Transcript: How to Be Flexible with Smart Contracts

Blockchain and smart contracts are so rigid that if you apply it in the wrong context, you're actually shooting yourself in the foot. I'm an attorney by training and I've sat there and written contracts for clients and we could sit there for 10 hours more than it would usually take to draft a certain contract to try and hammer out everything that might possibly happen. But the truth is we live in a very erratic world. So let's take a second and look around at how society works and how transactions happen in the real world.

Otherwise what you're going to see happen is you'll have all these smart contracts that execute or don't execute and maybe they're stuck in purgatory and maybe that was not the actual intention of both users or maybe the intent has to change a little bit based on changing circumstances. That is not to tell you everything you need to know about how the blockchain industry needs to take shape. Law has evolved because of human behavior and because of how society works. So it's more reactionary. It's a reflection of human nature.

Hello and welcome to the Constructor Podcast, the best way to build it. Episode number 90. I'm your host, Brittany Campbell-Turner, and this podcast is dedicated to helping property We talk about fostering trusting relationships, helping you to understand how to lower risk, be under budget and on schedule, and most importantly, exceed your end user's desires. I actually have some info to share this week. I'm speaking at the Voice of Blockchain Conference on Friday.

That is the 24th of August, 2018, the largest conference about blockchain in Chicago. So I'll be on a panel talking about how construction is an industry that's ripe for blockchain because we need to build more collaborative trust building in this industry. So you can find out more about that at ChicagoBlockchainProject.com. Last week we spoke with Efrem Feig, an IEEE Life Fellow, and he has a PhD in mathematics. He was a manager of single processing and coding at IBM's Watson Research Center.

He's an inventor of 33 US patents and author on over 100 research publications. Efrem and I spoke about blockchain solutions for enterprise and how established collaborative relationships can use blockchain to build more trusting relationships, and the difference between Bitcoin blockchain and Git, and how Git can promote more collaboration. So if you haven't listened to that episode yet, check it out at constructor.com slash ep89. This week we're speaking with Amy Wan. She's the founder and chief legal hacker at Sagewise.

Sagewise aims to build a dispute resolution infrastructure for smart contract disputes. Amy was previously a partner at a law firm. Amy and I talk about how Sagewise provides dispute resolution for smart contracts, what her thoughts on the future of smart contracts are, and how to respond to more enterprise needs. Lastly, we talk about how private and permissioned blockchains can provide more flexible scenarios. With that, let's get into the interview.

So today we are talking with Amy Wan, founder and chief legal hacker at Sagewise, a project of bootstrap legal. Sagewise aims to build a dispute resolution infrastructure for smart contract disputes. And Amy was previously a partner at a law firm and original general counsel of a real estate crowdfunding startup. That platform raised $23.6 million in Series A funding. Amy is also founder and co-organizer of LegalHackers LA and served as a presidential management fellow.

Amy has been named one of the top 10 women to watch in legal tech by the ABA Journal, one of 18 Millennials changing legal tech by law.com in 2018. And she is the author of upcoming Bloomberg Law Guide on ICOs. Amy comes to us with broad perspective on legal disputes, and I'm happy to be able to invite her on to the podcast today. So Amy, welcome to the Constructor Podcast. Thank you so much for having me.

Could you please talk with us about your journey? We just want to learn a little bit more about you. How did you even get into a dispute resolution in the blockchain space? I started off my career in the federal government. And for anyone who's ever worked in the government, you know, it's a lot of bureaucracy, a lot of paper pushing.

And so to bide my time and handle my frustration at night, I would sign myself up for a Coursera class to learn how to code. And that's how I first really found out about Bitcoin. You know, one of the assignments was, hey, put up a website and ask people for Bitcoin. And I was like, what is this thing? And why am I online panhandling?

You know, that was back in 2012, I think. It fell off my radar for a while. And then I joined the crowdfunding industry back in 2014. And that is very closely aligned with ICOs. So when the Dow happened and when ICOs started taking off in late 2016, early 2017, I just started getting tons of calls from people being like, hey, can you be our attorney for ICO?

