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I've seen this argument regarding smart contracts several times now, and I don't think it makes any sense. It's like robbing someone in real life, then claiming

I've seen this argument regarding smart contracts several times now, and I don't think it makes any sense. It's like robbing someone in real life, then claiming you did nothing wrong because you didn't violate the "laws" of physics. Those are two entirely separate things. In the world of smart contracts code is indeed law, but that doesn't change the fact that in the real world law is law, and the fact that you used a smart contract to commit a crime doesn't make it any less a crime.

meowface 4y ago
In the real world law is law, but I think it's still not entirely clear whether smart contracts can be considered legal contracts and how to judge if any particular smart contract is one. If this smart contract is considered a legally binding contract, then, yes, this would likely be illegal despite the proverbial "letter" of the smart contract not being broken. If it isn't, then it may not necessarily be illegal (but possibly still could be).
daveed 4y ago
Respectfully disagree. I think I've seen several times the belief(from crypto supporters) that the code is the code is the code, and these are the rules that we play with. The "laws of physics" analogy doesn't match up. I feel like it would be more appropriate in an anarchist society (physics are the only laws, thus everything that obeys physics is game). This feels more like discovering an exploit in a video game. It's up to the devs to patch it, or tournaments to outlaw, but if you find something out, you can use it. We agree to play by the rules, but if someone comes up with something last minute, they can win.
- bombcar 4y ago
  Many people in crypto want to not have to comply with "real world" laws right up until the point where it would be to their benefit to do so. And if "smart contracts" depend on real law, then they're not really needed in many of the supposed use cases.
  - sushid 4y ago
    Just because there are crypto anarchists doesn't mean that all crypto proponents are anarchists. And smart contracts (not sure why they're in quotes in your comment) can depend on real law and still operate fine (e.g. I'm sure NBA Topshot would file a legal case again Dapper Labs if they did something significantly damaging to their brand/NFTs, etc.).
    - hnfong 4y ago
      > Just because there are crypto anarchists doesn't mean that all crypto proponents are anarchists. That's obvious correct but what's the point? The whole discussion here is that there exists these "crypto anarchists" and their ideal world seems ridiculous to at least a couple people here...
- Ajedi32 4y ago
  That's not how the law works though, at least not in any country I know of. If you exploit flaws in computer code to steal something of real-world value, that's a crime. We're all bound to the laws of physics, just as in the world of smart contracts all are bound to the laws of code. But none of that changes the existence of the laws of men.
  - ddingus 4y ago
    Actually, we are only bound to the laws of physics within the limits of our understanding. As our understanding grows, those laws become less and less restrictive. I think it's an interesting analogy or parallel for the case we are discussing.
  - daveed 4y ago
    (Replying to this one, but the sibling comment feels similar in vein). - I'm not really saying the crypto-side argument is right, really just trying to clarify my perception of what they're saying re: the comment above me. - The physics thing is really just a comment re: when it's hypocrisy and when it's not. - FWIW, theft in crypto isn't super well-defined to me re: the laws of men either. Maybe someone who knows current law better than me can explain, but calling a function in a contract that sends updates from one pseudonymous address to another... I don't actually know if current written definitions of theft covers that, or needs some court to interpret it as theft. We kind of understand it as people, but I honestly don't know if "laws of men" as written, do.
    - hnfong 4y ago
      Under common law jurisdictions (and as I understand it in the US too), "intent" of the accused is an important element of the crime. The definition is broad enough to cover crypto theft, but it might require the court to interpret whether the alleged actions were done with "dishonest intent" etc.. which can be a rather subjective thing. Higher courts, due to their inherent ability to set precedents, usually also consider broader policy concerns eg. whether the decision makes sense from enforcement perspective, how the ecosystem might be affected etc..
