In the world of smart contracts code is indeed law, but that doesn't change the fact that in the real world law is law, and the fact that you used a smart contract to commit a crime doesn't make it any less a crime.
Plenty of crypto hypers say the same. E.g. from a quick search of "Smart Contract advantages," the very first article, by a law firm:
> Guaranteed Outcomes: Potentially the most attractive feature, smart contracts could offer a way to substantially reduce or completely eliminate the need for litigation and courts. This is because when parties commit to using self-executing contracts, they bind themselves to the rules and determinations of the underlying code, rather than exposing themselves to interpretations med by parties outside of the contractual relationship.
At that point it's no longer a premise (for those particular countries), but until then it's just a supposition.
I think courts are wary to wade deeply into a new financial system like this but at the same time I find it hard to believe that the judiciary and the legislature would rule (in the long run) that they have no ability to "make things right".
If crypto grows as as many people suggest and you have some significant percentage of the country that has savings or investments tied to these smart contracts, if there is a loophole like in this case, you'd have lots of people writing their local or national representative about this. I find it hard to believe that politicians would tell the people they represent "tough luck code is law".
Only having a slight understanding of crypto, if local courts are required, what's the point of crypto? Why not use the existing financial systems, where all of this is built in?
> [a crypto bro] criticized the team for turning to a centralized institution like the courts for help
But that's exactly the flaw of smart contracts, and why its promises will never work.
The hard part of contracts was never execution. The hard part was always conflict resolution and abidance by fair rules (i.e. "laws"). The hard part is what creates the overhead.
Smart contracts never solved the hard part. They remove the solution to the hard part, claiming the hard part is not needed at all. But the problems these solutions solve are the hard part. Pretending they don't exist is not "solving" anything.
There are so many examples of this. A minor can't enter into a contract. Severely mentally disabled can't either. Someone with a gun to their head can't either. It doesn't matter if they enter into a million dollar contract. That contract is invalid.
This is not "waste". This is the hard parts.
And arbitration contracts that can arbitrate the arbitration contracts, and so on.
And perhaps a smart contract to allow the amendment of existing contract, by vote of a group of wallets who’ve been elected by another smart contract, who’ve been elected by another smart contract with a larger pool of voters, and so on, until all stakeholders in the contract have had the chance to cast a vote, whose duration as a voter is limited to a 2-4 year term, before requiring another voting round.
That's what courts are for. When someone finds an exploit in the smart contract there must be a "no that's clearly not what anyone meant. Nobody actually wanted all the money in the world to go to Hacker McHackerface".
If your assumption is that one of these contract layers is "perfect", then it's not realistic.
But anyways that was in jest; the crypto community will eventually recreate the same systems and bureaucracies already in play today as they run into all the edge cases that occur with traditional currency (fundamentally: currency carries provenance and is only fungible until its not, and the transfer of funds between two parties does not actually involve only the two parties — and lawyers write excessively defensive, excessively long contracts for a reason).
So that's one use of crypto.
In the non Web3 world, we typically have to rely solely on the financial institution providing the service to make transactions. That is, we have to have a Paypal account to withdraw from Paypal. We can only buy/sell Robux on Roblox, etc. Smart contracts allow us to essentially utilize any provider we want without the provider having custody of the funds at any given time.
I can go to any dex I want and transact without depositing funds. The dex also cannot agree to perform a transaction and hold my funds hostage, like how Paypal screws over some of their merchants with their "internal investigations." I can also buy/sell coins that the dex mints (e.g. ORCA coin) anywhere I want. It's not tied to a single account nor is it tied to single exchange.
And that's without getting into NFTs, flash loans, LPs, and other features of Web3.
Just think of non-smart contract parallels. If a bank had an ATM, the premise is that this ATM will execute a series of commands and allow you to withdraw/deposit/transfer funds. If a nefarious back actor found a series of user input that allowed them to withdraw millions of extra dollars, do you believe that the ATM provider will have no legal recourse? What about electronic slot machines?
But it would appear that you expect us to believe that some commentary added by a random hacker news poster means the opposite?
The observer will pay $100 dollars per blocked shot, and earn $1 per 3 point play made. All the games are played 1v1. To the untrained basketball player participants, this may seem to be a fair game. After all, it's quite rare in a real basketball game to see a 3 point shot blocked. So they sign the contract, fully agreeing to pay $100 per blocked shot and earn $1 per made 3 pointer.