And, you know, I told them, no, that's not what I do anymore. I don't take on individual clients. I want to build more scalable legal infrastructure. But I was watching the industry closely and I saw something that I thought was very peculiar. Which is that in spring and summer of 2017, every other smart contract was basically getting hacked.

Founders were losing two or three or seven million dollars. And they would sit there and shrug their shoulders and be like, oh, oops, I guess this is the way blockchain works. And the cryptocurrency investors would sit there and shrug their shoulders and be like, oops, I randomly lost value. But that's just the way blockchain works. And I thought, man, this is crazy, because if this happened in the real world, you know, the founders would get slapped with a lawsuit for negligence or something.

Right. You can't, you know, you're responsible for just losing millions of dollars. And so I thought, man, I don't think the blockchain industry or space is going to take off until they can resolve this issue of transactional confidence and certainty. Right. As long as that happens, you know, mainstream users or small businesses, they're not going to use blockchain.

They would rather use a credit card that they can dispute if what they intended to happen doesn't actually happen. And so I caught up my co-founder, Dan, or the person who is now my co-founder, Dan, I asked him, hey, riddle me this. Am I crazy or is this a genuine problem here? And shouldn't there be dispute resolution for smart contracts? And he agreed with me, you know, we had very similar philosophies.

And so we started working together on what is now SageWise. And SageWise, basically, we are building a safety net for smart contracts. So you often hear about smart contracts failing. They have, you know, coding errors, security vulnerabilities, or things execute that they don't intend. Right.

Maybe you need to amend or modify or terminate the contract because the situation has changed. And for all those reasons, you may even end up in a dispute. Maybe you need to resolve it yourself. Maybe you need someone else to resolve it for you. But basically, we're building the infrastructure that even allows you to do any of this, to change a smart contract to self resolve it or to have a third party resolve it for you.

That is a great synopsis of your journey thus far to this point in how you've developed SageWise and what it's meant to do. So yeah, thank you for sharing that. I'm curious because the audience is made up of real estate developers, owner operators, general contractors, architects, anyone who's really associated with the built environment. And I'm just curious because you were in the crowdfunding real estate space, what is your affinity to the built environment? You know, I'm bullish on the future of tokenized real estate, although I do think it's going to take a long while, especially in the U.S., where there is a lot of incumbents that need to be displaced.

I'm bullish generally on tokenized securities. I do think that there is significant room for impact with regard to blockchain in construction generally, just because that's an industry where there's a lot of loss, a lot of fraud, where things could be helped with better tracking. That said, I do think that there are a lot of folks out there being like, hey, let's apply blockchain to everything and it's going to be awesome. And I just don't think that's the case. Blockchain and smart contracts are not the panacea to all of society's ills.

I think we have to be smarter in how we go about implementing blockchain solutions in these industries. Absolutely. And just to kind of give you a little bit of background, a lot of the guests that we've had on the podcast as of late, we have been talking about exactly that. There's a contractual relationship. There's an interpersonal relationship that actually takes place in the real world today.

And we've been sort of on this long path here in construction, trying to figure out how to be more productive. But technology has actually slowed us down. So we're sort of on this cyclical path of, let's figure out how to make things better. But we're sort of holding ourselves back. Totally have an agreement with you on the point that blockchain is not the solution for everything.

What we think is a typical blockchain application. But I do feel as if there's a reductionist thinking that we've gotten into by thinking that we can be more productive by applying just technology as a band-aid to problems that we have. And I'm just curious as to whether you've seen that, whether it be in the build environment space or just a lot of solutions that you've seen blockchain try to get applied to, if you will. Oh, absolutely. I mean, I see a lot of things where people are trying to apply blockchain.

It's like, hmm, why couldn't you just use a regular database, right? Or smart contracts. Everyone these days seems to be saying, oh, smart contracts, they cure everything. But smart contracts definitely have their weaknesses. They're extremely rigid and there are consequences for that rigidity.

