The biggest legal problems in the Crypto ecosystem

This entry is a translation into Spanish of the original CleanApp article published on Medium on September 8, 2018. The translation has the permission of the author. The Crypto Legal and / or its members do not necessarily share the position and / or arguments contained in the original article. You can see the original article here!.

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(This is the first part of a larger analytical project titled CryptoLaw, available in Crypto Law Review).

Crypto Law is experiencing explosive growth right now. This includes from the introduction of new legislative and regulatory schemes, to the reconceptualization of some of the most basic legal forms, such as "contract", "property", etc.

It is difficult to define the field of Crypto Law, but it is fair to characterize it as extremely fragmented and disjointed. This, in itself, is a sign of a potential big problem in Crypto Law.

How Mike orcutt suggested in the MIT Technology Review A few months ago, continuing with the current choppy approach to defining the legal forms of Crypto Law brings with it: (1) chaos (2) incoherence, (3) unnecessary complexity, (4) regulatory backlash, (5) added costs, (6) confusion, (7) reduced innovation.

However, the conceptual and operational problems of Crypto Law are even worse than the parade of hideous listed above.

Current crypto law problems are exacerbated by many people's belief in "lexescapism" - the idea that they can pull their crypto projects out of the messy and inefficient world of existing law, creating their own "self-contained legal systems."

The common belief that it is possible to take legal relationships around crypto completely into your own hands may prevent crypto teams from seeing even major structural problems in the Crypto Legal Matrix broader in which they operate.

Problems with Crypto Law 

While some of the items on the following list will leave you scratching your head, here is a partial list of the biggest structural issues plaguing Crypto Law today.

