An unprecedented development is taking place where regulations and case law are moving far too slowly for the innovations taking place in industries such as DLT and artificial intelligence. According to one Ethereum Swarm developer, who fought a seven-year court case over his Ethereum-based decentralized storage mechanism – “If you build it strong enough, the law will follow.”
The “arms race” between developers and regulators
Daniel Nagy is the lead developer behind Ethereum Swarm, the decentralized storage layer of Ethereum. Nagy won a seven-year case over the use of an early file sharing network known as Direct Connect, a technology now obsolete. The developer was accused of copyright infringement for hosting the DC node. During the legal battle, Nagy decided to join the Ethereum Foundation to investigate how software could be made immune to government censorship.
He started working on Ethereum Swarm with a focus on privacy through cryptography. Swarm effectively uses redundancy to protect against censorship, as a “swarm” of computers hold all the data. When there are multiple channels of information, hunting them all down and enforcing the law becomes very difficult to do, and could be resource-prohibitive. All of the computers need to be traced, found, and shut down.
The aim of the Ethereum Swarm developer is to make decentralized storage strong enough that court cases such as the one he endured do not happen again – in effect making the software so strong that legal regulators cannot interfere. He has even gone as far as to describe it as an “arms race” between regulators and developers, though insisting that the battle is already won by the software developers. This is quite a strong argument, and the simple fact is that regulators and legal proceedings are already far behind all of the innovations taking place. The practical realities of enforcing censorship are simply too onerous in a DLT driven world.
“This is an arms race, and since we can develop stuff and the marginal cost of replication is zero, we will win this arms race, and I think everybody knows that”
Ethereum Swarm developer – law at the mercy of software developments
The Ethereum Swarm developer goes further than simply building censorship-resistant software. He posits that robust systems will play a role in informing legal decision making, including how laws are interpreted by judges and enforcers. He makes an interesting point that “judges don’t want to enforce unenforceable laws.” And this is true. In a software-driven world, no longer will judges have the power or autonomy they once did, and they may have to pay heed to practical challenges about the constraint of software developments.
“Code is law” is a common philosophy among many DLT developers. The premise is quite simple. An ecosystem is developed based on certain software rules, and these rules are intended to be completely independent of rules established by traditional legal and national systems. The rules can be changed by a majority vote of the community. Much controversy ensued over the Ethereum DAO disaster, where a smart contract vulnerability led to a hack. To recover the funds, the developers altered the code so that funds were returned to the rightful owners, leading to a fork in the Ethereum blockchain. Some argued that the return of the funds was a violation of the “code is law” rule. However, this is a rigid interpretation. “Code is law unless community votes to change” is a more flexible approach to have and will work better in the long-term. This was the approach taken, and dissenters kept the old blockchain, known as Ethereum Classic.
As an aside, the US Securities and Exchange Commission (SEC) claimed that the DAO token was a security and thus the independent investment architecture was in violation of US securities law. This is just the type of jurisdictional overreach that Nagy is aiming to prevent with decentralized censorship-resistant storage.
The future of law and software
It is impossible to determine how legal infrastructures and software will integrate, but it stands to reason that code is going to become far more powerful. The current legal infrastructure is going to find it nearly impossible to legislate and regulate the daily advances in industries such as AI, virtual reality, and DLT. Smart contracts are likely going to be integrated into legal, tax, accounting, and insurance industries which will greatly streamline many of the current processes.
But it is entirely feasible to swing too far in the opposite direction. While cryptocurrency advocates and libertarians are eager to get government and large corporations out of their lives at all costs, there are considerable dangers associated in a world where the code is law. The coders will simply take up positions of power and inequality will again take place, in a different environment with different victims and perpetrators. Assuming a free and equal utopia by the proliferation of intelligent software is an unsubstantiated but frequently assumed position.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.