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Tuesday, March 21, 2023

For rules in technology, the challenge is to balance code and law.

This article is part of our latest special DealBook report on trends that will shape the coming decades.

The first time Harvard law professor Lawrence Lessig told computer scientists that they were unwittingly regulating the digital age – about 20 years ago – he screamed at a programmer. “I’m not a politician. I’m a programmer, – recalls her protest, horrified by this idea, Mr. Lessig.

Now, the professor said, the notion that “code is law” – from Mr. Lessig’s 1999 book, The Code and Other Laws of Cyberspace – does not shock young engineers or lawyers. For digital natives, it is “obvious” that technology dictates behavior through rules that are not value-neutral.

The big tech companies have been reluctant to admit the same, and Meta, the social media company formerly known as Facebook, has gone as far as creating a court-like expert council to evaluate decisions partially dictated by programming. And one relatively young technology sector – the cryptocurrency industry – has fully embraced the concept of “code as law”, with some companies bluntly arguing that code can be a better arbiter than traditional regulators.

Many cryptocurrency fans are betting on a future in which we will bank, create, play, operate and trade on show-triggering code platforms and in the booming DeFi sector, automatic smart contracts that are pre-programmed to respond … under specific sets of conditions are already processing billions of dollars in transactions daily, without the need for human intervention, at least in theory.

Users fully believe in programming. Nobody shares personal information. The code does everything and should be all law. “There is no human judgment. There is no human error. There are no processes. Everything works instantly and autonomously, ”Robert Leschner, founder of the DeFi money market Compound protocol, said in an August interview.

But while the idea of ​​a completely neutral self-patrolling system is attractive, high-profile failures call into question the idea that code is a sufficient form of regulation in itself, or that it is immune to human error and manipulation.

The smart contract is executed automatically when certain conditions are met. Thus, if there is an error in the system, the user can start an unhandled transfer, while technically observing the “law” of the code. This is what allowed this summer to steal $ 600 million from the Poly network, which allows users to transfer cryptocurrency across blockchain networks. It is believed that the thieves took advantage of the flaw in the code to override the smart contract instructions and initiate massive transfers, effectively tricking the automation into acting as if the proper conditions for the transfer were met.

“If you can tell a smart contract to ‘give me all of its money’ and that happens, then is it even theft?” computer scientist Nicholas Weaver of the University of California at Berkeley wrote about the theft. Unlike old-school conventions, Weaver wrote, ambiguities with smart contracts cannot be resolved through the courts and automatic transactions are irreversible, so developers must resort to begging when things go awry.

After the theft of $ 600 million Poly Network tweeted a request It began with the words “Dear Hacker” asking for a refund and calling the act a “serious economic crime.” In the end, most of the money was returned, talk of law enforcement stopped, and the hackers said they wanted to show that the code was wrong to protect the network.

Likewise, a software update on Compound in September resulted in the erroneous giving out of $ 90 million to users. Mr Leschner said recipients who did not return cryptocurrency would be advised tax authorities, which sparked an outcry in its community for rebutting claims that these programs technically cannot meet traditional regulatory requirements for user identification. The request also refutes claims that DeFi does not need oversight from traditional regulators – when the issue arose, Mr Leschner cited government agencies.

At the moment, DeFi platforms operate in a regulated gray space, subject to the private encoder law, which does not claim control over the organisation’s governing programs. Platforms and applications built for blockchain networks are often formed under a new business structure known as a Decentralized Autonomous Organization, or DAO, ostensibly governed by a democratically governed community of users voting with crypto tokens.

But, as the disasters have shown, there are always people behind the code.

“It’s simply not true that these are all code and not people. When absolutely necessary, it’s when you see where the power lies, “said Thibaut Schrepel, a law professor at the University of Amsterdam and who founded the” Computational Antitrust “project at Stanford University’s CodeX Legal Informatics Center.

The reason no one wants to claim control over decentralized programs is that it limits responsibility – when no one is in control, no one to punish problems, and nowhere to enforce the law, Mr Shrepel explained. “But the idea that one code is enough is wrong,” he said. And if the blockchain community uses code to evade regulation, Mr. Schrepel argues, it will only hinder innovation.

He belongs to a generation of techno lawyers who want to bridge the gap between code and law. Ideally, code and law can work together, he said. Smart contracts on blockchain can be used by businesses to collusion or increase competition, so regulators can analyze the code and software programming by partnering with major developers of decentralized systems. Likewise, policymakers could start translating traditional notions of risk reduction into code for decentralized finance programs, thinking about the equivalent of the reserve requirements that banks impose on program parameters.

“I’m not going to argue that our thinking is easy to promote,” said Chris Giancarlo of Willkie Farr & Gallagher, a former chairman of the Commodity Futures Trading Commission and author of CryptoDad: The Fight for the Future of Money. “However, he asks,” Shouldn’t we try to rethink our approach to regulation to achieve the same policy goals in a different way? “

Mr. Lessig agrees. “We need a more sophisticated approach, in which technologists and lawyers sit next to behavioral psychologists and economists,” – all parameters determine the parameters of social values ​​in programs so that private interests do not replace them with their own. “We are facing a real threat to our democracy and we do not have to wait 20 years.”

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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