Conflicts of Laws and Codes: Defining the Boundaries of Digital Jurisdictions
Blockchain technology promises to perform tasks that have traditionally been assigned to the law and the realm of legal institutions. Smart contracts create agreements that are both automatable by computers and enforceable via tamper-proof execution of computer codes. Based on such smart contracts, some providers of blockchain technologies offer “to act as a digital jurisdiction”. The promise seems to be that state law is entirely substituted by the rules codified in the blockchain. But even if it has often been argued that the “Code Is Law” (Lawrence Lessig), the law is not - and arguably will never be - entirely redundant.
In a recent article, I argue that legal jurisdictions must, can and will develop rules on conflicts of laws and codes in order to define the boundaries of digital jurisdictions which are based on blockchain-based rules. Two different levels of such rules can be differentiated, namely, rules of recognition and rules subjecting the substance of blockchain-based rules to legal scrutiny. At both levels, it emerges that either the lawmaker can intervene and introduce new, specific rules, or the judiciary can develop rules on the basis of existing and more general legal standards.
Whenever existing general laws can be applied in order to recognize or override smart contracts, the need for additional, specific legal rules is not self-evident, especially given that general laws are more flexible and less technology-specific. While this is true with respect to substantive law, difficulties in enforcement could require additional, albeit procedural, rules. As a consequence of the self-executing nature of smart contracts, the burden of enforcement shifts to the other party. Moreover, the anonymity and untraceability of certain blockchain transactions will often become a practical obstacle to obtaining legal remedies. Such effects would indeed seem to justify new procedural rules that facilitate the legal enforcement of the substantive rules.
Since all these questions are considered under the heading “conflicts of laws and codes”, one should add three clarifications, all with respect to the relationship with traditional conflict of laws rules. Firstly, the wording of this analogy falls short of its true content. Since questions of enforcement are also implicated, the conflict is not only a conflict of legal norms, but also a conflict of jurisdictions. Secondly, the analogy is ambiguous because the two different varieties of conflict rules do not replace each other. The existence of rules on conflicts of laws and codes does not make the traditional rules on conflict of laws redundant. On the contrary, the applicability of one or other national law is an upstream question. It needs to be decided before one can apply rules on conflicts between laws and codes. Finally, and most fundamentally, this analogy is also deficient because both sets of conflicts are only to some limited extent comparable.
From a functional perspective, conflicts between legal jurisdictions, and between legal and digital jurisdictions, have indeed many similarities. Due to the regulatory character of each of these subsystems, rules can collide, hence the need for rules to solve such conflicts. Despite this similarity, however, one should not forget the fundamental difference between the two different conflicts. While legal jurisdictions conflict on an equal level, legal and digital jurisdictions differ with respect to their respective binding force: only the former are based on the state monopoly on the legitimate use of force. As opposed to conflicts of laws, conflicts of laws and codes are therefore not “among equals”. Instead, legal jurisdictions will always prevail over digital jurisdictions, at least as long as nation states exist (and technical difficulties of enforcement can be overcome).