Jun 21
Kassandra Learn: What is the Social Contract? (Part 2)
In a Nutshell…
We exist in the world around us by negotiating a number of different social contracts as a part of our everyday lives, whether we are aware of this or not. Our society functions because of the contracts and agreements we have with other people, formal and informal, written and unwritten, legal or simply social norms. This includes: payments for goods and services, employment, marriage, laws, agreements, investments, and even taxes.
Trust and the Social Contract
Our implicit trust in the agreements between ourselves and others is what allows the social contract to function. Agreements and contracts exist both formally and informally between all members of society, following different norms and applicable laws is what allows society to function properly. Of course, it is sometimes necessary to invoke an authority to make sure these contracts are enforced. (For example, if an employer stopped paying you and there wasn’t anything you could do about it, you would quickly have to find another employer.)
The nature of the social contract means we expect the other side of an agreement to be fulfilled if we take the necessary agreed actions. And, as can be seen in some of the inciting incidents to events like the American Revolution, we are not particularly pleased if that trust is broken (Does “no taxation without representation” ring a bell?)
Looking the history of the social contract over the centuries, from Hobbes to Locke to Rousseau, we have developed an understanding of what specifically constitutes a social contract. We can also observe that this has tended toward decentralization in many senses: from a central authoritarian “king” to a governing body and the liberty of individual people.
However, a certain amount of authority is still necessary to mediate and arbitrate our modern society. Law and contracts are still agreements between individuals and an authority, even if that authority has become more and more distributed away from an all-powerful central ruler in most liberal democracies. A bill of sale isn’t necessarily an open market either, but a formal contract with an individual or entity.
Nonetheless, even these situations are becoming more and more decentralized, returning more and more authority back to the individual. Developments in modern technology and the internet have meant that people are more and more able to engage directly with one another without a third party. Now, as new innovations like the Blockchain become mainstream, society will have to face some fundamental questions about the nature of trust and the social contract between people and the services provided by companies and governments. These new discoveries and developments have the potential to change the way we approach trust, permission, and transactions for the better.
Crypto Technology and the Social Contract
This is where crypto currency and crypto assets can make a difference. Bitcoin, for example, is already a proven practical example of a currency that isn’t issued by a central authority or government bank or mint. With modern crypto currencies, there’s no single issuer or producer who controls the supply and restricts their usage. All of the code and rules regarding production and the use of a crypto currency to mediate contracts are a matter of public record via a transparent and accessible Blockchain record. Modern crypto means that, if anyone so chose, they would be able to audit and understand the details of any transaction, and the production and trading of any asset.
Individual people can directly contribute to the development of different crypto assets, and even approach the innovators who designed a coin or crypto currency and personally ask them to make changes to how the currency works. If enough people hold enough of a certain currency, then they can literally “vote with their dollar” about what they want their currency to do for them. This is certainly not a route available to the average person holding fiat currency: it would be hard to imagine the Federal Reserve paying attention to a petition from people who want to make changes to how the US dollar works.
The concepts that underpin crypto currencies and assets give ordinary people the freedom to choose what they want to invest in. Using a private, non-governmentally issued currency allows people to choose how they wish to purchase goods and services without the need for a mediating authority. This is integral because it means the market, and not a central bank or government, sets what the currency is worth. With a truly international and unrestricted crypto coin, there is no question about whether the currency is allowed as legal tender in a specific region (most currencies are only official tender within their home country or trading bloc, after all).
This is a truly ground-breaking idea: a means by which people can pay and make transactions between different people and different nations using currencies other than those issued by their own governments. Crypto opens up possibilities for more collaboration and projects across borders through direct payment between people using the same means of exchange without having to convert to their local currency, or a currency of exchange. For the first time, people can participate in truly free markets for goods without the interference of middlemen or regulators.
Smart Contracts and the Social Contract
Modern crypto technology now gives us the option to write and enter into contracts at a peer-to-peer level through the use of Blockchain-enabled “smart” contracts. These mean that individuals can create and enforce contract rules without necessarily involving or even needing a third-party arbitrator.
This is where crypto really updates our understanding of the social contract between parties: thanks to developments like ethereum, the Blockchain itself can enforce the conditions that need to be met for a contract to be fulfilled. The smart contract itself “lives” coded into the currency and the nature of the exchange being used. The contract itself can independently verify when it has been completed.
That being said, crypto is not a magic bullet for poor planning. Taking a bad contract and turning it into a smart contract won’t make it work any better. A smart contract is only as “smart” as the people who agree on it. To give one example, if you didn’t think out your clauses and case scenarios in traditional intercompany contracts, you’ll quickly find yourself in a lot of trouble. That would still be true of smart contracts, the mechanism that determines when the contract has been complete works automatically, but it only ever does what you tell it to.
What smart contracts can do is give you the capacity to automatically block and make payments with reference to the content of the contract itself and how it is meant to operate. Using this new technology, individual people are now able to set the rules regarding how their contracts operate with absolute faith that these clauses will fulfil themselves (i.e. release payments) without relying on an external authority or arbitrator to make deals happen. From here, we can already start to grasp how baked-in agreements, enforced by the contract itself automatically following its own terms, changes the way in which people will interact with each other and their approach to the social contract.
The radical way in which smart contracts transform the social contract is that they are “trustless” by their very nature. In this way, they are actually more trustworthy than needing to refer to a higher authority or state-backed arbitrator because a smart contract holds no stake in either party’s benefit. The decisions of a human authority can be swayed, may be entirely arbitrary, or may not reward either party sufficiently. They have significant potential to create a situation where no-one ends up satisfied with the outcome of a contract. Smart contracts, when properly implemented, are truly impartial.
In part three, we’ll explore some practical use cases and discuss how smart contracts and the Blockchain can improve our experience of pay, the law, and even democracy itself.