To game this as a participant, I go to the ends of the earth ( I hear Sudan and the Netherlands are both nice this time of year ), and find a 6'8 ,215 lb boy and recruit him to play for me. He proceeds to block every single shot in every contest, winning hundreds of thousands of dollars and bankrupting the organizers. Just to further weight this, I also hire an opposing player who is only 4'3 to shoot as many 3 points as possible as quickly as possible.
Now, they signed the contract and agreed to it. They didn't have a clause for height, or any sort of caps, and now they have unlimited downside. How would the legal system handle this? Do you think they would release the participants liability? Perhaps, but not likely if they didn't sign the contract under duress. They fully agreed and had consideration ( the $1 per 3 point made ).
It's a contrived example, but it's useful to show that technicalities can be exploited in real world contracts just the same as smart contracts.
(There have been exploits in both ATMs and smart contracts, after all.)
But I also think the shift directionally makes sense. Traditional finance (really most transactions for that matter) have moved towards fewer middlemen dependent, more democratized forms of transactions (e.g. wealthy folks can call their traders to buy/sells stock -> open to middle class -> no need to call traders -> no fee no minimum online trading). To me, not requiring institutions to maintain custody of my funds is a value add.
But most importantly, it could just be something different (that fails or doesn't fail, who knows). I don't think the web3 space NEEDS to eschew legal recourse because 1) that's not the only supposedly value add and 2) because it doesn't NEED to provide any value add for that matter. Perhaps web3 can just be the Pepsi the web2's Coca Cola. Only time will tell.
Crypto /thread
In contrast, basically nobody outside of the blockchain space would waive their legal recourse in such a manner and thus would have legal recourse if the intent of their system was bypassed.
To go on to then argue that a legal system should not allow one to waive those rights as it would be idiotic to do so is a perfectly valid legal/moral/justice position, but also directly contradicts basically the entire purported value proposition of everything in the blockchain space whose primary “positive” differentiating factor is that “code is law” and they have waived those rights. To not allow them to do so basically invalidates their entire purpose.
Essentially, either let people bind themselves to “code is law” and suffer the consequence of their choice, or ban it at which point you lose decentralized trust and censorship-resistance making them no different than traditional implementations except that they are slower with higher operational costs.
I believe you're making this claim because _some_ crypto proponents believe "code is law" and because your personal logical framing is that web3 has no value add outside of being able to operate without legal recourse thus it must operate without legal recourse.
First, even if web3 had no useful value add, it doesn't mean it ought not exist. I can create a SaaS company that does exactly the same thing another company does just with my own logo and API documentation. Does non-uniqueness invalidate my company's existence? What if I forked an open source SQL database and slapped my name on the repo? Have you heard about something called substitute goods? I don't see why Pepsi can't exist in a world where only Coke is the norm.
Second, web3/blockchain/defi does have benefits outside of traditional web2/finance. The ability to not require depositing your funds into an account to transact on a protocol, for instance, is a clear value add. The ability to buy/sell NFTs without a middleman (if they choose to eschew a middleman) is a novel and potentially valuable value add as well. There are countless other applications of web3 that I won't delve into but these concepts can and should operate within bounds of legal recourse.
I've seen quite a few people do this. May not everyone, but a lot. The "commentary added by a random law firm" is the general sentiment I understood when people were hyped up on smart contracts. There's an industry of smart contract programmers who write code under the assumption that there may be no recourse (to the legal system) if they introduced bugs.
If your attitude represents the sentiment of "web3" these days, it is really a very hilarious backtrack on the previous (hyperbole) claims...
The court doesn't care how crypto idealists think the world should work.
I think some confusion arises because that "smart contracts" only make sense if code really is law, in the sense that any transaction executed by the contract -- even unexpected, surprising transactions -- is considered to be fully consented to by all parties interacting with the contract.
I agree that that's a terrible idea - bugs can always exist, and having no recourse when millions of dollars are lost due to a coding error is a huge and unreasonable risk.
But otherwise -- if, ultimately, courts can force "smart contract" transactions to be unwound if they are found to be exploitative, unintended or otherwise invalid -- then what's the point of having smart contracts in the first place? What's the value proposition? Why not just use regular contracts?
Smart contract is really the misnomer. In reality, they are automations of contractual obligations and cannot automate complete contract clauses.
It's just code, so the same reason we use APIs rather than doing everything by lawyers.