  - 4y ago
- User23 4y ago
  The crypto community does seem inclined towards a law of the jungle approach. It's amusing but unsurprising that the wannabe Shere Khans go running to the legal system when they learn they're actually prey.
SamBam 4y ago
But that is the premise of smart contracts. Sure, it doesn't excuse you from the law if your contract is to pay someone to shoot someone, but it's supposed to be the final word on the actual financial transactions that happen within the contract. Plenty of crypto hypers say the same. E.g. from a quick search of "Smart Contract advantages," the very first article, by a law firm: > Guaranteed Outcomes: Potentially the most attractive feature, smart contracts could offer a way to substantially reduce or completely eliminate the need for litigation and courts. This is because when parties commit to using self-executing contracts, they bind themselves to the rules and determinations of the underlying code, rather than exposing themselves to interpretations med by parties outside of the contractual relationship. https://www.newburnlaw.com/benefits-of-smart-contracts https://www.newburnlaw.com/benefits-of-smart-contracts
- Ataraxic 4y ago
  That may be the premise, but has that actually be held up and recognized as such in courts in major countries? Like are there precedents regarding this? At that point it's no longer a premise (for those particular countries), but until then it's just a supposition. I think courts are wary to wade deeply into a new financial system like this but at the same time I find it hard to believe that the judiciary and the legislature would rule (in the long run) that they have no ability to "make things right". If crypto grows as as many people suggest and you have some significant percentage of the country that has savings or investments tied to these smart contracts, if there is a loophole like in this case, you'd have lots of people writing their local or national representative about this. I find it hard to believe that politicians would tell the people they represent "tough luck code is law".
  - nomel 4y ago
    > be held up and recognized as such in courts in major countries? Only having a slight understanding of crypto, if local courts are required, what's the point of crypto? Why not use the existing financial systems, where all of this is built in?
    - 4y ago
DannyBee 4y ago
This claim makes no sense. In the real world, crimes have very specific definitions. Most are physical, in fact. For example, robbery is when, with intent to commit theft, you take property by force. Anything else is not robbery. Theft by taking is: when a person unlawfully takes or, being in lawful possession thereof, unlawfully appropriates any property of another with the intention of depriving him of the property, regardless of the manner in which property is taken or appropriated. (The above is georgia, robbery/theft/etc are state crimes so defintions vary a bit) Again, it requires doing so unlawfully (or converting unlawfully). If doing what this person did isn't unlawful in the real world, it's not theft, it's not robbery, it's not anything. So you have to find a crime that actually matches what happened. It's not wire fraud - that would require " false statement, promise, or misrepresentation in order obtain money or something of value from someone else." etc So what crime do you believe this actually is? (So far i've only seen a civil lawsuit, and while there is a warrant for his arrest, that's for refusing to move the tokens to a neutral third party, or show up to court :P )
- notahacker 4y ago
  In addition to sounding like textbook embezzlement, I don't think there's any reason to believe that "theft" as define by that very broad Georgia definition couldn't apply here (the "unlawfully" is to exclude certain property appropriations explicitly permitted by law like bailiff seizures or deposit retentions from the definition, not to mean it's not theft if you keep someone's property against their will without breaking any other laws. I don't think it ceases to be "appropriation" of funds simply because you provide something worthless as an exchange either, particularly not with that last clause)
  - DannyBee 4y ago
