Crypto’s Myth That Law is Expensive
Crypto’s anti-law arguments resemble familiar arbitration v. litigation tropes. That’s not a good thing.
A popular crypto argument against Law is that law (and legal dispute resolution mechanisms) are unpredictable, time-consuming, inefficient, and, of course, expensive.
Ummm…ok. But as any 1st year lawyer will answer, the reality is: “it depends.”
On the one hand, yes, formal dispute resolution can take years and cost millions if not tens or hundreds of millions of dollars in legal fees, per side.
On the other hand, the fear of expensive and protracted formal legal dispute resolution is part of what motivates parties to resolve their hardcore legal disputes through cheaper less formal mechanisms.
These “cheaper less formal mechanisms” are referred to as ADR (alternative dispute resolution) mechanisms. These include arbitration, mediation, negotiation, etc.
In legal and non-legal circles it’s common to contrast ADR with formal dispute resolution mechanisms, like “Courts.”
But savvy legal practitioners know that the line between “court” and “arbitration” is really a tactical choice that parties have limited power over. While often persuasive, parties’ wishes are hardly dispositive.
Need proof? The Stormy Daniels “hush agreement” with DJT & Michael Cohen & company had a binding arbitration clause.
How’s that cheaper, faster, more efficient “private system of justice” working out for the billionaire President, his business-savvy attorneys, and their respective corporate clients and shells?
Courts = ADR; ADR = Hyper-Judicial
From the perspective of theory & practice, the split between “formal” and “informal” dispute resolution mechanisms is largely artificial.
Three empirical points flesh this out.
(1) In practice, court-ordered arbitration, mediation, and judicially-supervised settlements have been a part of hyper-formal dispute resolution systems since their inception. This isn’t just true in private law matters like contract. Many criminal law systems permit plea bargains, despite criminal law representing a high-stakes hyper-formal “public law” setting where the full weight of the State is bearing down on an individual defendant.
(2) Similarly, ADR isn’t as “informal” as it may appear at first blush. Procedurally, many arbitrations, mediations, and even settlement negotiations are conducted by reference to default procedural rules that resemble, in many ways, formal judicial process. This means that arbitration, for instance, can be — and often is — as time-consuming and costly as is litigation.
(3) Furthermore, irrespective of how a given ADR process is run, whatever “resolution” is produced must ultimately be “enforced.” If the losing party complies with an “arbitral award” or the terms of a settlement agreement, then “enforcement” is easy: it’s technically not needed. If the losing party ignores or contests the arbitral award or settlement agreement, then the dispute is back to square 1, and formal dispute resolution mechanisms can get activated.
How Does This Impact Me?
In The “Intent of Code” is Law, Dan Larimer argues that traditional contract and other legal relations are expensive to enforce, because they require us to resort to authoritarian “governance systems.”
Yet how expensive was your last refund “dispute” with Target or another big box retailer, when you couldn’t produce a written receipt, or couldn’t establish “the validity of signatures” — ?
The question above isn’t just about a refund request which was granted.
The question is about a refund dispute, where a store employee at first refused to honor your refund request. Walk through the steps that you last took to (a) negotiate an (b) acceptable settlement (maybe not cash back, but “store credit”), by (c) invoking some legal authority (anything from “you can’t do that!” to “I’ll call my lawyer.”).
You may think of that settlement negotiation as an informal and “purely private” dispute resolution process. In some functional sense it is “purely private,” because the “governance system” did not get involved. But — and this is key — the only reason the store gave you the refund is because of (c) above, your express or implicit invocation of legal enforcement authority.
Purely private dispute resolution mechanisms work because they are enveloped within, and bracketed by, robust public enforcement mechanisms. The membrane between private and public law enforcement is not rigid, it’s semi-permeable.
Enforcement Is Cheap; Injustice Is Costly
For the overwhelming majority of contract disputes, dispute resolution and informal “rights enforcement” is actually quite cheap and quick. It’s cheap and quick, in part, because the cost and unpredictability of formal legal dispute resolution is so high.
Informal enforcement is cheap (because formal enforcement is so costly) is a “bug” in the system, as much as it is a “feature.”
So-called “smart contracts” don’t solve the expensive enforcement problem. They simply elide and occlude the “expense of enforcement” problem.
When the problem is externalized, it’s not solved; nor does it go away.
The enforcement costs continue to plague the transactional matrix, except through more diffused and inchoate ways.
Eventually, however, various micro-enforcement (or lack of enforcement) injustices began to tally up and compound into bigger structural problems of equity and justice. At that point, the full weight of, say, distributional inequity problems comes crashing down on purportedly self-contained “purely private” legal systems.
When challenged, these systems, and the actors who build and profit from them, will use every defense mechanism available to them. This includes public legal systems, the very same ones that were “too expensive,” “too unpredictable,” and “too authoritarian” moments earlier.
Self-Enforcement is Word Play, It’s Not Real
The idea of self-contained legal systems that are capable of self-enforcing contract rights is a non-starter. It’s word play. It simply does not exist. It doesn’t exist in existing smart contract schemes, and it cannot exist until such time as we have autonomous law enforcement mechanisms. Then self-enforcement becomes a thing, and it’s not pretty.
For now, self-enforcement is a clever form of off-shoring. Just like large manufacturers don’t “solve” given pollution problems by shifting heavy-pollution activities to lesser developed locations, so too with crypto.
Self-enforcement is a chimera; there’s no such thing.
In any dispute of consequence, the gloves come off and everything is fair game. The “governance systems” with “unlimited power” that Larimer bemoans becomes just another tool in Larimer’s lawyer’s toolkit — whatever it takes to enforce Larimer’s rights in a messy world.
No Power is Unlimited, Not Even Law’s
Crypto’s FUD with regard to law manifests itself in anxiety that legal institutions are authoritarian, that they act with unbridled authority, that they have “unlimited power” — to quote Larimer.
But here’s the irony, the only time any governance system acquires unlimited power is when we ascribe to it — unlimited power.
In reality, existing legal systems are extremely fragile. People who give these systems supernatural powers (or worse still, ascribe to these “governance systems” authoritarian motives or normativities), are doing three very dangerous interrelated things: (1) they show that they do not understand the systems they purport to describe; (2) they sow false fear of the misunderstood system within ranks of even-lesser-informed insurgents (who begin waging ideological war against a “system” they understand even worse than the ideological thought-leaders); (3) they sow false confidence within the ranks of “the system’s officers” regarding the system’s indefatigability.
Taken together, these factors only delay the inevitable convergence between the purportedly anti-legal but eerily legalistic crypto legal matrix and the existing legal matrix, thereby heightening the risk of costly and protracted legal war — precisely the thing CryptoLaw claims it desperately wants to avoid.