Lesson 5 – What is a Decentralized Consensus Jurisdiction?

One fundamental question when exploring Decentralized Law? The concept of jurisdiction. After all, how does a system that only exists in cyberspace relate to the real world?

To answer this, we first must ask, what is a jurisdiction? This definition is from the Legal Information Institute:¹⁾“Jurisdiction,” Legal Information Institute, Cornell Law School, accessed on March 20, 2018, https://www.law.cornell.edu/wex/jurisdiction

• Power of a court to adjudicate cases and issue orders.
• Territory within which a court or government agency may properly exercise its power.

“Jurisdiction” thus can have two meanings: the authority of a court to rule on a specific case, and the territory in which this authority is limited.

Origins of Jurisdiction

Jurisdictions almost certainly began as a personal, rather than territorial links. During the feudal period, individuals would owe their allegiance to a king or other leader and he in turn would owe them the duty of protection.²⁾Vaughan Lowe, “International Law (Clarendon Law Series),” (Oxford University Press, 1th edition, November 17, 2007): Chapter 5.4, Jurisdiction over Nationals

Nowadays. it is States that now have the right to enforce their laws and punish for non-compliance.³⁾Vaughan Lowe (2007): Chapter 5.1, State Jurisdiction

To better understand what a jurisdiction is, we must understand what a State is. The 1933 Montevideo Convention provides a widely accepted definition.⁴⁾Montevideo Convention on the Rights and Duties of States, (Montevideo, 26 December 1933), available at http://publicinternationallaw.in/sites/default/files/salient/01-General/03-Montevideo%20COnvention.pdf: Article 1

“It is noted that a state as a person of International Law should possess the following qualifications:

a) a permanent population
b) a defined territory
c) a government
d) the capacity to enter into relations with the other states.”

When looking at item b) on the list, it is clear that a State only exists in the real world.

There have been other forms of jurisdiction too. In the history of English common law, a jurisdiction could be held as a form of hereditary property called a franchise. Municipal corporations, religious houses, guilds and early universities held various powers within them. However, even though such a jurisdiction was enforced neither by a State nor government, they were always tied to a physical territory.⁵⁾Nicholas J. Szabo, “Jurisdiction as Property: Franchise Jurisdiction, from Henry III to James I,” (The George Washington University of Law, April 21, 2006): Page 4

Physical Jurisdictions vs Cyberspace

We can conclude that the usual concept of jurisdiction in our legal system is tied to physical locations. This must be acknowledged when we want Decentralized Law to have any meaning in the real world.

The discussion on the relationship between territory and cyberspace is not new. It has been going on since the development of the Internet. The current trend is that individual States claim jurisdiction based on the smallest of links, including servers’ locations, the residence of a client and the use of a domain name. Bertrand de la Chapelle and Paul Fehlinger (2016) compared the “hyper territorial” methods that national governments use to a legal arms race.⁶⁾Bertrand de la Chapelle, Paul Fehlinger, “Jurisdiction On The Internet: From Legal Arms Race To Transnational Cooperation,” (Internet & Jurisdiction, April 2016), accessed on April 5, 2018, https://www.internetjurisdiction.net/uploads/pdfs/Papers/IJ-Paper-Jurisdiction-on-the-Internet-PDF.pdf

The fact that there is no real unity regarding regulation of the Internet, a technology that went mainstream in the 90s, does not bode well for those that call for the regulation of much more complex decentralized systems.

Luckily, there is a third form of jurisdiction that does not involve a territory; a court can have jurisdiction by consent (or contract).

Consensus Jurisdictions

As discussed, jurisdiction is the legal right of a court to order coercive processes. There are only three ways of creating jurisdiction:⁷⁾ Nick Szabo, “Three kinds of jurisdiction,” (Unenumerated, October 20, 2006), accessed April 20, 2018, https://unenumerated.blogspot.de/2006/10/three-kinds-of-jurisdiction.html

1. Sovereignty
2. Property
3. Contract

The first two ways are based on physical locations. However, the third is not. We already saw in the lesson on arbitration that contracts can create a private body of law that binds the contracting parties. The question now is, why should there be a limit to the amount of people that sign a contract?

Technology exists for a collective to sign a contract as if accepting the terms and conditions page of any website. This way, a jurisdiction by consensus can be created, where the participants have agreed to cooperate under a certain set of rules. Participants of such a Consensus Jurisdiction could then engage with each another while subject to the wider contract.

Consensus Jurisdiction Enforcement

If needed, such a system could even be enforced in the real world. After all, a framework for enforcing private contracts already exists: the New York Convention. Subjecting a Consensus Jurisdiction to this framework is surprisingly simple; it is in fact just a matter of adding a clause to the Consensus Contract to explain that any disputes arising under it are subject to arbitration and said framework.

Provided the correct Seat of Arbitration and Governing Laws are chosen, the case could be heard online. The arbitrators could rule on any dispute arising from the contract and this ruling would be enforceable in most countries around the world. This is further explained in the next lesson.

In order to start creating Decentralized Law, we can simply build upon the framework of International Arbitration already in existence!

Consensus Jurisdiction Legal Framework:

It is worth remembering that the jurisdiction that arbitrators would have is restricted to whatever has been agreed upon. In addition, there are significant areas of public law that private contracts cannot “breach,” including family, criminal or tax law.

Therefore, initial use cases are likely to be industry-specific collaborations with a set of guiding principles for relatively standardized recurring transactions. Examples could be found in areas such as international trading, e-commerce and international freelance work.

Crypto-Projects Focusing on Jurisdictions

There have been projects that intent on creating new jurisdictions. Examples include Aragon⁸⁾“Aragon Whitepaper,” Github (April 20, 2017), accessed on April 6, 2018, https://github.com/aragon/whitepaper/raw/master/Aragon%20Whitepaper.pdf [link no longer working] and Bitnation Pangea.⁹⁾“Bitnation Pangea Whitepaper” Bitnation – Governance 2.0, accessed on April 4, https://tse.bitnation.co/

A libertarian mindset is clearly visible in both projects; the existing top-down legal order is rejected with the argument that it restricts freedom, and so these projects aim to create something completely new.

But when you reject the current rules, you also reject their protection. This becomes relevant when participants in such projects want their rights enforced in the real world or need limited liability in their business activities. This issue is further discussed in the next lesson.

This article is part of a series of lessons on Decentralized Law (view summary).

Cite this article

Thysse W., “Lesson 5 – What is a Decentralized Consensus Jurisdiction?” (Decentralized Law Lessons, December 28, 2019), available on: https://decentralizedlegalsystem.com/law/consensus-jurisdiction/

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