Is Code Really Law?

Date: 2020-06-16

Source: https://craigwright.net/blog/law-regulation/is-code-really-law

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Many people within the ‘cryptocurrency communities’ have made a religion of “code is law”, the flawed methodology of Lawrence Lessig [1]. In his rant-like diatribe, Lessig holds the view of a world that did not ever exist, and believes that somehow, we will gain true freedom through computational systems, in a world where code sets rules that cannot be changed. It is a typical mantra of Silicon Valley, a world where general AI replaces government in a techno-communist utopia. In a supposed world of abundance, machines run everything with perfectly balanced code. It is not that we cannot create a certain system, but such devotees hang onto a concept of code that will one day be perfect:

“We’ve learned The DAO code isn’t perfect. And it can’t be. Yet.”

To the same people, Bitcoin and all the

derivative systems that come from it present the promise of a world without

government, where rules are made by machines and set in code. Yet, such a

concept is fatally flawed. Such people, who often attack traditional religion,

do not even understand that they have formed nothing but a fragile belief

system, built on an easily discredited foundation of mud and shifting sand. For

what they are talking about is not a science or even something to do with

engineering, but rather a religion. Such extropian ideas are but another means to

try to find purpose in a finite life—that must necessarily end. Rather than

admit death, they grasp the concept of a virtual world where we can be uploaded

and live in eternity. Even a basic understanding of physics and the universe

would reveal that such a world is neither feasible nor possible.

More critically, their entire set of

premises rests on the false assumption that perfect code could be achieved.

All code is written by humans. Like law,

code is but an abstraction in language of something we set ourselves to

achieve. Code can form rules, yet such rules are still written by individuals.

Committees do not write code. Committees do not create a set of rules that will

be implemented in any system. Bitcoin was not written by a committee, nor was

it designed by one. It was a system written by one man. In writing Bitcoin, I

have taken the concepts of many people as I read the works of many authors, yet

my output remains my creation. For all those who have made any inroads into my

thought process, the process remains mine.

And here lies the dirty little secret that

few like to talk about when they promote the concept of ‘code as law’: somebody

writes the code. Somebody loads code into a repository. There is no artificial

intelligence or generalised groupthink that creates and develops any system; when

code is loaded into a repository, it needs to be decided upon. Here, of course,

lies the issue that some people choose to use in dissembling concepts and in

the deception across the masses. They seek to tell you that code will free you.

They will tell you that with Bitcoin and blockchain technology, we can get to a

world where code will create a system without law. What they don’t tell you is

that law is a system that changes. Over time, based upon a combination of fixed

static, code-like statutes and the interpretation of individuals following the

zeitgeist of the day, courts interpret the actions of individuals.

Bitcoin does not create a democratic system

of voting. Neither does any derivative system. It was never the point of the system

to do so. Bitcoin creates a set of static rules, and allows for a

commodity-based monetary system. If the base layer of a token system can

change, anything built upon it will fail. Bitcoin is designed as a base layer

that others can build upon.

Proof of stake is not democratic. Such a concept of voting was never something that was incorporated into blockchain technology, but has rather been something that has become a false and misleading mantra, designed with the purpose of allowing many forms of illegality to thrive. The simple question to ask is, if only those who have the most money and power, the incumbents, may vote, is the system democratic?

If a system is controlled by three or four

developers who act as gatekeepers for code, is such code something that others

should be running? The dirty little secret that such developers do not want you

to think about is very simple: who created the code, and why? Even if such individuals

could create perfect code, it would only be perfect for a moment in time. Legal

concepts, individual rights, all aspects of society change as we move through

time.

Those who follow the pseudo-religion of cyberspace promoted by Lessig and others believe that they shall live in a world without rules, one that government cannot and should not control. But what is government? There is no abstract form; the truth is that government is merely a collection of people who express ideas based on the whims of society. No system is perfect, but to abstract government into the proverbial beast is to ignore the simple truth that it is merely a collection of people acting on the whims of other people.

Society

is the collective concept of many people acting and trading and exchanging and

engaging with one another. Although it seems as if we can treat it as its own

entity, it is merely a collection of people. Our minds are limited. And for such

reason, we abstract the whole into something we can understand: bite-sized

pieces that we can digest and come to comprehend.

A world based on the concept of code being inviolable ignores humanity. Law is messy for a reason; the real world is messy. The real world is difficult, and concepts that seem simple turn out to be complex. It may seem that we can simplify contractual negotiations, negligence, and other aspects of our legal system and make something that works in the same way every time. Yet the reality is, life is not so simple. The interaction between individuals and changes across time cannot be incorporated into a legal contract without some ability for them to be interpreted later. Yet it is what the proponents of ‘code is law’ seem to believe. They believe that life can be put into a simple set of contractual rules, written onto a blockchain. They believe that once it is so done, nothing can ever change it.

Their concept stems from the belief that

many nodes distribute the creation and voting of rules between a plurality of

individuals. Interestingly enough, a few individuals with a lot of power seek

to promote such a concept. At present, no blockchain system has more than four

or five controlling parties, which set the rules. Which in itself is antithetical

to the nature of Bitcoin. The reason Bitcoin, with the protocol being

unchangeable, was set in stone is that when a system has fixed rules and

competing systems need to be built upon such rules, not only do you get

certainty, but there is no power from individuals seeking to subvert the system

and change the rules. That is, small cliques of developers or node operators

cannot change the rules to increase their own short-term profit.

