This essay informs on why Salutary is implemented the way that it is via our Global Enforcement Framework. The following applies to all property rights and the game theory behind enforcement of binding asset transfer.

Incentives can exist onchain, enforcement cannot. Enforcement is not an onchain construct nor will it ever be; it exists in the realm of atoms, not bits. This essay will explain why blockchains solve many problems, but they do not solve all of our problems.

There is a well-known, well-intended but severely misguided chant in crypto: “code is law”.

"What I typed into the computer is law..." can you imagine if a journalist said that about her blog posts? These are equally naive statements.

It’s slogan for mechanical finality: the chain executes what the code allows, and the ledger records it. That’s a useful design ethic for machines; it’s not a theory of legitimate authority over human beings. It's an opinion, not a statute. It's the cypherpunk way of saying "The purpose of the code is what it does".

When I say “code is law”, I’m referring to this philosophy.

If It Happened Onchain, Did It Happen In Real Life?

Nearly everything is reversible except death or disfigurement.

The permanence of an outcome directly correlates with the legitimacy of the entity who decided it. Legitimacy is simply a more dignified proxy for force; it is violence wearing a three-piece suit. Might makes right, because might dictates the rules; if it follows the rules, then the decision is legitimate. If a rule is imposed only by asking nicely, then it is neither imposed nor a rule - it is a suggestion. A law is only as good as its enforcement. Rules with no enforcement are better understood as community guidelines.

What does enforcement look like? It means you have to do it, and if you don't then there is physical retaliation…. “Violence is the supreme authority through which all other authority is derived.”

Laws are created by the violence monopolist. If there is no violence monopolist, then there are competing laws from tribes with enough violence to be relevant but not enough to assert dominance; this creates schisms, fighting, instability. Peace through strength is very real - when there isn’t overwhelming strength, there is less peace, because there is constant jostling for who gets to decide what’s legitimate. You earn the right to make the rules, it is never handed to you.

Law is necessarily a human-readable interface to force. Code governs ledgers; law governs people.

A physical repercussion means it is kinetic; this means it must be able to literally make contact with your body. It should be abundantly apparent that violence is not wrought onchain. This means that if it happened onchain, it didn’t necessarily happen in real life.

Let’s unpack what “happening in real life” means, and instances when code, while never law on its own, can sometimes act as a default judgement.

Finality

“Finality” in the crypto sense means a transaction was enshrined onchain, and was there long enough to become a canonical part of the chain’s ledger. A blockchain is just a decentralized database, that's it - it's a different kind of database, a place to denote custody of something, a ledger that no single entity controls. Whereas a corporate database is a centralized ledger that one party controls.

“Who updates and maintains the database?" is a surprisingly politically contentious question! A blockchain is a beautiful technical achievement that nonetheless cannot escape the gravitational pull of physical reality; they solve many coordination problems, however they do not solve the problem of making unwilling counterparties comply. 

For common day-to-day crypto purposes, the common finality definition is fine. However, in the domain of intense disagreement with many millions of dollars on the line, blockchain finality is not at all necessarily final.

The answer to "can it be undone?" is always "yes"; the real question is what degree of coordination effort will it take to revert, or what kind of physicality does it require to retract. Who else opposes the event? Will the state support my side if I raise the issue? If people with force behind them agree with you, the transaction is reversible. If enough coordinated power wants it undone, it most certainly can be.

Violence is always the final baselayer if fleshy humans are involved. However, violence is costly to impose, and there are practical considerations for inflicting it. Thus, force isn’t necessarily the arbiter of every decision. Namely, when the stakes are low…

High-Stakes and Low-Stakes Lawmakers

If the stakes are low, code is law. If the stakes are high, men with guns is law.

(Side note: I know “men” is plural and it should be “are law”, but I like the symmetry of the phrases with both as “is law”)

How do we quantify “stakes”? The answer to this comes down to the monetary value of the transaction in question. The greater the economic value of a disputed event, the greater the likelihood it will be challenged, physically.

Onchain, in the world of decentralized finance (DeFi, the real domain of crypto), the more trivial the transaction, the more final it is, and the more code is de facto law. Simply because it's not worth physically disputing. Even if your grievance is justified, there are many steps and costs to getting state-backed violence to effect a reversal. Litigation, lawsuits, cross-border enforcement… these are all quite expensive and time consuming.

What constitutes digital permanence for a “high stakes” event is essentially a cost-benefit analysis of what goes into getting your money back, and if the ROI of that effort is positive. Does the expected recovery exceed the enforcement cost? 

The cost to litigate and enforce is basically the hurdle rate for high-stakes vs low-stakes outcomes and which law it follows. If the onchain transaction is below the hurdle rate, code is law; if it’s above the hurdle rate, men with guns is law. There's a threshold, a 'Defection Point', where the value at stake exceeds the ideological commitment to decentralization. Everyone has their Defection Point. The only question is the price. When a powerful person's Defection Point is breached, that's when the onchain event undergoes the Real Life test.

In this situation, the party that gains by defecting to state judgement, will do so. If the state disagrees with what happened, and it can identify the parties involved (and it will find you if sufficiently motivated to do so), it’s getting reversed, and your “finality” was not actually final. If it happened onchain, it didn’t necessarily happen in real life.

Even if an event was illicit, if it was for less than several million dollars it’s probably final. Code is law for the small stuff, because it’s not worth the cost and effort to recoup it and slips through the cracks. The pragmatics just aren’t there to contest it. Who's going to grab a sword and get it back?

For small-to-medium potatoes, code is law; because code is essentially a default judgement that isn't worth the time for men with guns. The state has resource constraints. You have cost constraints. When the stakes are low, code decides the outcome, because... what are you going to do about it?

