How Bitcoin can power decentralised Law.
State Law is inefficient, slow, corrupt and often focused on policy instead of justice. It can and historically often does turn tyrannical by prioritising the interests of those in power.
Private, voluntary, decentralised provision of Law is morally superior, more flexible, more efficient and much faster.
What would it look like in practice?
Most civil law is concerned with contract enforcement or damages. Arbitration can resolve most of the first cases, insurance most of the second. Bitcoin based arbitration has been used successfully for many years. Multisig security deposits combined with PSBT can resolve most contracts. It's just a matter of adjusting the security deposit value to the economic value at stake.
For damages insurance can normally take care of most cases. Again the key is adjusting the insurance coverage to the potential damage any activity could cause. Bitcoin allows options contracts (multisig) and insurance coverage can easily be built with options as its building blocks.
But what about criminal law? What do we do about theft, murder, rape?
There are two parts to that. The first and most important is victim restitution, the second is punishment.
Insurance can deal with victim restitution to a large degree. That should be the priority in a civilised society above and beyond any other.
But what about punishing the murderer?
What is the most common punishment that State Law currently enforces for such crimes? Imprisonment.
Here the historical solution in decentralised societies are bounties for the capture of the criminal. The victim can sell his claim against the criminal to an enforcement agency and that agency can capture and imprison the criminal until restitution is made. Insurance agencies could even offer additional bounties as part of their promise to the customers to keep them safe and deter future crime (they also have an economic incentive to reduce future claims).
What would this system look like in practice?
Institutionally it would not look too different from what we know now. You would still have laws, courts, police, prisons, insurance companies... the difference is that laws would be open protocols that all of the above would subscribe to and that there would be competition in the provision of those services.
Courts and arbitrators would be voluntary, as in chosen by parts to a contract. Police would be competitive and hired by courts. Insurance services would finance much of it as part of their liability. Prisons would be for-profit (as they already are in many places now) and focus on victim restitution and provable reintegration. Bail would be replaced by insurance and closely monitored by those with money at stake should the criminal become a repeat offender.