Bitcoin Is Not Encrypted

Other than the fact that Bitcoin is derived through human interaction, the system is clear text. Bitcoin utilises cryptographic algorithms, but the use of a cryptographic algorithm does not make something encrypted. The use of pseudonymous names and a digital signature algorithm seems to have led to a lot of confusion, with many people believing that Bitcoin allows degrees of anonymity or even complete anonymity at scale for large transactions. They could not be further from the truth. The only reason Bitcoin maintains privacy and anonymity, at any level, is that the value of a transaction can be so low that nobody cares. The scenario is analogous to using cash: when you transfer small amounts of cash, or even an amount worth £100, nobody really cares outside of the people engaged in the transaction. On the other hand, if you want to transmit £15,000, there are forms to be submitted. The exchange of value using cash is not anonymous at all levels.

Like with cash, transactions made on Bitcoin are pseudonymous. But pseudonymity does not mean that transactions made on Bitcoin that are above the levels usually associated with cash can be made anonymously. Existing laws on the value of funding transactions including cash or digital cash have applied for many years, and continue to apply equally to digital currencies or ‘cryptocurrencies’. Liberty Reserve discovered it the hard way. The mantra of decentralisation does not save the system from the required rules; the application of anti-money laundering (AML) provisions remains in force whether you are using bitcoin or cash.

As a thought experiment, it is simple to understand that cash is itself a peer-to-peer system—not because of the mint function but because of the exchange of bills between individuals. Bitcoin allows for a distributed distribution function. The distribution of clearing and settlement functions such that individuals may transact on Bitcoin in a manner analogous to using cash. It comes with all the required rules that come with cash. Most importantly, the implementation of rules is not something that a small group of developers and businesses gets to set. Bitcoin is not a system based on votes by an anonymous group that controls a system outside of government and regulatory systems. Miners are easy to detect, and it is simple for a government to act against a rogue miner. The same principle applies even when it comes to the other aspects of the Bitcoin ecosystem; exchanges are simple to interact with. There is no such thing as a decentralized exchange (DEX). The concept of the distributed exchange is but a concept. Every single exchange performs as a custodial service. Government can easily interact with any blockchain system because the individuals involved in setting and maintaining and enforcing the rules are always visible.

And here lies the fatal flaw of ‘code is

law’ as a mantra, stemming merely from a small group of developers or

businesses seeking to exert control through a false mythology of

decentralisation that never existed. Code does not write itself. More

importantly, code can be changed.

Code is no different from contractual language. Writing in computer code does not add clarity; it allows people to be even more abstract than they would be with common language. A contract formed using computer languages suffers from all the normal abstractions that come from the creation of any plan formed by humans; it cannot take into account the future. None of us know the future, and none of us can plan all the contingencies that may occur. None of us know changes in law, and just because a code-based contract exists does not make it legal.

The argument in several ‘cryptocurrency

communities’ is that Bitcoin and related systems would act as a distributed

consensus involving all parties and that such individuals could act without

oversight, without regulation, and outside the law. Which is where the nature

of Bitcoin comes into play. Bitcoin is published in clear text. In the most

ideal world, where everything goes the way of decentralisation and

distribution, there will never be more than a thousand or so Bitcoin miners,

and even that is excessive. I have noted in the past that the 2016 difficulty

period sets an absolute limit on the number of nodes that can exist. As the

consensus methodology in Bitcoin lies purely in the distribution of valid

blocks and does not involve any so-called ‘nodes’ that do not create blocks,

there can never be more than 2000 nodes at any point in time. More importantly,

it is a commercial system. The reality is that even today, only 32 nodes exist

on the Bitcoin network, and even fewer exist on other systems such as Ethereum.

Taking the whole scenario into account,

nodes cannot exist without exchanges that are easily controlled by government

and regulators. At the same time, the investment that is required by nodes acts

to ensure that such entities cannot remain anonymous. They are subject to

international law, and must act, which is important as it is only the nodes

that set the rules. Without encryption, there is no way for actors in the

system to hide transactions. Bitcoin tokens can always be followed, and if a Bitcoin

transaction may be followed, it may be acted upon. Governments and regulators

have required changes to code and forced large companies to implement controls.

Bitcoin is no different. A node that decides to flout government controls is

the dishonest actor mentioned in the Bitcoin white paper. A dishonest node is

easy to bankrupt and remove from the system.

Bitcoin Creates Excludable Assets and Property

The argument against digital property rights in the copyright over digital assets has always been an argument about bailment. It is an argument about possession and the right for an adversarial owner to exclude another. In the past, digital copies have not been able to maintain excludability. Here lies the primary distinction to Bitcoin. We now have a system where the ownership of a digital good may be made completely exclusionary. That is, one individual can ensure the exclusion of another. The tokens held within a Bitcoin envelope, an unspent transaction output (UTXO), may be fungible and interchangeable, yet the possession of such tokens and anything they represent can be limited to a single individual and to the exclusion of all others.

Bitcoin removes the entire argument

surrounding digital property that is made by those who are against property

rights. With the ability to isolate control, Bitcoin removes the arguments made

against digital files and the fact that they can be copied, the argument that

they are not truly property. As property, Bitcoin comes under law, and none of

the false arguments against copyright need apply.

References

[1] Lessig, L. (2003). Law Regulating Code

Regulating Law. See: https://dash.harvard.edu/bitstream/handle/1/12912675/Law%20Regulating%20Code%20Regulating%20Law.pdf (accessed 8th June, 2020).

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