So I think someone just needs to be smart. There's definitely a overwhelming sense of very technologists-sided thinking in this industry. And if this industry is going to take off, the conversation needs to shift more towards user behavior, because that's what we've found in the regular startup industry. User behavior is so important. How does someone interact with the technology?

Does it make things easier for them or does it make it harder? Do people like using it or do they hate using it? And I think we have to see how that applies to blockchain. First of all, we haven't even gotten user interfaces to be correct. Today to use smart contracts or blockchain, you have to essentially you have to be a developer.

You have to have some level of tech savviness. When we get to the point where it's like how you use the internet today, you don't know you're using TCP, IP. You don't know you're using blockchain. I think that's where the industry needs to go. And it also has to be such that people need to apply blockchain and smart contracts in the context of, okay, we have examined human behavior in this context.

We think blockchain will work because blockchain and smart contracts are so rigid that if you apply it in the wrong context, you're actually shooting yourself in the foot. That's exactly why I want you to talk about some of that flexibility here. I've read a couple of your articles and you specifically talk about the fact that there is rigidity in smart contracts and we need to think about opportunities for some flexibility. And I wanted to ask you about how blockchains are currently designed in a way that essentially it's so rigid now.

Why is it so rigid now? If you can kind of just clearly lay that out for us. I'm also curious for me, what are the opportunities to build in flexibility? We do want to mirror how people should be behaving first, but apply that to the technology so that it can support the way that we're wanting to operate. What we're doing at SageWise, everything is promised on the idea of transactional confidence and transactional certainty.

I'm an attorney by training and I've sat there and written contracts for clients and we could sit there for 10 hours more than it would usually take to draft a certain contract to try and hammer out everything that might possibly happen. But the truth is we live in a very erratic world. Let me give you an example. Let's say you have a smart contract to ship 10 pallets of product from China to a port in Hawaii. Except if you've watched the news recently, there is an active volcano that is erupting in Hawaii.

What if the port is right next to it? What if that is now rendered impossible and now the shipment has to be diverted to the port of Long Beach? Well, if you coded for that and a smart contract is very rigid, you have no flexibility. And so that's just one example. But the main point here is human behavior and human situations, they do need at least some amount of flexibility.

Otherwise, I think that's very counterhuman. It doesn't reflect how human behavior and humanity operates as a whole. So what we're doing at Sagewise is we're not trying to disrupt the immutable nature of smart contracts or blockchain. But what we are doing is inserting just a small bit of rationality, a small bit of flexibility back into the process so that people can actually achieve their true intent. Otherwise, what you're going to see happen is you'll have all these smart contracts that execute or don't execute and maybe they're stuck in purgatory and maybe that was not the actual intention of both users, right?

Or maybe the intent has to change a little bit based on changing circumstances. I mean, you've seen it even in the ICO industry where literally the ICO industry changes day by day. And you do need to have flexibility built into your system. As far as blockchains being flexible or inflexible, the inflexible chains are largely the public one where you've got thousands if not tens or hundreds of thousands of nodes all across the world. I think if you're talking about deployment in, for example, the construction or real estate arena, you may be perhaps looking more so at private chains where, sure, you have a sense of trustlessness because you have all these distributed ledgers.

But at the same time, there's also a little bit more sense of control. Maybe if you have 20 departments or 20 nodes all monitoring something, it's a lot harder to have corruption across 20 different departments than it is one centralized department. So this whole industry, there are all these philosophies around, oh, we need to decentralize everything. Everything needs to be immutable. I think I'm much more of a pragmatist.

I think there's a spectrum that these philosophies operate on. On one hand, you have pure decentralization. On the opposite spectrum, you have pure centralization. And where I think a lot of the industry will eventually fall when we apply it to the real world is probably somewhere in the middle. Right.

That's what I'm observing and hearing from, I would say, that pragmatic perspective from you and a couple of others. It's good to hear that there's some consistency there. And I guess I'm curious as well, for the more rigid blockchains where they're purely decentralized, have you found that there are backdoors built in for scenarios where there are disputes and there does need to be a change? Or does this not happen that regularly? I would say the first wave of smart contracts that we've seen, they were just pure smart contract.

