This article introduces the Decentralized Legal System, the first complete framework for Decentralized Law.
It is a system not enforced by an individual or elite group of powerful individuals organized in a government, but accepted and created by a public and open source process. A system that exists in cyberspace, but has force in the real world. This framework can govern all four types of decentralized legal applications.
What is the Decentralized Legal System?
The Decentralized Legal System (DLS) is a set of rules people choose to govern their interactions. It functions as a bottom-up legal system, rather than a top-down one.
From a technology standpoint it can best be compared to WordPress. In this case the DLS works as the open source framework, the themes as the different jurisdictions and arbitration systems, and the plugins as the different smart contract blocks. And just as WordPress uses the existing infrastructure of the internet, the DLS can use the existing law enforcement infrastructure. And while the overall structure is similar for each WordPress website, each end product is unique.
The DLS Framework
Enforcement Framework (green)
Legal systems are meaningless without teeth. A ruling should be enforceable. The New York Convention allows for private law rulings to be enforceable in 161 countries. Lesson 3 explains exactly how international arbitration works.
Established Governing Laws (blue)
Private law systems rely on arbitration, rather than the more well known national courts with judges and juries. Because both parties have agreed to accept the ruling, a private court gets to rule on a dispute.
However, for such a ruling can be enforced certain requirements need to be met. One of them is the use of an established arbitration rules. In addition, a set of governing laws. In this example, English law is used. This law has been developed and widely used for this purpose for centuries.
Decentralized Legal Frameworks (orange)
Decentralized legal frameworks are where innovation happens. Work on all these three elements is already being done. The DLS merely combines them into one working system with a functioning legal framework.
Strictly speaking, an arbitration award does not need to be enforced by an existing national legal system. Both parties could accept the ruling as binding, or there could be an alternative enforcement mechanism. Work on decentralized arbitration without the blue and green layers is currently being done.
For the DLS, the decision was made that the backing of the existing legal system makes it less theoretical and usable right away. Any contracting parties can then be sure that even if a ruling is ignored he can go to a traditional arbitration court to get a legally binding ruling. Lesson 6 explains decentralized arbitration further.
Participants in a consensus jurisdiction agree that a certain set of rules apply to the interactions with one and another. These rules are also enforceable, firstly through decentralized arbitration, and secondly trough the existing international arbitration framework. Examples could be international trading, or freelance work.
Lesson 5 explains consensus jurisdictions in detail.
Smart Contract Blocks
Smart contracts are an interesting technological development. In order to be enforceable they need to be merged with a human language (wet code) contract. The ideas behind the smart contract block are explained in lesson 7.
How to use the DLS?
It is worth repeating that most of the components of the DLS already exist today. The DLS merely merges them into one standardized system.
First of all, the enforcement frameworks (blue and green layers) are already in place. To subject a contract (or system) to it is relatively simple; all that is needed is to add something along these lines:
Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the [international arbitration system], which Rules are deemed to be incorporated by reference into this clause.
Next to this, the language, governing law, and set of arbitration are selected.
Work on decentralized jurisdictions is currently being done, although it is unclear what framework is used. It would be easy to transform them into consensus jurisdictions though; as simple as it is to accept the terms and conditions of companies such as Google or Facebook.
And finally, creating a contract to govern the use of a technology (smart contract) is also a piece of cake.
The only challenge (and main benefit) comes from combining all of this in an easy to use system that any group of like-minded people can apply to create bottom-up fair and transparent rules to govern their interaction.
Example of the Decentralized Legal System in Practice
Now it is time to merge everything together for the framework of the Decentralized Legal System. An international transfer of goods is used to explain this framework.
A seller and buyer meet online. Both are participants in a Consensus Jurisdiction. The Consensus Jurisdiction provides regulations on shipping, payment terms, and making and accepting offers.
After agreeing on a deal, they select a tried and tested Smart Contract Block to govern the transaction. They agree to Decentralized Arbitration, but since the transaction is quite large, they include a general arbitration clause that can be activated if Decentralized Arbitration does not lead to a desired outcome. English law is selected as the governing law.
A system like this would merge a Smart Contract Block with a tried and tested Enforcement Framework. From a legal point of view, such a transaction could be governed in a completely decentralized manner (orange). If needed, this could be backed by existing arbitration frameworks and governing laws (blue) and enforced by the enforcement framework (green).
One question now remains: how can Decentralized Law be proposed, accepted and amended. This is explained in the next lesson.
This article is part of a series of lessons on Decentralized Law (view summary).
Cite this article
Thysse W., “Lesson 10 – What is the Decentralized Legal System?” (Decentralized Law Lessons, December 28, 2019), available on: https://decentralizedlegalsystem.com/law/what-is-dls/
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