Deterrence can exist in the world of bits; enforcement resides in the domain of atoms. The law of the jungle supersedes all other laws. Smart contracts do not change the nature of rule enforcement in the corporeal realm.
The game theory of true recourse must be understood as DeFi creates financial systems. So long as you have a physical body that must occupy territory, the guy who can put you in a box makes the rules. Violence is the supreme authority through which all other authority is derived.
The men with guns must agree with and enforce your code to make it law. A law is only as good as its enforcement; enforcement does not happen onchain.
Let’s concretely walk through what real-life implementation of a law looks like. No theory, just praxis.
How To Enforce A Rule
You have a dispute. Maybe someone didn’t fulfill his side of a contract. Maybe fraud happened. Perhaps someone robbed you, or your wife is insisting on full custody in the divorce. You believe you’ve been wronged and have an issue that needs resolving. Words have failed to rectify the situation.
What happens next? Specifically.
Option 1: You Call The Police
When there's immediate threat to property or well-being, you call the cops. Why? Because police are storm troopers of the state. They’re the ones officially allowed to use violence to uphold the rules. Whose rules? The state’s rules.
You don’t call them to compel your personal principles, you do so when you think a violation has occurred that the state will also recognize as one. You implicitly expect the state to side with you when you incorporate it into your conflict resolution. You do this because you understand the state is what physically imposes rules. Words are written law, men with guns are embodied law.
Ground troops that enforce things aren’t a state construct, any mafia with a violence monopoly will have them. The state is simply an elected, broadly supported mafia. If the state is overthrown, that vacuum will be filled by another one; there will always be a cartel with enforcers.
Option 2: You Call A Lawyer
When the matter is less physically urgent or more interpretive, you call a lawyer. Why? Because the lawyer will advocate for your belief that a violation of the state’s rules occurred.
He will do it in front of the interpreters of the state (judges) in an official building made just so the state can oversee and adjudicate disputes (a courthouse). The state interpreter will review the claims, compare them to the state’s rules, and make a ruling. The ruling will be physically administered by men with guns. The dictates of a court are not a polite request, no law is upheld by asking nicely.
Option 3: You Enforce Your Own Laws
Just because the state has a monopoly on violence doesn’t mean conflict outside of its purview doesn’t happen. Sometimes people act extra-judiciously. So you’ve decided to go rogue. You’ve already asked nicely... and he didn’t listen. Ok, so now what? How are you going to impose your own rules?
You're going to use violence, that’s how. Except you’re not going to outsource it to the state, you’re going to use your own. When communication breaks down, force is what resolves it.
When you’ve tried economic incentivization and the person acts irrationally, where do you turn? When two parties have a material dispute, the one with greater violence wins. Might makes right when reason produces a stalemate.
To recap:
- Call police: violence to impose laws
- Call lawyer: state reviews your dispute, uses violence to impose laws
- You self-enforce: use extra-judicial violence to impose your own laws
The Code Is Law Utopia
The year is 2030. With DeFi and web3, we’ve created a truly superior mode of commerce and finance; everything now happens onchain. In just 15 short years, crypto devs have undone centuries of Darwinianly evolved dispute resolutions, all with cool ZK tech and atomic swaps.
Ha. Ok but seriously.
So now the laws, they’re found in code instead of law books. Humans have codified their rules in smart contracts as opposed to regular contracts. Mass layoffs of police have happened, as enforcement is now onchain and they have nothing to do all day. Courthouses are only used for weddings anymore, and soup kitchens are filled with unemployed judges.
Okay, but actually seriously.
What do you do when two people have a disagreement about something that went down onchain? Because let me tell you, just because a smart contract executed a function as designed, people will still have beef. You will tell them “excuse me sir, are you aware that code is law?” and they will ignore you! So rude!
I personally love libertarians, because they’re almost always high-integrity, respectable people that are programmed to uphold and exist in high-trust, high-agency societies. There is however a gaping hole in their understanding of human nature that underpins many of their core political beliefs: they assume everyone is as honorable as they are.
There are no atheists in foxholes, and there are no "code is law" libertarians who’ve just been hacked for 20% of their networth. The flaw with “code is law” philosophy is the terminal blind spot that savages exist, and they do not think or act like you.
Economic incentives are not an enforcement mechanism; they are either a deterrent or a motivator.
A law is only as good as its enforcement. Enforcement is done with violence. Violence is not wrought onchain.
You will not get principled coordination in hostile situations when one stands to gain from defection. Expecting this is the opposite of trustlessness.
Everything I previously enumerated in respect to police, lawyers, and extra-judicial action applies to onchain events all the same if someone is willing to escalate it. DeFi is a vastly superior form of commerce, but we have not outprogrammed nature’s dispute resolutions.
Self-Interest and Ideological Fealty
At what point does someone defect from the Rules of Engagement and standard decorum, because he has too much to gain in doing so? This is when you enter the domain of game theory, not principled beliefs.
Even the most puritanical of cypherpunks has his limits.
At a certain level of pain, anyone’s best interests will supersede his ideological fealty, as it should.
When something happens onchain that contravenes meatspace laws, the party who stands to gain from involving meatspace, will do so. The dominant strategy is to involve the men with guns if you think the state will agree with your grievances. And because you’re a physical being that occupies territory, there will be men with guns who have jurisdiction over you. The transaction happened onchain, but you do not exist onchain.
If there was a way to completely separate your digital existence from your physical identity, perhaps code could indeed be law.
But information theory eventually exposes every man, especially if someone wants to find him badly enough. With the pattern-matching wizardry of AI and Chainalysis-style sleuthing, it’s only a matter of time until your digital and physical identities are connected by a sufficiently motivated party.
If the men with guns disagree with the code, they will not care about your smart contract; they enforce the laws of their handlers, not yours. Rational economic incentives are not enforcement, people behave irrationally all the time. Men with guns are the most-effective curtailment of irrationality.
The only way code is ever law is if men with guns agree, or your transgression is too trivial to draw a reprisal. It is never, by itself, a real law, because a law is only as good as its enforcement. Act accordingly.
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