Terry Law, as a mechanism of allocating social resources, is determined by the objective requirements of socio-economic development and directly affects the entire process of economic operation.
It is a system of formatted rules confirmed within the framework of the state system as the division of labor in society becomes more and more refined and the scope of human activity expands.
It simplifies the complexity of social relations, saves transaction costs, and helps members of society to conduct transactions in a safe, regulated and orderly manner.
Traditionally, the source of binding law, whether based on social contract theory, utilitarianism, violence deterrence or legal justification, has never broken through to rely on reason.
Blockchain technology, on the other hand, is based on a legal framework, not only through pre-defined and automatically executed smart contracts. Technology is introduced in disciplining and guiding people’s behavior.
And it relies on technology to make more transparent information, more traceable data, and more secure transactions a reality. Significantly reduce the cost of law enforcement. There is a trend that legal rules and technological rules are synergistic and complementary to each other, and that law and economy are integrated and gradually converged. The binding and execution of laws gradually become intelligent.
Blockchain has created a cost-saving mechanism for legal constraints and enforcement through technology.
The concept of contract can be traced back to ancient times. The forefathers of ancient Greece and Rome believed that contract was a formal agreement to solve the problems of trust, transparency and law enforcement.
Such as market transaction contracts, various internal regulations for organizing production and business activities of enterprises, and some other contractual relationships. Currently, it mainly relies on the faithful performance of third parties or parties to protect the rights and interests of all parties. It faces a series of costs and fees in the specific operation process.
For example: the contracting cost incurred by both parties to the transaction during the offer and commitment stage due to extensive negotiations; the cost of contract amendment incurred by both parties during the contract signing process, which may also modify and supplement the contract terms according to different situations to make the contract more complete; the cost of performance incurred during the maintenance and execution of the contract, etc.
Smart contracts on blockchain systems realize the low cost of legal constraints and enforcement. Smart contracts differ from traditional contracts in that they combine key procedures such as cryptographic algorithms of distributed ledgers, multi-party replicated ledgers, and permissions of control nodes into a contract of terms recorded in computer language rather than legal language, and are a wonderful application of promises into reality.
It is automatically executed by computer systems when conditions are triggered, eliminating unnecessary human involvement and saving significant contracting and performance costs. Its economy is especially prominent when large, high-frequency, low-value transactions are involved.
Blockchain technology’s distributed ledger record not only facilitates government administration, but also provides important evidence clues for law enforcement departments. Blockchain records all operations since the “creation block” (the first block in the blockchain system) completely and authentically in the block, and the resulting data record is tamper-proof.
Therefore any activity is traceable and searchable, effectively solving the problem of data retention. This makes blockchain technology will be better applied in the judicial field as well.
In the criminal field, especially in cybercrime cases, the situation that investigators pay a lot of investigation costs but have no way to track down crime clues because of the lack of timely data retention will be greatly improved.
In some civil fields, the difficulty in proving responsibility will also be solved by blockchain’s features of real-time recording, faithful preservation, difficult to tamper with and easy to extract, which saves a lot of “cost of responsibility” for the judiciary.
By using blockchain technology, a transparent distributed ledger can be created to record ownership changes and all the transactions that may be experienced, and it can be used to track and enforce smart contracts and verify business relationships, making the cost of enforcing business contracts much less.
This transparency feature of blockchain can also be applied in the fight against transnational crime. Currently, if evidence is located in another country, law enforcement authorities wishing to seek foreign law enforcement assistance must go through a cumbersome process to obtain the appropriate evidence to move the case forward, based on interstate legal assistance treaties.
Blockchain technology, on the other hand, as a global data ledger, can instantly enable the extraction and use of evidence, greatly reducing the cost and improving the efficiency of transnational law enforcement.
In the digital world, legal and technological rules work in synergy to achieve behavioral regulation.
Legal rules and technical rules act in different ways for behavior regulation.
Legal rules are rules of behavior set forth in the traditional legislative framework, which are “external” rules. These rules can be broken with a sufficiently high risk-reward inducement, but they are also responsible for the consequences if they are broken and discovered, which is an ex post punishment mechanism.
Technical rules are “intrinsic” rules that define algorithmic algorithms for software code, and if the technical rules are not followed, the program will return an error value and stop running, and the code will always run strictly according to the rules.
These two rules are equally important and complement each other.
Blockchain technology rules are superficially bound only by algorithms, but in fact technical rules need to be developed, maintained and updated by humans, then the development of technical standards must obey the existing system of social and legal rules in order to operate.
For example, the New York State Department of Financial Services sends a Bitcoin License (Bit License) to companies that provide digital currency services, and only companies that obtain this license can run Bitcoin-related businesses and regulate Bitcoin operations through legal control.
Government departments or related organizations need to promote the standardization of the technology and achieve effective regulation. Blockchain technology rules encompass software and protocols. Previously, TCP/IP and some other protocols were done by government departments under the leadership of legal rules.
As blockchain technology matures and is widely used, it is necessary for government departments or related organizations to take the lead in formulating relevant blockchain protocol guidelines on the basis of existing legal rules to promote technical standardization.
In an unauthorized distributed ledger, there does not exist a central body that takes responsibility for the entire system. The lack of a centralized legal entity also makes it difficult for traditional legal rules to regulate distributed ledger systems. Effective regulation must be advanced by technical rules to achieve it.
Government departments also need to consider how to combine traditional legal rules with existing technical rules. Both blockchain technical rules can be used to play the role of strictly regulating taxation and limiting illegal and criminal activities.
Legal rules can also be used to have certain flexibility in dealing with systemic risks and market failures, and the respective advantages of legal rules and technical rules can be brought into play respectively to better combine enforcement and flexibility. The impact of public regulation can be better exercised through the synergy of both.
Blockchain-based legal constraints and enforcement still require the cooperation of multiple parties.
Smart contracts allow strangers to enter into transactions directly with each other without having to rely on a credible third party, but that doesn’t mean we don’t need lawyers and other relevant legal services.
Smart contracts enrich the traditional contract system, not replace it. The role of lawyers and related legal services may shift from reviewing individual contracts to preparing high-quality smart contract templates.
Helping the parties to a transaction identify all aspects of the deal as much as possible during the negotiation phase reduces the risk and friction of one-on-one negotiations and bridges the gaps in transaction information and contractual legal knowledge of those involved in the contract.
Reduce the possibility of contract disputes caused by incomplete contract provisions or ambiguities in the content, in order to better realize the standardization, ease of use and operability of contracts.
Smart contracts inevitably face many challenges in solving the process of legal constraints and enforcement. Not all social operation logic and business models can be designed into the terms of a smart contract structure. Their scope of application is restricted.
It is often unpredictable what will happen when parties to a transaction reach an agreement. Real-world contracts often end up being difficult to pinpoint, but the process is still strictly enforced on the blockchain, which can lead to a lack of flexibility in smart contracts.
Even with the limitations mentioned above, we cannot deny the advantages of smart contracts in implementing legal constraints and enforcement. Just as there is criminal activity on the Internet today, the Internet is not considered a “network of criminals”. Blockchain technology will also have various problems in the early stage of development, but these problems will be gradually improved.
The emergence of such technology has prompted the major players in traditional contracts, such as economic entities, government departments, and legal services, to learn and think about it. Through a better design of smart contract, it can regulate the behavior of each subject, reduce the cost of legal enforcement, promote the integration of economy and law, and better achieve social justice and efficiency.