Onchain is Not Real Life… When the Stakes Are High

If it can’t withstand physical disagreement, then it didn’t happen in real life, and it doesn't belong to you.

This is fundamentally commentary on property rights, using crypto as the medium. Natural laws that are impossible to ignore once you have eyes to see them. Here's an excerpt from another essay of mine, Property Rights, Toilets, and the Way of the Dog that illustrates:

------------------------------------

"You can take this to any layer of abstraction you want: burglary, financial fraud, corporate theft, etc., if someone violates your private property and you live in a civilized state, the state takes care of the dirty work for you. You report it, and the men with guns inform them that the item will be going back. 

If you live in a less-than-ideal society, like the Haitian or Iraqi, it's incumbent on you or your tribe to take care of business and return what's yours. If you can’t, then it’s no longer yours. The West is still the most ideal place to live, because it has created laws pertaining to contracts and property that best align with natural law, and it most-credibly imposes violent defense of it; which obviates the need for the individual to do so. This is a recognition of the law of the jungle, a streamlining of a carnal process. Nothing about a man with a gun imposing something is a social construct.

The test for private property is: if it can be defended, it can be kept. Do you live in upstate New York? Lawless Somalia? Doesn't matter, your property is still resolved fundamentally the same way. With force. The courts are simply a more dignified, efficient way to mediate this; but the violence backing their decisions is no different from the Somalian’s. Who carries out the court’s ruling as well as the Haitian gang’s? It’s men with guns all the way down. Or wolves with teeth.

Ideally, the state is who does the unpleasant labor of enforcement, because refined people find it unsavory to have warlords or militias impose rules with overt swords. But we know what happens if there is no state violence monopolist: emergent, balkanized violence takes shape, gangs are formed, and someone still ends up owning the property. All the edge cases get ironed out! Because someone always has a claim to property, with or without a law; it all rests on the philosophy of a sword."

------------------------------------

Property rights are not a legal construct, but a natural one. Codifying a natural process does not mean you "socially constructed" it, you streamlined it.

Property is defined and maintained by He Who Decides It. It is dictated by force, by the person with the means to physically protect it. Whether that's codified in a law book or not, imposed by a judge or a warlord, is immaterial to this natural reality; from the savage to the civilized, property is maintained through the philosophy of a sword.

All animals abide by the law of the jungle: wolves with teeth or men with guns delineate borders and possessions. Societal laws are human-readable guidelines for violence, created by the violence monopolist. To be law, the monopolist must decree it law. These are very basic concepts once you wash away all the academic and technical abstractions, and no amount of wishful thinking changes their foundational substrate.

Illegal transactions worth tens of millions or more will inevitably get escalated to the courts. The state will allocate resources to these disputes. Men with guns will get deployed to enforce the real law. It must withstand their judgement to be final.

> “Guys with guns can’t undo an Ethereum transaction, do you even know how crypto works?”

Oh? And where do you live? Onchain with your tokens? Is your house onchain? All your belongings? To get what they want, they don’t need to roll back the state of the chain, they only need to get you.

Picture this proposition: “Those tokens you have, send them back or we stick you in a concrete box for a decade.” Which law do you abide by in this instance? Code law or law law? What is the supreme authority? The blockchain doesn't fix this, it merely obfuscates it by one layer. Your private keys are yours... unless someone with a bigger sword wants you and decides otherwise.

Your code will not protect you here. The state doesn’t need to accomplish any feat of blockchain technical prowess to undo a transaction, it just needs to put forward a sufficiently convincing argument with a gun that you should undo what happened yourself. A $5-Wrench Attack, but more decorous. If you commit a crime large enough to draw notice, when they come for you they won't need to understand Merkle trees or hash functions; they'll just need to understand doors, and how to break them. This is how the state imposes true finality.

Pricey contentious events, where all parties are known, will eventually be subject to the judiciary when someone gains from its reversal. Beyond a certain degree of distress (or financial gain), people will defect from ideological allegiance in the name of self-interest.

There are no atheists in foxholes, and no “code is law” libertarians who lost 20% of their net worth in a hack. Everyone has a number.

Major transactions will not slip through the cracks; if someone feels aggrieved and that the onchain interaction was illegitimate, they will prosecute. The legal system will be their recourse. If they show it to The System and they agree it's invalid, then the transaction did not happen in real life, even if it occurred onchain, because it will be reversed or neutralized. How it's nullified will depend on how big it is.

Putting you in a box is the state’s token-burn function for your wallet's ill begotten gains. Why is this the same as onchain burning? If property has no owner, and it's not able to be owned by anyone else, then it ceases to exist in any functional way.

If The System agrees with the onchain event, then it truly happened in real life. Because now its digital existence is enshrined both onchain and reinforced, physically.

So long as humans are involved in this process, then the physical will inform the digital, because even though your assets are onchain, you are not. True finality for property rights is determined by what can be done to you, not how many blocks have passed since a transaction.

Implications for Crypto

Smart contracts are not a contract according to the philosophy of sword. The sword eventually has its say when real money is involved. 

This creates what I call the Salutary Paradox: to make crypto transactions that breach the Defection Point concretely final, we must acknowledge they aren't inherently final by just settlement mechanism alone. Only by designing systems that respect both code and enforcements kinetics can we achieve genuine permanence. Salutary hybridizes code and kinetics when it's necessary.

This means any transaction of succificent financial value where all parties are identified (like, for example, an M&A event), must be legally pristine, because then it happened in real life. If it works in the most-hostile environment, then it always works. Salutary facilitates and enforces high-stakes transactions for DeFi projects and businesses alike. Salutary is designed to work in hostility.

The cypherpunks were half right: code is law... for transactions too small to contest. For everything else, there's Salutary.