that it’s fluid and evolving. It doesn’t need to.

Erie Doctrine (aka, the blurred line between substantive & procedural law)

Quite the opposite, the Legal Matrix constantly needs new coders (aka, lawyers) to replenish its ranks of LawSmiths & Law-operators.

So in law schools all over the world, first year law students are quickly exposed to how the Legal Matrix is structured, often in very blunt ways.

1L

Because the Legal Matrix is so complex and the threats within it, and to it, are so urgent and real, there’s no time to spare.

Whether you’re a 27L (a practitioner in her 27th year of Law study) or a 2L or a non-L pursuing independent law study, you quickly realize that (a) linear time & (b) time scarcity are also part of one’s legal arsenal.

The Legal Matrix may be fluid and all that, but it’s not a time machine. We can’t break all the laws of physics.

3. “Smart Contract” Battlefield

To see how legal struggles for primacy play out in the Crypto Legal Matrix, we can look at the ongoing war over “smart contract.”

Importantly, this is just an example, one battlefield of many. Similar battles are raging over classification of crypto instruments as “securities,” “currencies,” and so on.

The CryptoLaw Bar

To help us understand what’s going on in these fights, we introduce some lawyers into the mix, including some smart ones, and some misguided ones. Please note that in talking about lawyers in the “smart contract” context, we’re not talking narrowly about only those people licensed to practice law in a particular jurisdiction.

Given the centrality of Legalese (and legal forms like ‘contract,’ ‘property,’ ‘legal personality,’ ‘jurisdiction,’ and other legal forms) to projects like Ethereum, EOS, etc., by this point it’s fair game to go ahead and classify people like Vitalik Buterin as full-fledged CryptoLawyers — even though they might not have studied law in any formal institutional sense.

This may sound outlandish to some, but many existing bar licensure rules around the world permit supervised independent study of law to satisfy the educational prerequisite for licensure.

And given Vitalik Buterin’s collaboration with leading lawyers, and his publication record, we think it’s appropriate to finally say:

Congratulations, Vitalik Buterin, Esq. (and the broader Crypto Law School Class of 2018) on your admission to the CryptoLaw Bar!
Now, as you may know, the first step following admission to any Bar association is paying your dues. The second step is acknowledging the full weight of shared legal responsibilities that you owe to the Bar, and to the public it serves.
Welcome!

In the high-stakes world of CryptoLaw, steps one and two above are one and the same. They basically require acknowledgement of the real-world costs of CryptoLaw malpractice.

Senator Smith; Judge Smith; General Smith; Esquire Smith — simultaneously.

We must remember one of the most profound nuances of The Matrix: what happens in the Legal Matrix doesn’t just stay in the matrix. Even that “self-contained legal system” couldn’t get rid of all the semi-permeable cracks.

Lawyers Are Brawlers

Now that we’ve expanded the CryptoLaw Bar, let’s see how lawyers fight.

By this point, we know that lawyers, judges, arbitrators (in short, “law folks”) employ every tool to advance their particular legal positions. Whatever the battle space calls for, law folks go back to their law libraries (see above) and pluck out the tools that will get the job done.

For instance, returning to “law on the books” & “law in action,” they can turn to legislative history to understand what a legislature or a legislative committee had in mind when they drafted a given law.

SmartLawyer > SmartContract

These battles are already playing out in the “smart contract” space, and they will only increase once new “smart contract” legislation goes to court.

Trial

Legal crews (aka law firms) will be able to point to the history of “smart contract” legislation, arguing that this legislation was passed to “legalize” or “formalize” the status of new technologies like “smart contracts.”

For instance, lawyers can glean the overarching object & purpose of “smart contract laws” like Tennessee’s 47–10–202(c) (Tennessee’s Senate Bill 1662, signed into law by Tennessee’s governor on March 22, 2018) from the plain letter of the statute:

Smart contracts may exist in commerce. No contract relating to a transaction shall be denied legal effect, validity, or enforceability solely because that contract is executed through a smart contract.

