Cryptocurrency-Based Law

Innovation and Economic Growth

Article Snapshot

Author(s)

Michael B. Abramowicz

Source

Arizona Law Review, Vol. 58, No. 2, pp. 360-420, 2016

Summary

Bitcoin is a new type of money based on a software protocol. Bitcoin can be used as a medium of exchange or store of value but is not controlled by a central bank. Bitcoin could be used to test decentralized peer-to-peer legal decision-making mechanisms to resolve disputes and make normative rules.

Policy Relevance

Peer-to-peer lawmaking systems could be used when traditional legal or regulatory systems are too costly.

Main Points

  • The cryptocurrency “Bitcoin” is a new kind of money based on a peer-to-peer protocol; it can serve as a medium of exchange or store of value, but it is not controlled by a central bank or controlled by a central authority.
     
  • Peer-to-peer governance systems have three essential elements, a decentralized ledger for recording decisions, a decentralized mechanism for making decisions, and decentralized mechanisms of fiscal power.
     
  • Bitcoin is a feeble peer-to peer system, as it can resolve only one type of decision, that is, whether a purported transfer of Bitcoins will be validated and added to the list of approved transfers, the “blockchain.”
     
    • Bitcoin cannot produce open-ended rules.
       
    • Bitcoin does rely on a centralized mechanism to allow humans to decide what software features should be added to Bitcoin’s code.
       
  • So far, computer programs lack general artificial intelligence, and therefore lack the judgment required to decide how issues arising from vague contractual terms should be resolved; however, cryptocurrency protocols could be used to crowdsource human judgement when it is needed.
     
    • One helpful approach would be to design a system based on a “tacit coordination game.”
       
    • In such a game, each participant is given the goal of answering a question the same way as later participants.
       
  • Currently, the Bitcoin protocol is coordinate the same way as other open source projects, but a decentralized peer-to-peer mechanism could be tested by using it to decide which software features should be implemented in the Bitcoin code.
     
  • Legal decision-making by peer-to-peer protocol is possible, but may not be desirable, and faces many obstacles, such as direct government regulation.
     
    • Peer-to-peer legal decision-making could be useful when traditional institutions are corrupt or when the costs of a traditional approach are high.
       
    • A central bank could adopt a cryptocurrency as its fiat currency.
       
    • A government might replace a failing public institution with a peer-to-peer regulatory systems if lack of governmental control would be beneficial.
       
  • Some authorities assume that centralized institutions such as legislature and courts are needed to produce clear law, but peer-to-peer legal decision-making challenges this idea.
     

 

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