Smart Evidence or Why Bitcoin Matters

We live in a “post fact” world. Hundreds of examples surround us and place us in a hallucinatory stupor. We can no longer decipher truth from fiction, reality from fantasy. Everyday we swim through:

• Fake news fueled by leaks, outright lies, corruption, and alleged Russian hacks.

• An internet where at least 50% of the traffic and information is generated by bots, malware, and spam.

• An environment in which the long-time editor of the New England Journal of Medicine resigns because half of the clinical data published in medical journals is simply false.

• A banking system characterized by fraud that is so systemic the government fears shutting it down.

The examples are endless. We no longer know what to believe, who to trust, and cannot make clear decisions based on facts.

And then Satoshi invented Bitcoin.

Bitcoin brings many fundamentals to the world. Sound money, decentralized governance, cryptographic security — each one a break through on its own. When taken together, however, when you examine entire bitcoin system as a whole, you realize that something quite astonishing happens when you combine money, information, and mathematics:

You arrive at a distributed system capable of verifying objective reality.

Objective reality. Facts. Immutable pieces of information. Think about what it means for a moment in our otherwise “post fact” world to have access to a technology — globally every human on the planet with a phone — to an open source platform that generates mathematical proofs of the veracity of information.

Let’s go further — think about this statement for a moment:

Bitcoin is the first technology that shift seamlessly between mind and matter.

Bitcoin uses math to prove facts. Math is the language of the universe. A bitcoin is a bitcoin whether it is written down on a piece of paper, memorized in your mind, or held in a bitcoin wallet. A bitcoin is a bitcoin on Mars, Alpha Centuri, or London. Math is the language of the universe, bitcoins are a part of this language, they are expressed in it, they owe their existence to it.

They are hardware and software that is literally calculated into existence.

There will only be 21mm of them created and they are born from math and electricity

Right now, the system verifies one thing – bitcoin the currency. I believe, however, that this is one of the most multi-dimensional things ever created by humans (we think). The bitcoin system encompasses science, math, economics, law, security, game theory, AI, and human psychology and it will inevitably begin to bring its objective reality powers to all of these fields.

Let’s dig into it even more. Consider what happens when you buy a bitcoin. You exit the system. You leave government-sponsored fiat money, you leave government itself, you exit the old economy and enter a new one. Think about it this way — of the roughly $400b in digital assets that have exited the old economy how many will ever come back? There is no way to know exactly, but I suspect less and less.

This is a fundamentally new kind of network effect. When you join Facebook, you don’t leave the country. When you buy a bitcoin you enter a new global system — a new kind of digitally enforced sovereignty — that radically different from where you came. Right now, the old systems are trying to control this — to stay in the game essentially. It is going to be difficult for them to keep up.

Ok, back down to earth. Let’s return to objective reality. What other doctrines strive for and produce objective realities? The one that comes to my mind immediately is the legal system. Legal systems, however, flawed have at their core the desire to determine facts on which to base judgments. In the US we use evidence and the rules of evidence to run this system.

To date, the buzz around blockchain legal tech had been mostly focused on smart contracts — automated, self-executing, contracts that meet certain pre-determined outcomes. Smart contracts hold a ton of promise and I will probably write about them in the future, but right now I feel like they are confusing the discussion. Lawyers and engineers are bogged down by them and engaged in endless debates about whether these things are actually contracts (they can be), what happens when self-execution leads to undesired outcomes, etc. These are important topics and, as I said, I think smart contracts will be very useful in the future. The endless discussion about them, however, clouds the truly radical change that is taking place, the emergence of what I call: smart evidence.

In order to understand smart evidence, we need to understand a little bit about evidence in its current form. Evidence is defined as:

Probative material legally received; any species of proof legally presented through the medium of records, documents, for the purpose of influencing belief in the mind of the court.

That definition comes from Black’s Law Dictionary and it barely scratches the surface of what evidence means, how to properly gather it and present it, and why it matters to the legal system. It does, however, provide a solid framework to begin an analysis of how blockchains could change this important doctrine. When you look at our practices today you see a system that works extraordinarily well, but it is not fool proof. It depends on judges and juries making decisions on perceived truth, judges and juries whose beliefs have been influenced. Evidence emerges from a complex system of discovery and admission before the court that tries to piece together facts after they have occurred. It is at its essence a reconstruction of truth not a statement of truth.

Currently, we spend billions of dollars and countless hours reconciling the past. Young lawyers spend their nights laboring through reams of documents while senior attorneys trudge through depositions, arguments, and hearings all in an effort to build an accurate portrayal of events that transpired months or years ago. This, as stated above, carries a tremendous economic burden, but also forces us to recognize a deeper, more disturbing, reality: all of law, all justice, depends on “belief in the mind of the court.” We use evidence and the rules of evidence to shape these beliefs and to keep them bound (as much as possible) within the rule of law, but in the end they are just that – beliefs or opinions about what may or may not have happened.

What if this no longer needs to be the case? What if we could take a new approach and build a record – a database – of what actually occurred? Blockchains hold this promise and, if used correctly, offer a chance to reshape how evidence comes into being and how it eventually gets used in the legal system. I call this new category smart evidence:

Smart Evidence: structured data that generates admissible proofs and probative materials for the purpose of maintaining an immutable record, ex ante.

So what exactly is a blockchain and why is it so important to smart evidence? In a sense it is a new kind of database with some important innovations. For me the original definition from Satoshi Nakamoto (for those not familiar with the origins of bitcoin SN is a pseudonym for the author of the original paper that describes the protocol and this person’s real identity remains a mystery) is the easiest to understand. Satoshi describes a blockchain as a “timestamp server” that works by “taking a hash of a block of items to be time stamped and widely publishing the hash.” What does that mean? That short sentence contains several nuances that reveal the blockchains true value. First, the notion of a hash of a block of items – this allows users of the technology to aggregate a group of transactions and then, second, you can time stamp those items so their date of origin is clear. Finally, the hashed information is widely published – and this is key – only the hash (which means the encrypted aggregation of the data set) gets published. Put this all together and you have a system where each peer on the network can see and verify the timing of transactions – without ever seeing the content or owners of such transactions. This allows for trustless trust – you trust the system and its mathematical assertions, not the other individuals.

Blockchains allow you to structure data around legal standards so that you produce an immutable record of what actually happened — objective reality. It is not a reconstruction that depends on influenced beliefs; it is proof of what actually happened. This allows you to design systems that develop data according to particular legal standards in real time, prior to a dispute. In the context of intellectual property for example, instead of spending billions of dollars and decades of hours in the court system trying to establish a record of creation and ownership you have a ledger that updates constantly and proactively publicizes who owns each of the assets in the chain. It democratizes access to intellectual property rights in a way we have never witnessed. People now have equal and near zero cost access to a system that traditionally controlled by governments and large corporations.

In future posts, I will provide some examples of how this new approach to evidence changes how we can approach legal issues like intellectual property, rights to content and data, and labor laws. We stand on the brink of a global revolution that will fundamentally change legal rights, governance, and sovereignty.

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