"Code is law" is valid even if the social layer is the base layer
The assertion "code is law" is itself a social statement
Some people say “code is law” to justify any action permissible by code executable on a blockchain, including actions that might constitute hacks, attacks, etc. which drain protocol funds and enrich the executor of the code. Other people have argued that “code is law” is not valid, because the layer of social consensus always is the most basic layer of consensus, as reflected in cases like the fork of Ethereum after the hack of The DAO.
I believe that these counterarguments against “code is law” are largely missing the point, because “code is law” is itself fundamentally a social statement. For example, an article by Lawrence E. Day argues that “code is law” is not valid in the typical sense because actions within crypto are intrinsically embedded within a larger social framework, and that larger social framework creates implicit but binding contracts that a hacker is violating. An example to illustrate this viewpoint is that if you leave the door to your home open, it is still illegal for someone to go inside and take all of your belongings.
To me, this is not a convincing argument. One might just as easily raise a contrasting example. Suppose that you willingly seek out and participate in an underground boxing club where participants are often severely injured. In the course of doing so, you become severely injured. While it is true that your opponent’s actions were probably illegal, and that the existence of the club is also illegal, I think most people would agree that it seems a little bit absurd to sue the club’s other participants because of your injuries.
This example illustrates what people mean when they say “code is law.” I believe that when intelligent people say that phrase, they are not asserting, “we live in a world where blockchains constitute an isolated social system purely governed by code.” Rather, saying “code is law” constitutes two separate actions:
First, an assertion that the present state of cryptoeconomic systems is still one sufficiently divorced from traditional financial systems that participants implicitly accept a higher degree of risk exposure and lack of regulation.
Second, an attempt to remind people of the higher risks of cryptoeconomic systems via making the above assertion, and therefore making it more likely that a participant actually accepts this higher degree of risk exposure and lack of regulation.
In other words, when someone says “code is law,” they are not just trying to assert a state of the world that does not necessarily hold true. Rather, they are trying to remind people that we live in a world where crypto is still somewhat (even if not fully) divorced from traditional systems. Also, at the same time, they are trying to build social consensus through that assertion! That is, the statement “code is law” is itself an attempt to build social consensus by reminding people of what crypto currently is. (And, of course, if that social consensus exists within the crypto subculture, then it is relatively more ‘okay’ for people to hack protocols and so on.) From that angle, I do not see anything intrinsically wrong with the statement.
There is also conceivably a certain element of hypocrisy among people who claim that code is not law when it benefits themselves but seem to care little about regulations otherwise. For example, Andre Cronje recently wrote a blog post which essentially argued for a greater regulatory presence in crypto. It was rightfully pointed out that, having profited to the tune of over a billion dollars from extremely questionable activities in decentralized finance, this was a somewhat laughable stance for him to take. Of course, many people who say that code is not law are doing so very genuinely. However, I do think it is just an amusing argument to have when in a technical sense essentially every single part of decentralized finance could probably be construed to be a federal crime if you looked carefully enough.
In general, I would say that the statement “code is law” is somewhat like saying: “We are currently in something like a shady underground club, where you might profit a lot but where you might also be substantially harmed. If you do something extreme, like shoot another person, we will probably report you to the authorities. However, beyond that, we all know what we are getting into, and if you tell on the authorities when something slightly bad happens, you are going to ruin it for everyone. Also, because I am telling you this, you cannot reasonably claim to be unaware of what you are getting into, and so by continuing to stay here, you are implicitly saying that you essentially agree with and will help propagate this social consensus. Eventually, that might change, but this is how things are for now.”
I do not think that is as unreasonable as some make it out to be.