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Trying to get a friend excited about smart contracts I referred him to an ethereum pyramid scheme as an easy to understand example but he only pointed out that all pyramid schemes are illegal. How should one counter that concern? If this is the wrong forum, where does one get clarity on such questions, please?

In my opinion smart pyramid contracts cannot be illegal in spite of their operation since the cards are on the table.

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    in addition to my answer I'd say that for some type of personalities (the type of people who watch your finger when you show them the moon), it's not a good idea to use the pyramid smart contract. If you want to specifically explain why the law system is broken, then the pyramid smart contract is a good example. As a sidenote if I recall correctly one of the very first smart contract to be deployed was a simple coin-flip game, with no operator (just a smart contract having a small balance): people made it on purpose, just to make a point ("Who you gonna sue?"). – Cedric Martin Feb 5 '16 at 0:38
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    I removed the link for obvious reasons. – soc1c Feb 5 '16 at 10:28
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The answer is that machines who break the law do "break" the law. By that I mean that machine doing "illegal" (in some jurisdiction) things do break the very concept of the law as we humans know it. The law system just wasn't meant to handle such a situation.

There's a great talk by Gavin Wood (ex core Ethereum dev) where he talks about "a-legal" systems. The Ethereum machine doesn't care about human-made laws. The code of the smart contract is the only law the Ethereum machine obeys to. As long as in one country there's one Ethereum node running which you can connect to, anyone who can reach that node can call any smart contract he wants.

There's also a cool blog entry by the almighty security expert Bruce Schneier: "When Thinking Machines Break the Law" where he gives the example of a bot that randomly bought stuff from a dark market using Bitcoins.

Here's the talk by Gavin Wood:

Gavin Wood talk on Ethereum

Here's the blog by Bruce Schneier:

Bruce Schneier on machines breaking the law

What about illegal smart contracts?

Illegal in which country?

Who would you sue anyway? The person who put the contract there, even when he makes no personal gain (suddenly the case is very weak)? What if it's a foreigner? What if the code was anonymously published? The "players"? Same thing: they're using pseudonymous identities to "play", they're maybe using coin anonymizers (or ETHs bought using some untraceable crypto, like Monero), they're maybe from countries where it is perfectly legal, etc.

  • Thanks Cedric. Great answer. In the interest of beta stats though I'd like to keep it open a little longer. – hcvst Feb 5 '16 at 11:01

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