I’ve been assimilating a lot of articles and videos about how cryptocurrencies like Bitcoin can create contracts outside the realm of legal space. Cryptographic law is self-enforcing, but is still, however indirectly, tied to the world of flesh-and-blood humans, which is governed by what Nick Szabo calls “wet code”. While money lost in the cryptographic world might be unrecoverable, the law has a way of imputing money that creates liability in the jurisdictions it can control.
For example, I’ve seen a lot of talk about child support in the media of late. The problem: unemployed or underemployed parents have income imputed to them by a court. A judge determines that the noncustodial parent should have a job that pays at least a certain amount of money and imputes that income to the parent, who may not be working for any number of reasons. If the parent can’t pay the amount due, the law creates a liability out of thin air to cover what it thinks a person should have contributed to the custodial parent. This liability acts as a lien on all assets. The rationale: in the end, it’s for the best interest of the child.
Similarly, there are many ways for a court to assess damages in the Bitcoin space. It isn’t hard to prove that money was invested in Bitcoin — most of the time it requires a bank account in order to purchase Bitcoin in the first place. In litigation it’s not hard to recreate a chain of events that fixes valuation at a certain point, e.g., date of default, for the purpose of assessing damages. Once the legal machine is done a judgment, a fixed liability, is created in the wet code world.
My point as a lawyer is this: the law has seen humans do a lot of things to each other over time. Bitcoin in most respects fits into the patterns of law, but in an evolved form. The law will adapt, even if it looks a bit different. If the cryptographic world wants to create a new jurisdiction, it must not only craft the law of digital relationships — it must anticipate external events that might bring the crypto world back into wet code. When the legitimacy of the crypto jurisdiction inevitably comes before the United States Supreme Court, what will be the arguments? I like to ask myself: “What would Scalia say?” Those are the issues the cryptographic legal world should think about today.