Many Smart Contract Use Cases Are Impossible (2016)

This is a really good article to give to my clients who want the blockchain to do the impossible.

I have been saying this for quite sometime on this forum - contracts have to deal with ambiguous circumstances and expressly contemplate being resolved in courts. Ambiguity of contracts is a feature, not a bug, as it is in the interest of both parties to be able to argue about certain unanticipated events when they occur.

Quoting my own comments from a while back:

> The vast majority of contracts do not have syntactically testable conditions. They just don't. Whether the conditions in a contract have been met is very often a matter of huge debate - this is what "law suits" are about. Unless you can create a condition that is testable by code, you cannot have a contract that self-enforces with the block chain. The conditions set forth in contracts are extremely complex and reasonable people can differ. I cannot imagine how you would have a contract be triggered on the insolvency of a privately held corporation - good luck defining insolvency and good luck getting access to the underlying books. Copyright infringement is also a preposterous idea - the amount of semantic judgment that must be made to determine if a work is infringing is enormous. Only the very simplest of conditions - comparing numbers, checking the time, can be reliably automated, and if you are getting a lawyer to write your contracts, odds are there is substantially more complexity in the agreements than this, which is why you hired the lawyer in the first place. In addition, a fair portion of contracts that can actually be set up to work this already are - and the blockchain is not necessary. They are things like credit cards and they work pretty good without the blockchain.

It's one of the reasons why the use of the term contract is a misnomer and leads to awkward expectations as to what is possible.

Legally speaking, a contract is merely a promise enforceable in court.

That's why a strongly advocate for using Ricardian contracts over smart contracts in most cases. R contracts can contain standard legal prose while delegating specific clauses or portions to embedded smart contracts (embedded by hash or bytecode).

I'm not a huge proponent on smart contracts, and I agree that it's a big problem enforcing payback, but that's no worse than regular loans. At least the ownership/transfership and payback of loans could be tracked, which is a far cry from the current method of debt ownership. It's extremely common for spreadsheets full of loans to be passed from owner to owner with no real ownership trail, accounting, etc, which I find disgusting.

Often fighting these loans is as simple as asking the owner to show proof of the loans in court, at which point they often evaporate, however it can be a long winding road to get there and often people just don't show up in court, or don't know, and get judgements against them that they might not otherwise owe. If the debt status was easily verifiable, it would be better for all sides (other than the bad actors) when it ends up in court.