But as any lawyer anywhere in the world will confirm, if they need to, lawyers can almost always argue that their particular “smart contract” creature also operates outside of the scope a particular statute or regulation.

This is so irrespective of the fact that the “smart contract” under review called itself a “smart contract” or even expressly invoked a particular “smart contract” statutory or regulatory or “private law” legal regime as governing law.

SmartLawyers > SmartestLawyer

As with most things in life, whether you win or lose these argument will often depends on the strength of your legal crew.

“Be careful Neo, Esquire! You didn’t win. You just had a hell of a support network.” — CleanApp

Skilled CryptoLawyers (plural) will be able to argue that legislative interventions and definitions (like the Tennessee effort) were, and remain, superfluous. It doesn’t matter how strong or how smart an opposing LawSmith (singular) may seem.

Nine times out of ten, a crew of smart lawyers will demolish even the smartest lawyer working alone.

You can’t “smart contract” your way to a good reputation as a legal brawler; that reputation is earned over years of hard fights. You can’t just assert you have skilz unilaterally; smart lawyers know that they can be called on the carpet at any time, by any one.

That’s why smart lawyers are constantly training and building networks.

SmartLawyers: Ready to Fight, Anywhere

Furthermore, for the most part, it doesn’t even matter where these battles will be waged. Functionally speaking, even the seemingly big ‘choice of law’/‘choice of forum’ decisions like whether to fight in a civil law jurisdiction or common law jurisdiction are secondary considerations.

“Choice of law” and “choice of forum” questions are of vital importance. But even they are secondary to the “lawyer selection” question — whether you trust the advice of the lawyer who is steering you towards this forum, or that body of substantive law.

With a strong enough crew and a clear legal objective, anything is possible (as long as you’re vigilant about every possible external and internal attack vector):

Morpheus, Trinity, Neo & Cypherpunk, LLP

Statutes may seem super-duper formal and ultra-Matrix-y, until you remember the nuances you uploaded in law school. Even statutes and “settled case law” and “majority rules” are just samplings of legal authorities.

Nobody can ever have 100% knowledge or control over the Legal Matrix. It’s the ultimate decentralized crypto platform.

When the stakes are high enough, a good lawyer can effectively “re-interpret” statutory meaning in light of new technologies, new circumstances — in light of the common law of contract and/or another statutory scheme and/or X and/or Y and/or Z, and/or et al.

When push comes to shove, the lawyer can even fight to invalidate the statute under a dizzying number of legal grounds. No lawyer, no matter how skilled, can ever predict the outcome of a fight like this. But every lawyer will confirm that it’s really easy to get into a fight like this.

The “smart contract” domain is a great illustration of how easy it is to muck up the Crypto Legal Matrix from within, as well as from external angles of attack.

4. ‘Smart Contract’ Statutes Don’t Displace Cases

A common law argument for and/or against enforcement of a particular ‘smart contract’ could go along the following lines.

Of course “smart contracts” may exist in commence! We didn’t need a statute to tell us that: that’s Contract Law 101

Parties can create contractual relationships in any form, by any means, and can call their contractual relationship by any name they desire. The legal tests for contract formation are some of the oldest rules of private law in global legal history. The majority of the world’s legal systems have flexible contract law doctrines that anticipate technological change.

So, in light of this, is a particular ‘smart contract’ structure enforceable and/or binding and/or legal in, say, Tennessee? To make it even more concrete, is an Ethereum-based contract to transfer, say, 200 Littercoin (see OpenLitterMap) between a Memphis-based seller and Nashville-based buyer legally binding?

Any smart 1L, studying law anywhere in the world, will tell you that the answer to that question is: “it depends.”

It matters little whether Ethereum or Littercoin thought or think their joint and/or discrete ‘platforms’ or ‘services’ or ‘smart contracts’ or ‘coins’ or ‘tokens’ were or are “self-contained” and/or “self-enforcing.” In the broader context of the Legal Matrix (encompassing the Crypto Legal Matrix), the best prediction or answer we can give to the question above is:

¯\_(ツ)_/¯

The only way to actually get answers to these questions is to wage fights in particular cases, which can give legally en-force-able authority for those types of cases.

