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Cryptocurrency and the Law of the Horse

By Craig Wright | 02 Jul 2020 | Alternative Coins & Systems

In 1996, Judge Easterbrook presented and spoke to the University of Chicago Law School. In his speech, he reflected the words of the dean of the school, Gerhard Casper, who related that the University of Chicago did not offer a course on the ‘Law of the Horse’. In doing so, he was noting that university subjects should be limited to courses such as Law and Economics or Law and Literature and that they should avoid areas that are overly specific, such as Law and Cyberspace [1].

The law does not need to prescribe legal adaptions for cyberspace. In common law, analogies are used to relate changes in technology and society, and have been used from the formation of the system. In a well-studied case, Entores v Miles Far East Corp [2], Lord Denning introduced communications by telex using the analogy of two people communicating at a distance. He argued that there would be no contract when two people shouted across the river until the acceptance was heard by the offeror. If, for instance, a noise occurred at the moment the acceptor was shouting an agreement, the offeror could not assume a contract as the acceptance had not been heard. Here, he applied a reasoning that would allow us to apply contracts to all forms of communications which are instantaneous, or virtually instantaneous. The scenario differs from one of communicating by postal telegram, where there is a delay in the exchange of a message. Telex was regarded as falling into the category of instantaneous communication, and Lord Denning held that the acceptance by telex took place where it was received, rather than where it was sent.

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In an exchange using digital token systems, the same logic would apply. Again, it depends; it is not a matter of law, but of fact. In an exchange of Bitcoin transactions, the nature of the transaction and how it was transferred determine the time and location of acceptance. For instance, in a peer-to-peer exchange where a buyer and seller directly exchange a Bitcoin transaction using the original IP-to-IP protocol, the transaction would be said to be instantaneous and, as such, would occur at the location where the recipient resides. Conversely, a Bitcoin transaction sent directly to the blockchain and a recipient’s published address would mirror the condition of the postal acceptance rule.

In the same way that we do not need a course limited to the law for any individual aspect of cyberspace, we do not require new laws for ‘cryptocurrency’ or digital tokens. Individuals and legal entities exchange and transact, suffer torts and criminal actions, and continue to interact as they did prior to the invention of computers. Although technologists would have us believe that new laws needed to be created, many aspects of contractual exchange, monetary finance, and trade have changed little other than in speed and certainty. When Judge Easterbrook noted that cyberspace was being represented in the way that some would represent the ‘Law of the Horse’, he could have been presenting at a conference for ‘cryptocurrency’ advocates.

Just as any course on the ‘Law of the Horse’ would be shallow and without unifying principles, the ‘Law of Cryptocurrency’ naturally presents a shallow and unfulfilling endeavour. Easterbrook noted that even if a course covered every individual case involving people who were kicked or injured by horses, it would still fail to convey the law of torts. At the same time, it would offer but a glancing introduction to the law of contracts and property. Only by discussing and learning the law of property, the law of contract, and financial law can we hope to understand the broader rules surrounding commercial exchanges and the interactions of people in day-to-day life. There is no need for special laws concerning ‘property in cyberspace’. Similarly, there is no need to incorporate courses on ‘property in cryptocurrency and digital tokens’.

Intellectual property law, contract law, tort law, and criminal law all form a solid basis and foundation for the concepts of ‘cryptocurrency law’. Machines do not program themselves. Smart contracts are merely automated exchanges that have been determined between individuals. In systems like Bitcoin, there is no encryption and hence nothing to stop the legal alteration and reallocation of contractual exchange. There is nothing new under the sun, which is particularly true of Bitcoin and all its imitators. There is no need for new law, but there is a need to ensure judges and legislators understand the facts surrounding Bitcoin and other blockchain systems.

For all the detractors such as Lawrence Lessig in the 1990s, there is no need to throw the baby out with the bathwater. The push for specialised individualised law is not a call for improving understanding and removing uncertainties; it is merely a poorly disguised attempt to undermine the existing legal system. When Lessig and others tell us that “code regulates behaviour in cyberspace” [3], individuals like himself fail to point out that all code is defined by humans. Computer code is merely a form of language. It is not one that is easily understood by most people, but it is a form of communication nonetheless. In using the supposition that code would form a system of its own, Lessig sought to create changes in society by surreptitiously undermining many of the foundations of freedom and law. His response took Easterbrook’s thesis and twisted it into a mouldy strawman.

Code is not law. The simple point, which cannot be buried, yet which is eternally missed in such claims, is that all code is written by people.

The claim promoted by Lessig that is now propagated throughout parts of what people call the “cryptocurrency community” is very simple: a system created by people should be above and beyond the law for the simple fact that the creators may remain unknown. The English common law has long dealt with the situation, and unlawful contracts do not become lawful merely because the parties who initiated them do not have a means to stop them. An error in computer code does not dictate the intent of the individuals. And the critical point is, for any meeting of the minds, the intention needs to be accounted for.

