Blockchain Technology as a Regulatory Technology: From Code is Law to Law is Code (1801.02507v1)

Abstract: "Code is law" refers to the idea that, with the advent of digital technology, code has progressively established itself as the predominant way to regulate the behavior of Internet users. Yet, while computer code can enforce rules more efficiently than legal code, it also comes with a series of limitations, mostly because it is difficult to transpose the ambiguity and flexibility of legal rules into a formalized language which can be interpreted by a machine. With the advent of blockchain technology and associated smart contracts, code is assuming an even stronger role in regulating people's interactions over the Internet, as many contractual transactions get transposed into smart contract code. In this paper, we describe the shift from the traditional notion of "code is law" (i.e. code having the effect of law) to the new conception of "law is code" (i.e. law being defined as code).

• The paper reveals a paradigm shift from 'code is law' to 'law is code', highlighting blockchain’s role in automating legal processes through smart contracts.
• It outlines four phases of legal digitization, showing how blockchain enhances transparency, decentralization, and immutability in contractual enforcement.
• The study emphasizes balancing blockchain’s efficiency with human oversight to ensure fairness and flexibility in evolving regulatory systems.

Blockchain Technology as a Regulatory Technology: The Transition from Code is Law to Law is Code

The paper by Primavera De Filippi and Samer Hassan critically examines the evolution of the interplay between technology and law, centering on the emergent impact of blockchain technology. It delineates a significant paradigm shift from "code is law"—where software code regulates behavior akin to legal mandates—to "law is code," where legal frameworks are increasingly being encoded as software rules. This marks a transition from technology merely enforcing legal rules to actually defining them.

Overview of the Four Phases

The authors outline four distinct phases of technological influence on law. Initially, the digitization of legal documents introduced the transformation of legal resources into computer-readable formats, markedly enhancing access and retrieval capabilities. The second phase consisted of partial automation in legal processes, where decision-making began integrating rule-based systems that extended legal reasoning into computational logic.

The third phase, referred to as "code is law," encapsulates the ascendancy of code-driven regulation with the proliferation of the global internet. Tools such as Digital Rights Management (DRM) demonstrate how technical measures can enforce rules more stringently than traditional legal mechanisms. This trend is potentiated by the inherent restrictions and formalized nature of software enforcement.

The onset of blockchain technology represents the nascent fourth phase, encapsulated by a further leap into regulation through code. Blockchain's decentralization, transparency, and immutability challenge pre-existing models of regulation by providing a technology that not only enforces laws but also acts as an infrastructure to create self-executing contracts, henceforth dubbed "smart contracts."

Smart Contracts and the Blockchain Paradigm

Blockchain technologies underpin a trustless process for contractual engagements via smart contracts, which are self-enforcing and significantly diminish the ambiguity inherent in legal texts. Smart contracts constitute an autonomous software-based mechanism to automate legal processes, reducing associated transaction costs and enhancing procedural efficiency.

By allowing contractual stipulations to be enforced technologically rather than through legal means, blockchain technology accentuates a shift wherein legal principles are possibly being subordinated by technical codifications. The paper posits profound implications—both theoretical and practical. This transformation challenges traditional legal concepts of enforcement, bypassing typical channels of judicial intervention.

Implications and Future Considerations

This ongoing transition poses intricate challenges and consequences for legal systems. As more interactions and societal constructs are mediated through technical infrastructures capable of stringent enforcement, issues of interpretation, adaptation, and fairness arise. The codification of law could supplant human jurisprudence with rigid algorithmic executions, potentially constraining flexibility and discretionary oversight.

Moreover, while the technology autonomously enforces contractual obligations, crucial interactions with the real world—and the attending legal responsibilities—remain tenuous. The requirement for interfaces or "oracles" to provide input from the physical field introduces potential vulnerabilities that counter the system's trustlessness.

Conclusion

The potential for blockchain technologies to redefine the concept of law is undeniable. However, as the paper warns, the potential technological efficiencies must be carefully balanced with the societal need for integrative flexibility and interpretive justice inherent in traditional legal frameworks. The authors advocate for a cautious approach to transforming law into immutable code, recognizing the potential for profound impacts on societal governance, individual freedoms, and legal integrity.

Moving forward, researchers and practitioners must critically evaluate blockchain's role as a regulatory mechanism, ensuring a symbiotic relationship between code and law that respects the complexities of human society while leveraging technological advancements for administrative efficacy.