Code Is Law: Nine Theses on the Programmable Economy

DAO Politics — a series of ForkLog podcasts in which we, together with invited experts, examine how decentralized autonomous organizations are structured, and discuss their conceptual and technological foundations. The guest of the episode is Synoptic, a corporate law expert and enthusiast of the programmable economy. How it will work and why lawyers should start learning to write code now — in the new episode.

1. All lawyers already write programmes, but do not yet realise it. They produce code, but not on a computer, rather on paper, for example by drafting a contract. Once lawyers realise this, moving further — toward an understanding of blockchain and smart contracts — will be much easier for them. Despite the difficulties with mastering the new terminological apparatus and tools, this is, in fact, their domain.

2. A programmer’s mindset enables control of processes.

In the pre-digital era it was very difficult to codify reality, because our codes consist of words that have a tendency to “stretch.” Even if you conceive something in one form and write a law, rest assured that ten years down the line it will be pulled in different directions, used not as you expected. Programming allows crystallising everything into very concrete steps.

3. The blockchain and the Ethereum Virtual Machine (EVM) enable formalising processes at a new level. The economy is becoming increasingly complex. But it must be watched, because it touches people’s money and interests. In part for this there exists a governance overlay — a kind of operating system layer. Many call it the state or the law. This layer of governance is programmed, codified in legal texts — statutes and contracts that mediate relationships between economic agents. All of these processes used to exist in paper form before the advent of the EVM. When the Ethereum Virtual Machine and the Solidity programming language were created, we gained the ability to program business processes inside the digital reality.

4. The machine has a few characteristics:

• integration of the economic subject with the bank account. If in the old analogue economy we had a separate person and a bank account, the EVM eliminates this gap. If you have externally owned account, it serves as your identifier and bank account at the same time;
• standardised writing of contracts in a universal language. All contracts are subroutines, they look alike and can talk to one another;
• the unification of deal and information about it. In the old world, economic activity was tied up with a huge amount of documents. To close it, you needed invoices and acts. All of this is stored in a database written in a universal accounting language and thereby runs the accounting system. The EVM frees us from this. Paperwork is no longer necessary, because the deal itself is a record of the deal.

5. As a result, economic activity becomes a set of programmes. Their execution will not depend on human factors. In the analogue economy, the service a firm provides need not coincide with what is written in the contract. This is the basis for tax crimes — today a huge number of deals are signed, fake in any form. In a programmable economy, nothing like that happens: the contract is executed exactly as written, and in no other way.

6. This is not ideology, but a framework. The programmable economy can be planned or market-driven. It all depends on what programmes we write and how we want to use them.

Planned economy is a system in which material resources are owned by the state or the public and distributed centrally. From above comes the command: comrades, we will build a billion tractors over the next five years. And everyone follows this instruction. Accordingly, the programmable economy is merely a technological possibility to create such a plan at the code level. With the same logic we could specify a capitalist model.

7. DAOs are programmable legal entities. Conceptually, the programmable economy consists of three elements:

• agents, both individual and collective;
• objects of interaction (goods, works and services);
• transactions between subjects regarding the objects.

Economic agents, in, for example, the Russian Civil Code, are described in the section “Persons,” who may be individuals or legal entities. Why are the latter needed? Because people do not always act individually. At some point they realise that they can pool their efforts and capital. DAOs are the same idea of a legal entity, simply translated onto new technological rails.

8. The problem of inequality and poverty stems from the faulty functioning of the redistribution cycle. Programmable economy will help simplify and optimise certain processes. It will enable highlighting the tangled and complex elements of the system, as well as areas that are intentionally closed off or distorted to siphon money. In the banking sector, recent years have seen purges, because it has often and poorly been used to launder money. There have been many fictitious bankruptcies. When all these imperfections of the economic model are reprogrammed, additional capital should emerge from this optimisation, and then simply be distributed adequately.

9. Everything that happens in Web3 is really a promise to find new models of public goods management. Blockchain and programmable economics give us the ability to move to another model of enforcement, which is called ex-ante. This is a situation in which programmable branches of possible and permissible action appear. And within prescribed events there is no opportunity to violate anything, because it is not provided by the protocol.

The programmed order of action does not need to be “covered” by regulation and law. Because code is already written law, and moreover self-executing. Therefore the degree of coercion is, in any case, reduced.