Every case opinion that’s added to the growing body of global case law on crypto becomes just another tool in a long and growing library of other legal authorities. There will never be, and can never be, a Eureka! moment of complete clarity. There will never be a point of arrival. Legal struggle and contestation will always continue, in the Cryptosphere, as elsewhere.

No matter how clear, how binding, and how authoritative legal rules may seem, parties’ and third parties’ ability to open up new legal attack vectors means even the most settled rule is always of an interim nature.

Need proof?

Recall big stakes cases that seem to never end. Or, just watch ‘The Matrix Reloaded’ and ‘The Matrix Revolutions.’

Even super lawyers like Neo, who possess nearly limitless power to redesign the Legal Matrix as they see fit, can’t manage to create a “self-sustaining legal system” that provides equitable and sustainable distribution of material resources.

That’s why we emphasize that so long as we have a rich pluralism of attack vectors (legal & otherwise) that can be used to bring down specific crypto instruments, entire crypto platforms, developed crypto markets like Silk Road, and entire crypto-ecosystems writ large, the strategy of further insulating crypto from the world will fail.

Aspiring to “self-contained legal instruments” and so-called “self-enforcing smart contracts” is just a reckless, unprincipled, and ultimately impossible form of lexscapism.

5. What Else Are “Smart Contract” Statutes Doing?

So, why are legislatures rushing to get in on ‘smart contracts’ if legislators should know that their interventions might actually make the legal regimes governing ‘smart contracts’ less clear, versus more clear?

First, we must remember that dedicated “smart contract” legislation can clarify legal relations in appropriate contexts (especially in terms of giving legislative guidance to regulatory agencies). So we’re not against legislation per se.

Just like a knife, legislation/regulation is not intrinsically bad; legislative/regulatory non-intervention is not intrinsically good.

The point thus far is that these are just select tools in a given lawyer’s toolkit. Lawyers can always invoke other sources of legal authority for and/or against particular legal positions.

Decrypting Legislative Agendas

What are other objects and purposes to “smart contract” legislation and regulatory intervention beyond clarifying legal status? The answer, of course, is “It depends!”

Even if it doesn’t clarify underlying legal forms in a material respect, legislation serves numerous other functions, such as educating, legitimating, and claiming jurisdictional reach.

For instance, today’s “smart contract” legislation serves as a very effective exercise of prescriptive jurisdiction and extraterritorial jurisdiction (pursuant to, say, the U.S. Constitution’s Full Faith & Credit clause, and various state & foreign analogues).

Increasing Regulatory Long-Arm Reach

Translating from Legalese, here’s one of the things that legislators are saying when they pass these types of statutes: “It’s cute that you thought you were creating ‘self-sustaining legal systems’ and ‘smart contracts.’ But so you don’t get ahead of yourself, simmer down, let us tell you what you’re actually creating.”

By continuing to take increasingly legalistic and legal-institutional turns, the DLT community is spurring these types of ad hoc legislative and regulatory interventions. With no apparent coordinated regulatory engagement strategy, the DLT community is ripe for age old “divide & conquer”/“define & tax” regulatory actions.

In a jurisdictional sense, the emphasis is less on what a given “smart contract” means, and more on who has the right to define.

As Warren G & Nate Dogg taught us, “we’re handy with the steel,” and we’re here to Regulate.

It’s not just about legislators or regulators giving themselves the right to define crypto. Claiming jurisdictional reach is also often an express assertion that other legal authorities shouldn’t encroach on the turf that’s already been claimed.

6. So, CryptoLawyers: Friends or Foes?

Here’s where it gets interesting.

Everyone should already see that lawyers who practice and continue to refine their holistic vision of Law as (Legal Matrix (Crypto Legal Matrix)) are potentially far more powerful than lawyers who subscribe to more bounded, formalistic visions of law, legal process, and legal institutions.

Litigation

But we should also recall that Cypherpunk was a name partner at Morpheus, Trinity, Neo & Cypherpunk, LLP before he went on to betray his old partners and clients.