The distinction between real space and cyberspace does not exist. An individual transacting over the Internet or another electronic methodology remains an individual. No matter how many sock puppets we use, we do not fundamentally change the method we use to communicate and transact. When Easterbrook opined that it would be unreasonable to isolate studies of cyberspace law, he was well ahead of his time. As a technologist and legal scholar, I hope not to be the dilettante he wrote of. It is thereby necessary to develop a deep understanding of all aspects of both law and technology, which is not something that can be achieved through a merged course. Focusing on the law around Bitcoin and blockchain technology and cyberspace in general, my greatest understanding has come from courses that have nothing to do with technology. For the most part, I have learnt the least from such courses that spread the least and attempt to encompass everything in an electronic ‘law of horses’.

The Internet exists as a distributed consensus system, if you understand the intricacies involved with the creation of routing exchanges or even the Domain Name System (DNS). For all the bluster, even China must necessarily become part of the international consensus and follow the standards of the Internet to become a part of the system and to connect to other nodes.

Bitcoin does not differ here. The consensus lies not in the code but between individuals who exhibit and express intent. When I added to the Bitcoin white paper, “Any needed rules and incentives can be enforced with this consensus mechanism”, I concluded the introduction to my technology not by saying that computer nodes would form their own intent, but rather, the individuals running them could engage in constructive consensus and, through it, might create a system that worked within existing rules.

There is nothing automated that leaves code to become a replacement for law in the white paper, nor is there any such thing in the technology it describes. A small number of commercial individuals, through companies or corporations, follow the rules, ensuring that they are maintained. There is nothing in any of my writings saying that Bitcoin was democratic—with the users determining the future of the system through code. More importantly, such a system could not exist. For all the mythology and religious hype, we do not have artificial intelligence, and we are not close to achieving anything like it. We may automate systems, but we do not create systems that think. For all the rules that they may apply, no machine has any inkling of thought or understanding. Consequently, code cannot be law, because code is merely a language abstracted onto a page, even if the page is created through binary electronic signals.

The question to ask remains simple: why would individuals seek to promote a false idea such as of code being its own law, or why would they seek to say that the Internet, cyberspace, and now ‘cryptocurrencies’ remained outside and were not addressed by the law?

And when you think about it, logically, it can easily be seen that the answer is that such individuals seek to abstract the truth and to twist the facts and to hide the simple reality that systems such as Bitcoin involve people and not intelligent machines, that cyberspace is merely a concept we create in our minds to incorporate the idea of a new realm, when we are really only exchanging through a new technology—just as those using a telex machine were exchanging through a new technology. When you see it all, you start to realise that certain individuals have agendas that would never be accepted if they were to promote them openly.

Many such agendas would never see the light of day. Rather than saying that they seek a world where they can engage in paedophilia and the exchange of child pornography, rather than saying that they want a world where they can exploit people through the illicit sale of drugs and other, illegal material, rather than saying that they want to subvert the law and override democracy, we have people engaging in a series of lies, telling you that code is law.

But the truth is simple and will always remain simple.

Only humans exhibit and express intention, and only humans can contract or create the necessary conditions to commit a crime. It will never be the case that computer code exists outside of the minds of individuals. Code is simply a form of language, an abstraction designed to transfer ideas that always and necessarily originate through the human mind. When any individual tries to tell you that code is law, they simply seek to say that they, as a technocrat, have more rights than you do. They seek to tell you that what they can create must necessarily override the dictates and constraints of society. Through subversion and subtle lies, they will promote the concept that cyberspace and even ‘cryptocurrency’ are new and must be treated as something different under the law. It is not because it is new, it is simply because there are things we, as a society, find abhorrent, yet individuals who don’t find such things abhorrent seek to make them mainstream.

Shares and other security instruments have been dematerialised and exchanged on computer databases for decades. The difficulty in exchanging securitised items, financial instruments, and digital tokens is not resolved just because we have a blockchain. The cost of exchanging shares using electronic clearing houses remains low. It is not the exchange of such digital items and property that was ever in need of reform, but the cost associated with such exchanges was always related to anti-money laundering (AML) and know your customer (KYC) regulations. Being able to exchange using a blockchain does not remove the necessity to ensure that insider trading and share frauds are mitigated. It is not the blockchain that reduces such things but the systems we would need to build around it. Lastly, it is not that code is law; it is simply that code is a language that can capture any exchange and help reduce their cost. For code to be useful and effective, it needs to follow law and not attempt to subvert it.

References

[1] Easterbrook, F. H. (1996). Cyberspace and the Law of the Horse. 1996 University of Chicago Legal Forum 207. See: https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=2147&context=journal_articles (accessed 22nd June, 2020).

[2] [1955] 2 QB 327.

[3] Lessig, L. (1999). The Law of the Horse: What Cyberlaw Might Teach. 113 Harv. L. Rev. 501. 113 (2): 501–549. doi:10.2307/1342331. JSTOR 1342331.