There's still a very real use for smart contracts in that you change what bad actors can do to act badly. Before they may have been able to breach a contract by ignoring invoices now they breach a contract by exploiting a smart contract loophole. Basically your shuffling the trust and risk around which can be a useful tool. i.e. it can be quite costly to enforce (and do due diligencece on) a contract with someone in another country so the cost and technical risk of setting up a smart contract may be much more preferable than the posisbility of having to legally enforce redress for breach in a regular contract.
For example, robbery is when, with intent to commit theft, you take property by force.
Anything else is not robbery.
Theft by taking is: when a person unlawfully takes or, being in lawful possession thereof, unlawfully appropriates any property of another with the intention of depriving him of the property, regardless of the manner in which property is taken or appropriated.
(The above is georgia, robbery/theft/etc are state crimes so defintions vary a bit)
Again, it requires doing so unlawfully (or converting unlawfully).
If doing what this person did isn't unlawful in the real world, it's not theft, it's not robbery, it's not anything.
So you have to find a crime that actually matches what happened.
It's not wire fraud - that would require " false statement, promise, or misrepresentation in order obtain money or something of value from someone else."
etc
So what crime do you believe this actually is?
(So far i've only seen a civil lawsuit, and while there is a warrant for his arrest, that's for refusing to move the tokens to a neutral third party, or show up to court :P )
In fact, he paid very high prices for the initial tokens (860 times initial value at one point). Then gave away a bunch of tokens. Then waited for an algorithm to do something dumb around the pricing, and then swapped the tokens.
Who exactly did he appropriate property from here? He paid for all of it, and paid the prices the market demanded. The algorithm did something dumb, but that is no different than some trading bot algorithm doing something dumb and selling for less than it should, which happens all the time.
As for embezzlement, it requires a trust relationship - it's a violation of a fiduciary duty.
I don't think he had one?
So far, i've not seen any criminal charges here, only civil ones. Certainly prosecutors are slower at this sort of thing, but i'll be interested to see what happens.
There have also been plenty of instances of folks much closer to having relationships + knowledge and not being found to be illegal (though rarely there has been civil liability). IE financial advisors exploiting inside knowledge of their clients portfolios + what their companies are up to to make trades that advantage their companies at the expense of their clients.
As for the rest - the intended net effect of almost all trades in finance is to cleverly transfer the value of everything you can to yourself ;). The only question is whether he had a relationship that makes that illegal or not.
The "laws of physics" analogy doesn't match up. I feel like it would be more appropriate in an anarchist society (physics are the only laws, thus everything that obeys physics is game).
This feels more like discovering an exploit in a video game. It's up to the devs to patch it, or tournaments to outlaw, but if you find something out, you can use it. We agree to play by the rules, but if someone comes up with something last minute, they can win.
And if "smart contracts" depend on real law, then they're not really needed in many of the supposed use cases.
That's obvious correct but what's the point? The whole discussion here is that there exists these "crypto anarchists" and their ideal world seems ridiculous to at least a couple people here...
We're all bound to the laws of physics, just as in the world of smart contracts all are bound to the laws of code. But none of that changes the existence of the laws of men.
- I'm not really saying the crypto-side argument is right, really just trying to clarify my perception of what they're saying re: the comment above me.
- The physics thing is really just a comment re: when it's hypocrisy and when it's not.
- FWIW, theft in crypto isn't super well-defined to me re: the laws of men either. Maybe someone who knows current law better than me can explain, but calling a function in a contract that sends updates from one pseudonymous address to another... I don't actually know if current written definitions of theft covers that, or needs some court to interpret it as theft. We kind of understand it as people, but I honestly don't know if "laws of men" as written, do.
Higher courts, due to their inherent ability to set precedents, usually also consider broader policy concerns eg. whether the decision makes sense from enforcement perspective, how the ecosystem might be affected etc..
Ever use a different email address to sign up for a different free trial, say? Let alone people sharing Netflix accounts... where do you draw the line around "stealing" here?
Yes. This is very obviously stealing, particularly if the promotion said it was for use once a day.
Edit: Also, sharing your netflix password may also very well be illegal: https://www.lawjournalnewsletters.com/sites/lawjournalnewsle...
(Well, maybe you can still complain, IANAL, but it gets a lot murkier.)
People on HN argue this with openly accessible APIs fairly regularly "ah but the machine let me do it, they must be OK with it" and I think that goes down badly in court.
If this smart contract is considered a legally binding contract, then, yes, this would likely be illegal despite the proverbial "letter" of the smart contract not being broken. If it isn't, then it may not necessarily be illegal (but possibly still could be).