Morpheus, Trinity, Neo & Cypherpunk, LLP
Blind trust in lawyers, crypto or otherwise, is imprudent. Just ask Donald Trump.

Keeping CryptoLawyers Honest

The solution to the Cypherpunk, Esq. “trust problem” isn’t to eliminate trust by coding it out of contract and attorney-client relationships. As we and others have argued, eliminating trust altogether is not really possible.

For now, our suggestion is to keep much closer tabs on self-nominated CryptoLawyers to track the evolution of their understanding of the Crypto Legal Matrix — and their role in it.

In Against “Smart Contracts,” and Crypto Needs Better Lawyers ASAP, we offer several express benchmarks for measuring the sophistication of a given lawyer’s understanding of the Crypto Legal Matrix: these suggestions range from the concrete (e.g., watch how your lawyer is billing “researching state-by-state ‘smart contract’ legislation/regulation”), to the more abstract (ask your self-proclaimed CryptoLawyer to define “global governance,” “political economy & law” and your crypto project’s place in relation to these spheres).

  • Keeping Them Honest #1: most CryptoLawyers should be doing “research on state-by-state and global ‘smart contract’ legislation/regulation” as part of their own continuing legal education, as opposed to trying to pass on the costs of bad 1st-generation CryptoLawyering (which brought ‘smart contract’ terminology into use in the first place) onto unwitting clients.
  • Keeping Them Honest #2: SmartLawyers should realize that the only folks who benefit from each subsequent wave of ‘smart contract’ legislation/regulation are lawyers. SmartLawyers doing a legal threat scan over a 5–10–20 year time span should realize that the best risk mitigation strategy that DLT/crypto can pursue right now is wholesale abolition of the use of unnecessary Legalese, such as the ill-fated term “smart contract.”
  • Keeping The Honest #3: Given their role in popularizing and evangelizing “smart contract” terminology, we hope folks like Nick Szabo, Dan Larimer, Charles Hoskinson, and Vitalik Buterin, Esq. lead the remedial effort to cleanse their respective projects and global crypto discourse this unnecessary, costly, and counter-productive term.

Who Are You To Keep Us Honest?

If you’re Cypherpunk, Esq. or Cypherpunk’s client(s), you should see that none of this is meant as an attack. Quite the opposite, we’re just urging conceptual rigor, comprehensive legal risk mitigation, and heightened vigilance.

As we wrote above, CleanApp Foundation has invested heavily in legal research and efforts to raise awareness about the costs of bad CryptoLawyering. This includes a growing knowledge base of global/comparative contract law resources, the Crypto Law Review.

Our work also includes direct outreach to major platform teams like the Ethereum Foundation and IOTA Foundation to highlight easily fixable legal exposure.

We’ve done this (1) pro bono, (2) without conflict of interest, (3) without the Foundation’s or principals’ financial investment in any crypto platform (or any crypto instrument, for that matter), and (4) with no agenda other than honest critique.

Although our actions may defy conventional game theoretical self-interested rational logics, we’ve done this because it’s the right thing to do, and we don’t see many other people doing this much needed work. For us to realize our vision of global hyperutility and efficient resource use, we need the crypto community to see the Crypto Legal Matrix. That’s all.

So we think we’ve earned to right to speak honestly about the risks of CryptoLaw continuing on its path of conceptual incoherence.

We’re not urging heightened diligence because the Sentinels are “coming.” They’re already here and cutting away.
“Knock, knock: I’m the on-chain autonomous enforcement mechanism for the self-en-force-ing ‘smart contract’ mess that you got yourself into. Let me in!”

Keeping You Honest

As you can see, you are a central actor in this story. Little ol’ CleanApp isn’t tagging you in to the CryptoLaw Bar just to poke fun of your misuse of Legalese.

Ethereum opened the CryptoLaw Bar and threw you in it. We’re just reminding you to pay your dues.

If crypto developers insist on building their projects on hyper-legalistic foundations, despite the clearly articulated dangers of doing so, they should assume the shared responsibilities of CryptoLawyering, not just the perks.