  • Conceptual inconsistency: the belief in "self-execution", "smart contracts as a special purpose 'legal system' with very low execution costs" (Buterin / Ethereum); the very premise of legal 'immutability' (ETC); the apparent lack of interest in legal theory (with some exceptions); etc.
  • Immutability: Certain things are fixed, we want them to be fixed, and Crypto Law can keep them fixed.
  • Wrong contract law: the founding manifestos of the movement for the «smart contracts« are doctrinally wrong (for example, Nick Szabo's fixation on the standard of the "agreement of wills" for the formation of contracts; the inaccurate understanding of the remedies for the fulfillment of contracts and the circular "logic" of the so-called "self-fulfillment").
  • Inappropriate remediesOn-chain fetishism (the idea that contract formation, performance, breach, and dispute resolution can be done entirely on-chain or within a given crypto instrument) leads to deliberate disconnections from existing legal and non-legal remedies. Existing remedies, of course, were never displaced by Crypto Law, and now serve to operate in conjunction with various alleged on-chain remediation and / or dispute resolution mechanisms. Interoperability between on-chain and off-chain redress mechanisms is one of the biggest legal issues facing the crypto ecosystem today.
  • Concern for ambiguity: The law often strives for clarity and certainty, but absolute certainty is impossible because there will always be ambiguity (factual and legal ambiguity is impossible to resolve); Crypto Law (especially of the intra-cryptographic variety, such as so-called “smart contract” architectures) often claims certainty; More worryingly, many crypto projects claim that they can 'resolve' the ambiguity and arrive at 100% objectively clear forms, processes, and outcomes.
  • Lexescapism: belief that it is possible to extract crypto aspects from existing laws (legal forms, processes, institutions, etc.) and that we should pursue these goals (Buterin: «block Chains they are digital institutions without a central coordinator and without being subject to a single jurisdiction ”). (see also EOS).
  • Open legal exposure / liability: representations, claims and frequent claims (IOTA = "quantum proof") leading to open legal exposure; keeping the exposure open despite the liability notification and risk mitigation facility.
  • Bot enforcement: casual references to preprogrammed autonomous actions of «bot enforcement»Without express recognition that this is a logical and legal precursor of«robot enforcement"(CryptoPolice, RoboCop, etc.) (see also: dehumanization; lack of self-awareness).
  • Jurisdiction: The structures blockchain are ideal for creating The world's most robust and up-to-date jurisdictional maps, dynamic and fluid (and fluid and dynamic legal doctrinal maps!), But the current conceptions of jurisdiction of the Crypto Law seem to be limited by the irrational search for the crypto concept of 100% immutability, certainty and fixed and predictable jurisdictional limits. In practice, Crypto Law operates along the well-known overlapping and concurrent jurisdictional lines of the XNUMXth century, like a Venn diagram. The unwillingness of Crypto Law to apply the technology Blockchain/DLT to rethink jurisdiction in more functional terms is the crypto ecosystem's biggest missed opportunity.
  • Dehumanization: (human law is costly, inefficient, unfair, clumsy, disorganized, lengthy, prone to human error) = DumbLaw; (Crypto Law is cheap, fast, efficient, impartial, organized, transparent) = SmartLaw.
  • Unrecognized ideological baggage: cryptanarchy, crypto-libertarianism, Bitcoin maximalism, 'Capitalist Socialism', 'Liberal Radicalism', self-sovereignty, #CodeIsLaw, #CodeAsLaw, 'algorithmic justice', immutability, individualism (individual rational self-interest), etc.
  • Formalism / Hyperformalism: (appropriation of existing legal forms such as "contract", "property", "individual legal personality", "Constitution", etc.) + ("freedom of contract", "choice of law" and "choice of forum" doctrines) + (formal math) = Crypto Law. Crypto hyperformalism example A = EOS.
  • Private law> Public law: Contracts and property rights between self-sovereign individuals dominate the Crypto Law imaginary; public law has a place, but that place must be as clearly defined and as small as possible (see also: regulatory anxiety; ideological baggage).
  • Anti-formalism: #CodeIsLawexcept when it isn't (in unusual situations like the DAO, when we can make exceptions); “We can track every transaction, so strict accountability, traceability, verifiability, transparency is codified in Crypto Law, but the environmental footprint of crypto mining (and other externalities of other processes) are too speculative and too difficult to attribute. '
  • Global Law and Governance: Crypto can drive development, and it must keep the tracks of regulation open. The actors of the crypto / DLT they want public sector adoption; but when you consider that China / Russia / Venezuela / North Korea / etc. subsidize crypto mining operations, the Crypto Law remains silent.
  • Crypto-phrenia: «Down with the banks! Why are banks suspicious of crypto? » Down with the law! Why are law enforcement looking to terminate crypto? » Down with confidence! But please trust the "terms", "conditions", "rules" and "guidelines" of our self-hosted mobile wallet to blockchain based on Ethereum, called Trust«. Transparency is the DNA of crypto; Except of course when it comes to the formation of a cartel inter-crypto, etc.
  • Crypto IP- Everyone is rushing to get Blockchain patents, but no one is prepared for the big crypto IP cartels and even bigger crypto IP wars.
  • Regulatory anxiety: Freedom is good; regulation is bad; regulation «pro-crypto»Is great, except when it is a regulation«pro-cryptoBad (see also crypto-phrenia); lack of a broad lobby sectoral and / or negotiated coordination of rulemaking, on the one hand, but clear signs of cartel formation among some of the major crypto development teams, to the exclusion of others;
  • Victimization: crypto innovates, innovates, innovates; the State only regulates, regulates, regulates.
  • Binary logic: us against them; honest nodes attacking nodes; "legitimate" miners vs. Bitmain; crypto vs. SEC, Wall Street, Central Banks, etc .; crypto vs. the world.
  • Crypto lawyers: many opportunities ($$$) invite legal opportunists, posers and scammers; The depth of the above legal issues makes it easy for many attorneys to hide their lack of experience, while appearing to be knowledgeable and helpful. Most worryingly, the fetish of a lack of trust in the crypto ecosystem (with respect to underlying algorithms or enforcement mechanisms) manifests as suspicion of Crypto Lawyer vs. Crypto Lawyer.
  • Core vs. Periphery: Crypto law is the law, so every day it is institutionalized more and more through vehicles such as the Chamber of Digital Commerce and Stanford and E + 5, which have the resources to exercise unilateral fiduciary power to issue guidelines. This orientation is intended to be global in scope, but primarily reflects Anglo-American customary law (doctrinally) and Anglophone law (in terms of institutional and legal sensitivity). For example:
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  • Lack of self-awareness: "Wow, we were too busy doing [insert crypto development roadmap goal here] to realize there were so many legal issues." But we are really on the receiving end of these problems (see: victimization). We are not responsible for them.
  • Lack of responsibility: watch up.
  • [...]

Each of these problems can be seen as an obstacle in the crypto ecosystem's march towards global scale and world domination. However, everyone should also see that removing any of these discrete hurdles creates immense new opportunities, and not just for the crypto ecosystem.

