Great+Chain+of+Numbers+A+Guide+to+Smart+Contracts,+Smart+Property+and+Trustless+Asset+Management+-+Tim+Swanson

While his proposal will likely receive a mixed reaction, he sees this evolution in terms of the existing role
of a 3 rd party. In his view, “taking the asset-backed loan as an example again, let us suppose there are
multiple lenders. Usually those lenders will enter into a contractual arrangement with an agent or
trusted 3 rd party, another bank or a professional trustee company, to hold and exercise their rights, at
their direction and on their collective behalf. This arrangement works because (1) the common law
allows the lenders to contract with that TTP on certain terms and (2) the parties know where to find the
TTP if it screws up.”
In Byrne’s view, once a trusted 3 rd party is removed from simple transaction of the kind in the style
proposed by Nick Szabo, such an agreement differs from a contract concluded in the normal way in
that:
1) “the TTP and its associated costs are disintermediated and users become independent of
existing institutions; however,
2) “the price of decentralisation is full cash collateralisation, making even the most basic lending
contract unviable for ordinary commerce;
3) “the element of discretion to hold our rights in abeyance and adapt to changed circumstances
is limited by the algorithm; and
4) “in all likelihood, the possibility of enforcement for losses which arise beyond the provisions
made in the smart contract itself will be compromised, because
(a) by design, the technology doesn’t permit this course of action (as a party who would
be liable for, e.g., consequential loss would almost certainly not hand over his private
key in circumstances where his liability would increase); and
(b) even if one could present the contract to a court and trace all of the relevant assets,
reintroducing a contract to the legal system when it was intentionally structured to exist
outside of it does not tend to work out well for the party seeking to rely on its
provisions.”
This is an issue that numerous reviewers of this manuscript asked: for digital contracts, how is the
problem of real life enforcement solved? After all, even if things are enforceable on the blockchain, a
human still has to input the conditions for which contracts will be executed, and if anything happens in
real life, it still has to be enforced by lawyers and the state. However, there is no clear cut answer to
this and each jurisdiction will likely react in different ways: from acceptance to outright banning.
Yet Byrne sees only one solution: invite 3 rd parties back into the equation.
As Szabo said, “by extracting from our current laws, procedures, and theories those principles which
remain applicable in cyberspace, we can retain much of this deep tradition, and greatly shorten the time
needed to develop useful digital institutions.”99 To Byrne, this means that while “a technical
understanding of jurisdiction specific legal principles is absolutely essential to smart contract design,
trying to encode the sophistication of common law into an algorithm is impossible – see, for example,
the Eurosail-UK 2007-3BL case, where ambiguity relating to the statutory consequences of a purely
mechanical provision, which in all likelihood nobody expected would ever be invoked at the time the
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