In 2017, the world saw a dramatic increase in the use of Crypto-Currencies. Aside from their original use case for borderless transactions, a number of “decentralized” projects emerged focusing on the legal world. These projects can be divided into four main categories: Smart Contracts, Decentralized Jurisdictions, Decentralized Arbitration and Decentralized Companies. The main observation in this Whitepaper is that almost all of these projects lack a Legal Framework and therefore have little “force” in the real world. To resolve this issue, this paper presents the Decentralized Legal System, the first enforceable Legal Framework for Decentralized Legal Applications. In addition, this paper proposes an open source process for creating Decentralized Law, and envisions a world governed by Decentralized Law.
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Summary of Chapters
Chapter one explains that law and justice are somewhat fluid concepts and that their meaning changes over time. Law was first thought to be universal and imposed by a Creator. During the enlightenment era, the idea that rulers/governments alone impose law became more dominant. A number of developments however – both in theory and in practice – demonstrate that law making isn’t the sole domain of governments. This is especially apparent when we consider international and private law. The conclusion is that the law allows for decentralized innovation.
Chapter two explains what Decentralized Systems are. The origins, workings and use cases of Crypto-Currencies are described in detail, as well as the process that resulted in the development of Decentralized Legal Applications.
Chapter three discusses the legality of four specific categories of Decentralized Legal Applications:
- Smart Contracts have a wide range of possible applications. Their binary outcomes however restrict their use in the more fluid legal world. They should firstly be considered as technological innovations usable for relatively simple and repetitive tasks. Although they can be used in more complex situations, they need to be supplemented by a Human Language Contract and a Legal Framework.
- Decentralized Jurisdictions. Like many other aspects of our Legal System, the concept of jurisdiction relies on physical locations in the real world. By nature, a Decentralized System isn’t tied to a physical location. The only option left is to create jurisdictions by consensus.
- Decentralized Arbitration, as currently proposed, lacks a Legal Framework and force in the legal world. However, an enforceable framework for International Arbitration already exists and can be used for Decentralized Legal Applications.
- Decentralized Companies. Legal personality is essential to own property, engage in contracts or limit liability. Decentralized Corporations lack the Legal Framework needed to obtain legal personality. Decentralized Autonomous Organizations (DOA’s) do not remotely resemble legal persons. Both can therefore not be expected to perform many of the functions regularly attributed to them.
Chapter four summarizes the differences between the Crypto-Space and the Law. Legal Systems are based on ideas and best practices dating back thousands of years. They are subject to changing opinions and ideologies. Their definitions are debated and their outcomes are uncertain. Decentralized Technologies on the other hand, are based on hard sciences like mathematics and cryptography. These systems are both transparent and open source, and result in predictable outcomes. This discrepancy cannot be fixed by technological developments alone.
Furthermore, it is noted that many legal issues discussed in the Crypto-Space are in fact not new and that the law already provides a lot of room for innovation and bottom-up law creation. Moreover, decentralization appears to be a logical continuation of a the centuries-old process of dismantling power structures in favor of individual rights.
Chapter five presents Decentralized Legal Frameworks for the four categories of Decentralized Legal Applications mentioned in chapter two. Firstly, it proposes the creation of jurisdictions by consensus: so called Consensus Jurisdictions. It then explains a simple method for merging Decentralized Arbitration with existing International Arbitration frameworks. A Smart Contract Block is presented as a simple solution for merging Smart Contracts, Human Language Contracts and a Legal Framework. It continues by proposing two ways to register Decentralized Corporations so they can be recognized as legal entities.
Chapter six presents the Decentralized Legal System; a system not enforced by an individual or elite group of powerful individuals organized in a government, but accepted 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 Legal Applications. Next, an open source process for developing decentralized governing laws is presented that is similar to Bitcoin Improvement Proposals. Four methods for publication and acceptance of Decentralized Law are then discussed after that. A Legal Wiki is presented as the ideal technology for publishing Decentralized Law, along with a rule-based algorithm for making amendments and keeping laws simple and understandable.
Chapter seven explains how Decentralized Law could govern the interaction of large groups people. The concept of Legal Reflexivity is introduced to explain how Decentralized Law could become an important foundation for Centralized Law. Finally, the idea of a world run by Decentralized Law is explored.
The Decentralized Legal System merges revolutionary Decentralized Technologies with the tried and tested Legal System developed by trial and error over the last two millennia. It is in fact a workable new system grounded in the best of both worlds. This paper explains important concepts of law, and what Decentralized Systems and Decentralized Legal Applications are. The Decentralized Legal System is just a logical conclusion.
The Decentralized Legal System allows people to freely collaborate with the backing of an enforceable Legal Framework. This system is completely private and voluntary. It is the hope of the author that the theories discussed in this paper will be used as a framework for decentralized projects in the near future, and progress into other realms of governance as well. After the decentralization of money, the world is now ready for decentralizing law.
A number of important observations are included on the shortcomings of current Decentralized Legal Applications. Frameworks are suggested for their improvement. This should provide guidance for those working on the hundreds of projects in this area.
This Whitepaper is purely theoretical. The goal is to help the Crypto-Community. This is not an ICO. The ideas set forth in this paper will hopefully result in practical solutions and real-world applications.
Included are observations that could be considered critical towards current developments and beliefs in the Crypto-Community. This paper is not in any way a call to restrict decentralized developments by clinging on to what is “legal.” New technological developments will always be trailed by governing laws for the same reason that the car was created before a driver’s license was needed. This paper thus aims to explore the areas were Decentralized Law could flourish in short notice.
Many in the Crypto-Community are somewhat anarchistic in nature and reject the current Legal System with the idea of building something new. But when you reject the Legal System, you also reject its protection. This Whitepaper acknowledges the existing legal structure and its dependence on both governments and physical locations. However, like all other Decentralized Systems, it has the potential for innovation and disruption.
This paper is extensive, in some cases elaborating on basic concepts of either the law or Blockchain. This ensures that people with a legal background and those coming from the Crypto-Community, as well as the general public, are able to understand this paper.
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