    I will admit have avoided trying to follow the entire rabbit hole of details on this case. So feel free to point out where i've missed some facts. From what i've seen I doubt it would be considered theft for the simple reason that the tokens that were bought/sold didn't belong to anyone else in particular who you could say it was appropriated from. He also paid for all of it, and paid the fair value at the time. In fact, he paid very high prices for the initial tokens (860 times initial value at one point). Then gave away a bunch of tokens. Then waited for an algorithm to do something dumb around the pricing, and then swapped the tokens. Who exactly did he appropriate property from here? He paid for all of it, and paid the prices the market demanded. The algorithm did something dumb, but that is no different than some trading bot algorithm doing something dumb and selling for less than it should, which happens all the time. As for embezzlement, it requires a trust relationship - it's a violation of a fiduciary duty. I don't think he had one? So far, i've not seen any criminal charges here, only civil ones. Certainly prosecutors are slower at this sort of thing, but i'll be interested to see what happens.
yongjik 4y ago
I think the problem is, if you put a sign saying "Feel free to break in, I dare you, if you manage to get in the house then you're free to take anything you want!" then you can't later complain when someone does exactly that. (Well, maybe you can still complain, IANAL, but it gets a lot murkier.)
- rootusrootus 4y ago
  That might be useful in a civil case, but I don't see how it would apply to a criminal case. "If you do X, it is not considered fraud" isn't going to legally bind the criminal justice system in any way.
- IanCal 4y ago
  This comes down to the intent, doesn't it? It would be different if you had no sign but on the door that opened if someone pushed it because it was badly designed. People on HN argue this with openly accessible APIs fairly regularly "ah but the machine let me do it, they must be OK with it" and I think that goes down badly in court.
thrwy_918 4y ago
>In the world of smart contracts code is indeed law, but that doesn't change the fact that in the real world law is law I think some confusion arises because that "smart contracts" only make sense if code really is law, in the sense that any transaction executed by the contract -- even unexpected, surprising transactions -- is considered to be fully consented to by all parties interacting with the contract. I agree that that's a terrible idea - bugs can always exist, and having no recourse when millions of dollars are lost due to a coding error is a huge and unreasonable risk. But otherwise -- if, ultimately, courts can force "smart contract" transactions to be unwound if they are found to be exploitative, unintended or otherwise invalid -- then what's the point of having smart contracts in the first place? What's the value proposition? Why not just use regular contracts?
- verdverm 4y ago
  Most people will be coerced into returning funds if the alternative is hard jail time Smart contract is really the misnomer. In reality, they are automations of contractual obligations and cannot automate complete contract clauses.
- IanCal 4y ago
  > Why not just use regular contracts? It's just code, so the same reason we use APIs rather than doing everything by lawyers.
- greycol 4y ago
  The same argument could be made about an escrow account. Just because the account gets payed to one party by the third party doesn't mean that the second party couldn't sue the first for the money back. Assuming the third party made a mistake or (more in line with smart contracts) if the escrow was set up in a way were the pay out was just with relation to the escrow terms but wasn't in line with the contract terms between the 1st and 2nd party they'd be likely to get redress. There's still a very real use for smart contracts in that you change what bad actors can do to act badly. Before they may have been able to breach a contract by ignoring invoices now they breach a contract by exploiting a smart contract loophole. Basically your shuffling the trust and risk around which can be a useful tool. i.e. it can be quite costly to enforce (and do due diligencece on) a contract with someone in another country so the cost and technical risk of setting up a smart contract may be much more preferable than the posisbility of having to legally enforce redress for breach in a regular contract.
maxlamb 4y ago
The problem is that smart contracts are not in fact actual, legal contracts. So finding a loophole means no crime was committed.
luxuryballs 4y ago
I think legally speaking you’re correct, they would need to pass some sort of law or ruling saying that smart contract code can not be ruled incorrect/fraudulent/negligent etc. which nobody is going to pass, so a judge will just laugh at the idea that crypto is above the law.

