Whereas legal intelligence aims to support legal advice and legal decision-making by means of description and prediction, cryptographic law or code-driven law is an attempt to write statutes and contracts directly into computer code, which is then implemented in and executed in a distributed ledger. This may, for instance, help to reduce the complexity of the legal universe by designing unambiguous legal rules that self execute, and by offering modular contracts that define and self-execute the obligations agreed by the parties, based on predefined codified conditions. The latter may provide a new stimulus for cross-border e-commerce transactions, where all the relevant assets, including payment, can be stored on the blockchain, facilitating trustless transactions. Since there is no option to violate the legal rule or contractual obligation that has been coded, code-driven law supposedly produces behaviour that is ‘legal by design’.
According to the Ethereum Platform website, a contract is:
‘a collection of code (its functions) and data (its state) that resides at a specific address on the Ethereum blockchain (…) typically written in some high level language (…) and then compiled into bytecode to be uploaded on the blockchain’.
Clearly, smart contracts cannot be equated with a contract in the legal sense of the term. They may, however, surreptitiously transform the meaning of concepts such as legal obligation, fault and ‘force of law’ if blockchain technologies were to scale in a way that affords their default usage in a range of contexts (e.g. when the internet of things takes over critical infrastructure). In that case they will constitute a specific type of code-driven law. Similarly, smart regulation may refer to the employment by regulatees of digital ledger technologies to automate compliance with specific regulation, rather than the enactment by regulators of legal rules that automate compliance. However, the uptake of code-driven compliance in distributed ledgers will inevitably reconfigure legislation and delegated regulation; if regulators embrace the idea of automated compliance, they will need to articulate legal norms in terms that easily translate into computer code. In domains such as the regulation of financial markets this may be a welcome development, depending on how issues of jurisdiction are resolved that are core to the complexity of ‘fintech’ regulation. We should expect, however, a further integration of code-driven regulation into mainstream legal practice, forming a hybrid with text-driven enactment of legal norms. As De Filippi and Hassan (2016) argue, this may effectively ‘turn code into law’, thus effectively changing the meaning of law-as-we-know-it.
Note, however, that assets and/or evidence that the conditions for a smart contract or smart regulation have been fulfilled will often be off-chain, complicating issues by enabling the automation of error, while also freezing one specific interpretation of such conditions into the chain. Moreover, the self-execution of such contracts or regulation raises issues about the possibility to contest the interpretation that is executed by the code, demonstrating that whoever trusts the blockchain or the code may have put all their eggs in one basket. Rather than empowering individuals to regulate their own affairs without interference of the state, this may result in establishing the law of the jungle where strong parties manage to force automated compliance on their weaker counterparts.
This research digs into the assumptions and implications of translating legal rules and their enforcement into computer code, while developing novel conceptual tools to uncover the interactions and transformations that result from such translations. The goal is to achieve a more in-depth understanding of how code-driven law affects the affordances of text-driven law, how it will interact with data-driven law and what implications this may have for the Rule of Law.