Hey, where's the problem Z?

At this point, if you don't see any particular item in the list above as a discrete legal problem (for example, "us versus binary logic"), that's fine. We begin by noting that many analysts and insiders are also unaware of the magnitude of the legal issues surrounding the crypto ecosystem.

So recognizing the enormity of the task before us is a good start.

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Similarly, if you are surprised to see a legal issue missing from the list (for example, United States tax law, the 'disruptive effect of projects like openlaw»Or the applications of BlockTech court records, etc.), the same disclaimer applies.

It is possible that CleanApp are not aware of a particular problem area, or that we group it into another general category such as regulatory anxiety (which itself is very broad and includes tax, securities laws, antitrust, anti money laundering, capital controls, etc., and that it comes from thousands of global jurisdictions).

If you think we should add your issue to the list above, please send us a response below. We only ask that you remember:

No list like this could be exhaustive. That's not the point.

Instead, what everyone should see is a clear need for greater conceptual clarity, categorization, prioritization - things that we continue to work on in our larger project. "CryptoLaw".

Ok, Problems. And solutions?

If you're building complex rockets that don't take off as planned, it's worth doing multiple thorough bottom-up vulnerability audits before trying to fix this or that easy-to-spot symptom.

The same happens with crypto projects and with Crypto Law.

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The point of this article is not to provide a checklist of the legal issues that crypto development teams face. Instead, we aim to show that in light of the magnitude of previously unresolved legal issues, the best approach for CryptoRight is:

Assume nothing; question everything.

We know that there are many plans in place to address this or that area of ​​need. But we also know that over the next 5 to 10 years, we will likely see much more fragmentation and inconsistency (despite, and alongside, the continued drive toward legal harmonization and convergence).

Therefore, whatever the strategies or legal advice that we obtain from crypto lawyers (or from Google), we need to further refine our default legal analytical stance of 'trust but verify'.

We are not suggesting that everyone (both lawyers and non-lawyers) should start developing their expertise in Crypto Law. Specialization has its place.

Instead, we simply suggest that every crypto developer and investor who cares about the success of the broader enterprise of Crypto / Blockchain / DLT You should put legal risk awareness and legal risk mitigation much higher on your respective to-do lists than "legal" currently occupies.

My crypto lawyer has this

If you have any of these issues (individually or collectively) with your Crypto Lawyer and your response is, "Don't worry, we'll take care of this!" - then it might be time for a new crypto Lawyer.


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Whether you are an experienced Crypto Lawyer or CryptoCat reading this, a better answer should be something like the following:

(1) Mapping of the Crypto Law Actor: Who benefits from maintaining these levels of legal inconsistency and disorganization? Who would benefit from greater clarity? Who are affected by CryptoLaw and the various current and emerging crypto legal institutions? How?

(2) Mapping the Concept of Crypto Law: Is there an ideological assumption or commitment that CryptoDevs bring to Crypto Law that they are simply unnecessary for smooth crypto-legal relationships, and that, in fact, can serve as an impediment to efficient Crypto Law? How can we design mechanisms and processes that give us the best ideas about Crypto Law in the most inclusive, efficient and emancipating way possible?

(3) Mapping of the institution of Crypto Law: What is the best and fastest way to create transparent and inclusive legal institutions for comprehensive and ongoing industry-wide legal analysis and legal risk mitigation work?

(4) etc.

Read on CryptoLaw

Here's another reason to keep reading CryptoLaw. A better knowledge of Crypto Law allows non-lawyers to exercise control over the growing power of Lawyers crypto.

Our feeling is that we got into a lot of the above trouble because of the early crypto lawyers. Therefore, they must lead the effort to clean up this mess. A better command of Crypto Law allows you to follow the people whose job it is to add value and decrease risk, rather than the other way around.

Here are the next steps in our self-directed version of the Crypto Law School: (1) learning to view the Crypto Legal Matrix, followed by (2) a careful analysis of the relationship between the Crypto Legal Matrix and the even broader legal matrix. that the structure and that surrounds us all.

Image extracted from the original post on Medium.

If you're ready to take this leap, let's connect to the Crypto Legal Matrix.

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Sergio Puicon
Ninth cycle law student at the Pontificia Universidad Católica del Perú. With interest in Commercial Law, Fintech and Capital Markets. I believe in the power of information and technology as a tool to enhance it.


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