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Sunday, June 19, 2016

Idiots and Smart Contracts

[Author's Note: The author is a co-inventor of two patent pending innovations currently before the United States Patent and Trademark Office for improvements to blockchain technology which would facilitate smart contract applications.]

One of the major blockchain distributed asset organizations was disrupted this weekend, causing a temporary 30-50% decline (in 36 hours!) in the value of certain related "cryptocurrencies." (Note that I avoid the use of the word "hack.")

The cause was -- we think, because it's not certain yet -- a flaw in the blockchain code underlying one of these supposedly shiny, bright new things. Now, codes fail, because their creators are imperfect. Nothing new there. It's also possible the code worked as designed, in which case the code itself was bad, not in operation but in planning, and then the "contract" within the code was flawed. If the latter explanation holds true, then the problem is the bad contract. Which brings me to my point.

The contract is the issue, because we have been hearing more and more in the financial press about this supposedly wonderful new innovation called a "smart contract." I've heard supposedly brilliant innovators talk about "smart contracts" for at least three years. These are the two words that make you sound really smart, or hip. Just like putting "dot com" behind any rubbish made you money 20 years ago.


Underlying all this is an anti-intellectual arrogance. It's the arrogance bred from a disdain for the law, the rule of law, and lawyers, and the idea that non-lawyers can do contracts much better than lawyers -- who've been doing this for decades -- can do and have been. Now, you see the result.

The tragic flaw in the DAO, the subject of the attack? It might be the uncorrected confidence of people who have never done, that they know better -- and are better -- than those who have.

If you want a smart contract, you need to start with a strong understanding of a contract, how it is constructed, how it works, and what you're actually trying to do.

Until then, you're just a dreamer with a laptop and lots of unearned confidence, but no record of achievement to match. Ignorance is no substitute for knowledge.

Some more reading on this.

Eric Dixon has been a New York lawyer since graduating from Yale Law School in 1994. He works with and is a shareholder in several blockchain startups and seed-stage ventures.

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