meowface 4y ago

In the real world law is law, but I think it's still not entirely clear whether smart contracts can be considered legal contracts and how to judge if any particular smart contract is one. If this smart contract is considered a legally binding contract, then, yes, this would likely be illegal despite the proverbial "letter" of the smart contract not being broken. If it isn't, then it may not necessarily be illegal (but possibly still could be).

daveed 4y ago

Respectfully disagree. I think I've seen several times the belief(from crypto supporters) that the code is the code is the code, and these are the rules that we play with. The "laws of physics" analogy doesn't match up. I feel like it would be more appropriate in an anarchist society (physics are the only laws, thus everything that obeys physics is game). This feels more like discovering an exploit in a video game. It's up to the devs to patch it, or tournaments to outlaw, but if you find something out, you can use it. We agree to play by the rules, but if someone comes up with something last minute, they can win.

bombcar 4y ago
Many people in crypto want to not have to comply with "real world" laws right up until the point where it would be to their benefit to do so. And if "smart contracts" depend on real law, then they're not really needed in many of the supposed use cases.
- sushid 4y ago
  Just because there are crypto anarchists doesn't mean that all crypto proponents are anarchists. And smart contracts (not sure why they're in quotes in your comment) can depend on real law and still operate fine (e.g. I'm sure NBA Topshot would file a legal case again Dapper Labs if they did something significantly damaging to their brand/NFTs, etc.).
  - hnfong 4y ago
    > Just because there are crypto anarchists doesn't mean that all crypto proponents are anarchists. That's obvious correct but what's the point? The whole discussion here is that there exists these "crypto anarchists" and their ideal world seems ridiculous to at least a couple people here...
Ajedi32 4y ago
That's not how the law works though, at least not in any country I know of. If you exploit flaws in computer code to steal something of real-world value, that's a crime. We're all bound to the laws of physics, just as in the world of smart contracts all are bound to the laws of code. But none of that changes the existence of the laws of men.
- ddingus 4y ago
  Actually, we are only bound to the laws of physics within the limits of our understanding. As our understanding grows, those laws become less and less restrictive. I think it's an interesting analogy or parallel for the case we are discussing.
- daveed 4y ago
  (Replying to this one, but the sibling comment feels similar in vein). - I'm not really saying the crypto-side argument is right, really just trying to clarify my perception of what they're saying re: the comment above me. - The physics thing is really just a comment re: when it's hypocrisy and when it's not. - FWIW, theft in crypto isn't super well-defined to me re: the laws of men either. Maybe someone who knows current law better than me can explain, but calling a function in a contract that sends updates from one pseudonymous address to another... I don't actually know if current written definitions of theft covers that, or needs some court to interpret it as theft. We kind of understand it as people, but I honestly don't know if "laws of men" as written, do.
  - hnfong 4y ago
    Under common law jurisdictions (and as I understand it in the US too), "intent" of the accused is an important element of the crime. The definition is broad enough to cover crypto theft, but it might require the court to interpret whether the alleged actions were done with "dishonest intent" etc.. which can be a rather subjective thing. Higher courts, due to their inherent ability to set precedents, usually also consider broader policy concerns eg. whether the decision makes sense from enforcement perspective, how the ecosystem might be affected etc..
- 4y ago
User23 4y ago
The crypto community does seem inclined towards a law of the jungle approach. It's amusing but unsurprising that the wannabe Shere Khans go running to the legal system when they learn they're actually prey.

SamBam 4y ago

But that is the premise of smart contracts. Sure, it doesn't excuse you from the law if your contract is to pay someone to shoot someone, but it's supposed to be the final word on the actual financial transactions that happen within the contract. Plenty of crypto hypers say the same. E.g. from a quick search of "Smart Contract advantages," the very first article, by a law firm: > Guaranteed Outcomes: Potentially the most attractive feature, smart contracts could offer a way to substantially reduce or completely eliminate the need for litigation and courts. This is because when parties commit to using self-executing contracts, they bind themselves to the rules and determinations of the underlying code, rather than exposing themselves to interpretations med by parties outside of the contractual relationship. https://www.newburnlaw.com/benefits-of-smart-contracts https://www.newburnlaw.com/benefits-of-smart-contracts

Ataraxic 4y ago
That may be the premise, but has that actually be held up and recognized as such in courts in major countries? Like are there precedents regarding this? At that point it's no longer a premise (for those particular countries), but until then it's just a supposition. I think courts are wary to wade deeply into a new financial system like this but at the same time I find it hard to believe that the judiciary and the legislature would rule (in the long run) that they have no ability to "make things right". If crypto grows as as many people suggest and you have some significant percentage of the country that has savings or investments tied to these smart contracts, if there is a loophole like in this case, you'd have lots of people writing their local or national representative about this. I find it hard to believe that politicians would tell the people they represent "tough luck code is law".
- nomel 4y ago
  > be held up and recognized as such in courts in major countries? Only having a slight understanding of crypto, if local courts are required, what's the point of crypto? Why not use the existing financial systems, where all of this is built in?
  - 4y ago

DannyBee 4y ago

This claim makes no sense. In the real world, crimes have very specific definitions. Most are physical, in fact. For example, robbery is when, with intent to commit theft, you take property by force. Anything else is not robbery. Theft by taking is: when a person unlawfully takes or, being in lawful possession thereof, unlawfully appropriates any property of another with the intention of depriving him of the property, regardless of the manner in which property is taken or appropriated. (The above is georgia, robbery/theft/etc are state crimes so defintions vary a bit) Again, it requires doing so unlawfully (or converting unlawfully). If doing what this person did isn't unlawful in the real world, it's not theft, it's not robbery, it's not anything. So you have to find a crime that actually matches what happened. It's not wire fraud - that would require " false statement, promise, or misrepresentation in order obtain money or something of value from someone else." etc So what crime do you believe this actually is? (So far i've only seen a civil lawsuit, and while there is a warrant for his arrest, that's for refusing to move the tokens to a neutral third party, or show up to court :P )

