Wendy McElroy: Crypto – Civil Law Versus Common Law

The Satoshi Revolution: A Revolution of Rising Expectations Section 3: Decentralization Chapter 8, Part 1. Crypto: Civil Law Versus Common Law

2018 is the year in which cryptocurrency will be regulated. The questions are by whom and how? The two traditional answers have been civil law or common law. But there is a third alternative. Namely, preventive self-regulation, which can also be called simple decency. This is not a matter of law enforcement but of personal responsibility for your own behavior. It means being the adult in a room of children who are acting out.

Regulation is coming because crypto is being defined as much by its abuses as by the benefits it provides. The problems are real. And that’s a problem because it provides a plausible doorway through which government can walk. The “abuses” to which I refer do not include drug deals or the private stashing of personal cash. Those are not the abuses of crypto; they are benefits. Cryptocurrency allows people to control their own bodies and wealth in a peaceful manner that harms no one else. That is its power and true beauty.

The abuses are the rampant number of scams and hustlers who prey on average people; predators are robbing honest folk who are simply trying to avoid a corrupt financial system in order to leave an inheritance for their children and keep food on the table. The predators convert a vehicle of freedom into a path for theft.

Part of the problem is that too many honest people are standing by, watching it happen. The Irish statesman and philosopher Edmund Burke is credited with saying, “The only thing necessary for the triumph of evil is that good men do nothing.” I’ve never liked that quote; it places responsibility for the triumph of evil on the shoulders of good people who are simply minding their own business. That’s wrong. But there is a point at which focusing on the business of personal life becomes dangerous because there are politicians and other criminals who circle and await the chance to attack those who are not paying attention. Pay attention now.

Crypto will be shoved up against a brick wall of regulation in 2018, and it will occur with the applause of the public. They will applaud for good and bad reasons. One bad reason is that crypto is still an arcane mystery to most people, and they mistrust it. They say “it is vaporware that is based on nothing” as though the pieces of paper they spend every day are somehow different. One good reason for the urge to regulate crypto is that so many people have been fooled and burned by incompetent or unethical parts of the community.

Cynical commentators can yell “caveat emptor!”—let the buyer beware!—all they want. That’s a way of blaming the victims, who certainly bear some responsibility. The words “due diligence” come to mind.  But there is something badly wrong with a system in which honest people are being robbed and scammed on a regular basis. It is wrong when government does it to people, and it is wrong when a financial network does it. Cryptocurrency was designed to empower people, not to impoverish them.

The current abuses mean that the application of law to crypto is inevitable. The pivotal question is whether cryptocurrency will be regulated under civil law or common law. Or a third alternative. The choice is between government control or the private policing of behavior. Which will it be? Government or self-regulation? Of course, government will impose itself to the extent possible. But private actions are giving it the justification to do so.

The ideal solution is common law but the ideal rarely has a clean victory. The reality will probably be a mixture of both.

Civil Law Versus Common Law

Civil law is political law. This is civil law:

“We feel very strongly that we need to have this kind of regulation [on the trading of cryptocurrency] all over the world…The EU, I understand, is moving very quickly in that direction and we think it’s very important that similar regulations are happening in a number of other countries.”

—Sigal Mandelker, the U.S. Treasury undersecretary for terrorism and financial intelligence

Civil law is what most people wake up to every morning. It is distinct from criminal law in that it addresses contracts, business arrangements, inheritance, and the other legal matters that average people confront on a daily basis. Civil law is passed by legislatures, and it is codified into established rules that dictate people’s lives. Much of it is valid. It answers real questions–like how do I resolve a property dispute with my neighbor or divide up property in a divorce? But it also expresses the interests of third parties, especially government, in matters that enrich them at the expense of average people. The more law becomes “statute,” the less it reflects the daily needs of people.

Common law offers an alternative legal blueprint. Rooted deeply in the English tradition, it is a body of law that develops from the grassroots upward. It involves  no presence of Parliament. It comes from the decentralized judicial decisions that arise from real legal disputes. Someone did not pay for a chicken he “purchased”; the seller asks a court…how do I receive fair payment? A business deal dissolves; how can the investors fairly split up the remaining assets? These are real-people problems. The answers offered by judges may be right or wrong, but they do not benefit the privileged. This is common law, and it is so named because it benefits the common person.

Happily, average people usually want to live in peace, pure and simple. That makes common law a relatively straightforward thing. Almost every common law and its associated judicial proceedings advance the non-initiation of force, for example. They all embrace standards of evidence, such as published transcripts,  that make people accept the system as just.

Common law is far preferable to civil law. But common law is imperfect. It can substitute the arbitrary opinions of judges for the self-interested opinions of politicians. The best solution for cryptocurrencies is no law at all. It is self-regulation. Don’t allow foreseeable problems of fraud or theft to arise in the first place. As with every healthy community, the standards of conduct are set by normal people who are trying to function and feed their children. The crypto community is no different.

Yes, cryptocurrency needs to be regulated. But it should be private regulation that responds to a fast-moving world of real people, not the needs of bureaucrats. That’s common law. Ideally, it is the private policy of the decent human beings who have always dominated crypto but who need to stand up and shout “ENOUGH!” at those who are treating freedom as a free pass to crime.

[To be continued next week.]

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Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.

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