This is a post by Abraham Othman, a visiting scholar in the Operations, Information and Decisions Department of the Wharton School (University of Pennsylvania) and an advisor to the blockchain project Augur, wherein he argues human juries will be necessary to put the smart into smart contracts.
Smart contracts are a promising feature of Ethereum, the decentralized application blockchain which recently passed a 20 billion dollar market cap. Smart contracts are digital contracts, written in code, whose clauses are enforced automatically. Through ventures like the Enterprise Ethereum Alliance, the financial industry is intensively exploring applications of this “scripting language for money”.
But smart contracts have a lurking problem. To see why, consider Puerto Rico’s beleaguered municipal bonds. The US territory is in a liminal state of insolvency. A “circular firing squad” of differently secured creditors and government officials are fighting over a pool of money large enough to pay some, but not all, of those with interests.
But when properly incentivized, humans can be intelligent, flexible, fair, and reasonable: exactly the qualities that bad code lacks. This suggests that smart contracts would benefit from a backstop of human adjudication. I advise Augur, a fully decentralized prediction market platform that runs on Ethereum. Augur will be the first economically significant test of human-adjudicated smart contracts when it launches later this summer.