#041 The Satoshi Papers: Dispute Resolution Without the State

In this episode of Bitcoin Study Sessions, Lucas and Grant Reichert discuss W. Aaron Daniel's essay "Dispute Resolution Without the State" from the Satoshi Papers, exploring how Bitcoin can revolutionize the judicial system by providing a decentralized, community-embedded method for resolving disputes.

Key Topics:

• Courts and Coercion
• Alternative Dispute Resolution (ADR)
• Bitcoin Dispute Resolution (BDR)
• Online Dispute Resolution (ODR) Systems
• Community and Consent

Summary:

The discussion begins by framing the problem: current judicial systems rely on state coercion, raising the question of how to resolve disputes fairly when money can't be controlled by any single power. Grant provides a granular summary of Daniel's essay, which posits Bitcoin as a solution to universal access to a stable financial and judicial system. The essay introduces Bitcoin dispute resolution (BDR) as a new class of online dispute resolution (ODR) systems that leverage Bitcoin's decentralized network for self-executing monetary judgments, eliminating the need for state enforcement.

The essay is divided into two parts: an examination of existing ODR systems and an explanation of why Bitcoin is particularly well-suited for ODR. Existing ODR systems are categorized as off-chain (e.g., eBay in India, Mobile Jirga in Afghanistan, Benoam in Israel, Prospera Arbitration Center in Honduras) and on-chain (BISC and Kleros). These examples demonstrate that private, non-state-reliant ODR systems can function effectively, especially when parties consent and buy into the system. eBay's community court system in India uses an algorithm to select jurors who review evidence and disperse funds automatically. The Mobile Jirga in Afghanistan was a proposed online system where elders could remotely resolve disputes. The Benoam system in Israel is a private court system for insurance companies that uses experts to decide cases. The Prospera Arbitration Center is an ODR system where residents consent to abide by the judgment. BISC is a peer-to-peer Bitcoin exchange that resolves disputes with a two-of-two multi-signature system, while Kleros on Ethereum uses crowdsourced decision-making with jurors predicting the most popular outcome.

The second part of the essay explores Bitcoin's role in potential ODR systems. Bitcoin meets the conditions for a successful ODR system: control of the flow of funds and community embedment. As a stable, independent, and programmable financial system, Bitcoin allows for automatic fund dispersal through smart contracts. Its permissionless nature and global communities can adapt and design ODR systems consistent with their norms. Two examples of BDR systems are presented: a local community BDR court model using Fediment and a BDR for existing online communities like open-source software development. Fediment enables communities to create their own financial operating systems, allowing for control of funds and community-designated dispute resolution systems. For online communities, BDR could automate bounties with third-party reviewers adjudicating whether a bounty was met, triggering the release of Bitcoin from an escrow.

The conversation touches on the moral hazards of bounty systems, where submitters may not be compensated fairly. Daniel's proposed BDR solution mitigates this risk through community-sourced adjudication and time-locked multi-signature smart contracts, ensuring that funds are only dispersed upon resolution. The discussion emphasizes that these systems offer dispute resolution based on consent rather than coercion, potentially improving the legal system and making it fairer and cheaper. Additionally, BDR systems could be applied in transitional justice settings, providing a stable, independent court system resistant to the biases often present in transitional courts. The potential for BDR to expand access to justice and promote the rule of law is highlighted, emphasizing that Bitcoin empowers communities to establish justice irrespective of the quality or fairness of state courts.