notahacker 4y ago
In addition to sounding like textbook embezzlement, I don't think there's any reason to believe that "theft" as define by that very broad Georgia definition couldn't apply here (the "unlawfully" is to exclude certain property appropriations explicitly permitted by law like bailiff seizures or deposit retentions from the definition, not to mean it's not theft if you keep someone's property against their will without breaking any other laws. I don't think it ceases to be "appropriation" of funds simply because you provide something worthless as an exchange either, particularly not with that last clause)
- DannyBee 4y ago
  I will admit have avoided trying to follow the entire rabbit hole of details on this case. So feel free to point out where i've missed some facts. From what i've seen I doubt it would be considered theft for the simple reason that the tokens that were bought/sold didn't belong to anyone else in particular who you could say it was appropriated from. He also paid for all of it, and paid the fair value at the time. In fact, he paid very high prices for the initial tokens (860 times initial value at one point). Then gave away a bunch of tokens. Then waited for an algorithm to do something dumb around the pricing, and then swapped the tokens. Who exactly did he appropriate property from here? He paid for all of it, and paid the prices the market demanded. The algorithm did something dumb, but that is no different than some trading bot algorithm doing something dumb and selling for less than it should, which happens all the time. As for embezzlement, it requires a trust relationship - it's a violation of a fiduciary duty. I don't think he had one? So far, i've not seen any criminal charges here, only civil ones. Certainly prosecutors are slower at this sort of thing, but i'll be interested to see what happens.

yongjik 4y ago

I think the problem is, if you put a sign saying "Feel free to break in, I dare you, if you manage to get in the house then you're free to take anything you want!" then you can't later complain when someone does exactly that. (Well, maybe you can still complain, IANAL, but it gets a lot murkier.)

rootusrootus 4y ago
That might be useful in a civil case, but I don't see how it would apply to a criminal case. "If you do X, it is not considered fraud" isn't going to legally bind the criminal justice system in any way.
IanCal 4y ago
This comes down to the intent, doesn't it? It would be different if you had no sign but on the door that opened if someone pushed it because it was badly designed. People on HN argue this with openly accessible APIs fairly regularly "ah but the machine let me do it, they must be OK with it" and I think that goes down badly in court.

thrwy_918 4y ago

>In the world of smart contracts code is indeed law, but that doesn't change the fact that in the real world law is law I think some confusion arises because that "smart contracts" only make sense if code really is law, in the sense that any transaction executed by the contract -- even unexpected, surprising transactions -- is considered to be fully consented to by all parties interacting with the contract. I agree that that's a terrible idea - bugs can always exist, and having no recourse when millions of dollars are lost due to a coding error is a huge and unreasonable risk. But otherwise -- if, ultimately, courts can force "smart contract" transactions to be unwound if they are found to be exploitative, unintended or otherwise invalid -- then what's the point of having smart contracts in the first place? What's the value proposition? Why not just use regular contracts?

verdverm 4y ago
Most people will be coerced into returning funds if the alternative is hard jail time Smart contract is really the misnomer. In reality, they are automations of contractual obligations and cannot automate complete contract clauses.
IanCal 4y ago
> Why not just use regular contracts? It's just code, so the same reason we use APIs rather than doing everything by lawyers.
greycol 4y ago
The same argument could be made about an escrow account. Just because the account gets payed to one party by the third party doesn't mean that the second party couldn't sue the first for the money back. Assuming the third party made a mistake or (more in line with smart contracts) if the escrow was set up in a way were the pay out was just with relation to the escrow terms but wasn't in line with the contract terms between the 1st and 2nd party they'd be likely to get redress. There's still a very real use for smart contracts in that you change what bad actors can do to act badly. Before they may have been able to breach a contract by ignoring invoices now they breach a contract by exploiting a smart contract loophole. Basically your shuffling the trust and risk around which can be a useful tool. i.e. it can be quite costly to enforce (and do due diligencece on) a contract with someone in another country so the cost and technical risk of setting up a smart contract may be much more preferable than the posisbility of having to legally enforce redress for breach in a regular contract.

maxlamb 4y ago

The problem is that smart contracts are not in fact actual, legal contracts. So finding a loophole means no crime was committed.

luxuryballs 4y ago

I think legally speaking you’re correct, they would need to pass some sort of law or ruling saying that smart contract code can not be ruled incorrect/fraudulent/negligent etc. which nobody is going to pass, so a judge will just laugh at the idea that crypto is above the law.