In other words, it’s not your lawyer’s or someone else’s job to fight the Sentinels (whether you view Sentinels as Regulators, Legislators, Lawyers, Law Enforcement, etc.) — it’s yours.

7. Law = Oppression & Emancipation

Once you see the world for the legal 1s, and 0s, and infinite ∞ number of phases between 1 and 0 that it is — you begin to see just how easy it can be for different crews to operate within the box, outside the box, and against the box.

But as we start seeing how easy it is to change the operating parameters of the Legal Matrix, we shouldn’t forget why the box is there to begin with.

It’s not there just because it’s really good at adaptation and self-replication. The existing Legal Matrix is cozy, flexible, and broadly accommodating because its operators know to keep friends close, and enemies closer.

“I know this ‘smart contract’ is not really self-enforcing, but I’m tired of thinking about the messy material world of actual contract law en-force-ment. Plug me in to Legal Matrix 2.0, and make sure I don’t remember anything I learned about the law and legal struggle in Legal Matrix 1.0.” — CleanApp

But the friend v. enemy divide isn’t just about power and primacy for the sake of power and primacy.

In the end, it all boils down to control over scarce material resources.
We have the Legal Matrix because of material scarcity and violent contests between different actors for how to best allocate scarce material resources. Law exists to manage these contests, to structure the application of force. CryptoLaw is doing the same thing, but under a crypto-phrenic belief that “smart contract,” “Liberal Radicalism,” “smart dispute resolution,” “Capitalistic Socialism,” “SmartLaw,” and so on are possible through Reason, sans force or coercion. That’s not awakening; it’s morphine for the masses.

Law is the BIOS that structures our socio-economic relationships and power contests with other actors over those precious scarce resources. In some contexts, the law is oppressive; in others, it’s emancipatory. The same matrix can be the target of one’s attack, and the medium of one’s call for resistance.

That’s why Crypto’s Legal Matrix isn’t good or bad; it is what it is. (a) Can it be improved? Of course. (b) Can it be worsened? Yes. © Can it be cast aside and replaced with something else entirely? Sure, why not. But the core thesis here is that we can’t do any of these until we understand the nature, function, and limits of Crypto’s Legal Matrix.

8. Taking the Lexit

If, after reading this, you’re still believe in rigid ultra-formalist conception of “the Law,” or still believe in the potential of this version of law (SmartLaw!) — then you’re stuck in the Legal Matrix.

Crypto Law Review is trying to open up multiple exits, but we have to be brave enough to take the call.

If you insist on clinging to some version of #CodeIsLaw / #CodeAsLaw / “self-enforcement” immutability for ideological or other reasons, at a minimum, we just hope you’ll be prudent enough to reject CryptoSmiths who’ll offer you an apparent exit from one Legal Matrix by a simple switch to another —

…an improved, secure, ‘future-proof & quantum proof,’ fool-proof & human-proof, streamlined & optimized … Crypto Legal Matrix 2.0.

Operating in a Crypto Legal Matrix that defines you, instead of the other way around, is a very dangerous path.

There’s nothing smart about opening yourself, your crew, and your community to unnecessary legal risk. That’s not smart lawyering, that’s not smart contracting, and it’s definitely not smart economic behavior.

Continued exposure to known risks is just irrational faith in one’s own luck.

(This is an excerpt & adaptation of another article, Against “Smart Contracts”. If you want to see how deep the Crypto Legal Matrix goes, we encourage you to read the rest of the argument in Against “Smart Contracts”. Then, if you want to see how today’s cryptonauts are ushering in the rise of oppressive autonomous law enforcement Sentinels, we invite you to learn why Crypto Maximalism = RoboCops.)

*the parody aspect includes adaptation of stills/gifs from The Matrix film series & other films under express educational/noncommercial fair use copyright rationales — because, as you see, the Legal Matrix is inescapable. If the copyright holders wish to dispute our fair-use rationale, just let us know, and we’ll figure out a way forward without the need for costly posturing.

Copyright Lawyer