If a blockchain can facilitate peer-to-peer transactions without a central authority, the same can be done for contracts: Two people can agree upon something and enforce it with cryptography.
This is the essence of smart contracts.
What Are Smart Contracts?
Morgan begins by describing how contracts work in traditional private law. A simple example would go like this: Legal Person A and Legal Person B have an attorney draw up a document that says A will perform X task for B in exchange for Y amount of money.
The problem here is two-fold. First, enforcement of that contract, should a dispute arise, becomes the responsibility of a third party, usually a judge. Criticisms of centralized financial structures apply here to centralized legal structures.
Second, there are costs in resolving a dispute. This includes legal fees, opportunity costs, and the straight-up mental and emotional costs of fighting someone over money. That’s what Morgan means when she describes people as often using traditional contracts as “swords.”
To swipe her example: Under such a contract, if I owe you US$10,000 but only pay you US$8,000, you have to calculate whether it is actually worth it to go after the remaining US$2,000.
Smart contracts solve that problem.
“Once a clause is coded into the blockchain, once that is in executable format, it will execute,” Morgan says.
With smart contracts, that US$10,000 is already secured on the blockchain.
“So, you can’t negotiate midstream.”
Morgan goes on to describe a concept called collaborative law, which involves resolving a dispute “as smoothly and cleanly as possible” without one party trying to squeeze as much as legally possible from the other.
This is particularly useful when the parties plan to continue a relationship, such as in a divorce where children are involved.
In such cases, Morgan says, blockchain arbitration enables amicable outcomes.
“At its core, a collaborative law agreement is simply a contract. If it’s simply a contract between two parties and a judge will enforce it, there’s no reason why we couldn’t use those same principles with blockchain arbitration.
Make the decision, have the contracts, and then present that to a judge if it needed to be enforced later. If we needed to avail ourselves of the traditional legal system, we would be able to do that.”
Further Applications of Decentralized Law
Morgan notes that when she talks about decentralized law, she is talking only about dispute resolution. These are simply private matters in which a central authority mediates; we won’t get into decentralizing criminal law here.
With that said, Morgan does envision an imaginative blockchain alternative to central-authority mediation:
“I mean something along the lines of having an online dispute-resolution mechanism where, instead of a judge of instead of 12 people — a jury of your peers — we could actually have thousands of people all across the world weighing in as arbitrators, and we can actually crowdsource justice.”
Lords and Morgan delve into a few more topics, including regulation and technology allowing people to write their own laws. You can see the entire interview below: