Just because something is brand new, and does not have laws or regulations relating to it right now does not mean that people can simply do whatever they want.
Well, it's a bit more complicated than that.
When people say that some things (like the blockchain) are outside of the law, they don't usually mean that no one can be sued or that the courts won't try to enforce judgements. What they mean is that those things are hard for the law to reach. A court might issue a judgement but it won't be able to enforce it. The general idea is that enforcement is so difficult and expensive so that it's not worth it.
For a simple example, consider piracy (of the IP kind). It is very much illegal and... so what? I can still go online and download the latest movie in a few minutes. It's not that the FBI can't bust me if it really wants to. It can. But it's inefficient and cost-prohibitive.
As to smart contracts, that's just a misnomer. They are not contracts. They are determistic mechanisms, set up for a particular purpose. Bespoke machines, if you wish. A contract in law implies a meeting of the minds which these algorithms cannot provide. Instead, they offer a guarantee that if you do A, B happens.
They are more akin to vending machines: you feed in some money and you get the item. It's not a contract between you and the vendor -- it's just a machine which you used.
Lum has the right of it. Thanks for writing that. I was trying to phrase it right and kept ending up with "Physics doesn't care if you hate it so much".
Many people are probably aware of the hack at DAO, using a bug in their smart contract system to steal millions of dollars worth of the crypto currency Ethereum.
There's various arguments as to whether this theft was technically allowed or not, and what should be done about it, and so on. Many people are arguing that the code is the contract, and that therefore no-one should be allowed to interfere with it - DAO just made a coding mistake, and are now being (deservedly?) punished for it.
That got me wondering whether its ever possible to make a smart contract without a full AI of some sort. For instance, if the contract is triggered by the delivery of physical goods - how can you define what the goods are, what constitutes delivery, what constitutes possession of them, and so on. You could have a human confirm delivery - but that's precisely the kind of judgement call you want to avoid. You could have an automated delivery confirmation system - but what happens if someone hacks or triggers that? You could connect it automatically with scanning headlines of media reports, but again, this is relying on aggregated human judgement, which could be hacked or influenced.
Digital goods seem more secure, as you can automate confirmation of delivery/services rendered, and so on. But, again, this leaves the confirmation process open to hacking. Which would be illegal, if you're going to profit from the hack. Hum...
This seems the most promising avenue for smart contracts that doesn't involve full AI: clear out the bugs in the code, then ground the confirmation procedure in such a way that it can only be hacked in a way that's already illegal. Sort of use the standard legal system as a backstop, fixing the basic assumptions, and then setting up the smart contracts on top of them (which is not the same as using the standard legal system within the contract).