And if all of a sudden you think, oh, something can go wrong. What we've seen since then, more recently, as we've been looking at the smart contracts that are being published on Ethereum is, yes, people are building backdoors. They are building administrator modes where basically one central party has access and can change things on the network. And presumably that should be a good thing because it allows you that flexibility. But it's actually even worse, right?

Because now you have one party that people are supposed to have to trust. That party could go rogue. If that party gets hacked and that administrator access gets into the hands of someone else, that could be potentially very terrible. It's a huge security concern. So I don't think administrative backdoors are the solution to the flexibility problem.

I think you've got to check all the boxes in terms of security, flexibility in a way that makes a little bit more sense. What would you suggest, Amy? If people are thinking about, say, building a blockchain, what are the best mitigation strategies to do that at a high level? If they're actually building a blockchain, I think one good thing would be to build dispute Some people call it arbitration. into a deeper layer of the blockchain.

Because the thing is, to the extent that people are transacting on the blockchain and their smart contracts, you want to make sure that you build that out in a way that is very scalable. So what we're seeing today is, for example, EOS. EOS has built an arbitration layer into their blockchain, but they didn't necessarily figure out all the governance issues surrounding it. So once the EOS network launched and they froze two accounts, the whole community had this big outcry and they're trying to deal with that now.

But I think you've got to design a system that is flexible, that is scalable. We are actually talking with a good number of protocols and blockchains about integrating our solution with them. Where they go, they build the blockchain and we basically integrate them and provide them that flexible dispute resolution layer so that whether it's a small financial micro transaction or some big $5 million enterprise dispute, there's some sort of safety net that can save the users of any given transaction so that they don't have to go and do a hard fork.

That makes sense. And I'm glad that you mentioned EOS as an example, because I've been loosely following them for probably a good five or six months. And they did launch. I didn't know that they had to freeze two accounts. That's really interesting.

But what I have been intrigued by is that governance layer whereby they do have the delegates who can really speak to what takes place as a result of something needing to be resolved. So that's really interesting that SageWise is supporting different blockchains in order to integrate a dispute layer. That's definitely really interesting to minimize risk. And it mirrors what we do now, essentially, in contracts that I'll support my clients to get into place. Oftentimes, there is a section that specifically asks, how do you want to deal with disputes, whether it's mitigation, arbitration?

Makes a lot of sense to me to pull that into the smart contract itself. Yeah, I totally agree. So in that case, how does that address coding errors? Because we talked about, say, human errors or even force majeure, unforeseen conditions, things like that. How can coding issues be addressed?

Is that exactly done the same way or is it different? So basically, a lot of people tend to focus on coding errors. But really, the question is, anything that can go wrong that is unforeseen. What we've built into our system is, I might almost call it purgatory. We built in the ability to freeze a smart contract prior to non-intended executed function.

And once you freeze it, then you have the luxury of time to fix whatever needs to be fixed prior to that execution. So whether it is a coding error, a security bug, or whether you need to amend or modify or terminate something, this almost purgatory phase allows you to go ahead and do that. So let me ask you, you already mentioned that private blockchain makes more sense for this industry, for the architectural engineering, real estate space, just because it is sort of mirroring what we're doing already today.

I'm curious as to whether you know about what Deloitte is piloting for some of their real estate specific transactions. Are you privy to any of those right now? I don't know. Do tell. Okay, yeah.

So there are a couple that fortunately I've been able to chat with Kevin Schatoffman on a previous episode. He talked about Deloitte utilizing smart contracts for leasing agreements for actually using a common data depository when people who are working in their co-working space want to be more collaborative with their documentation. So from a real estate perspective, they're making that available to them. And that co-working space, there's another group that is looking to just improve the offer system. So when anyone wants to make an offer for property, whether it's an offer to rent at a certain value or an offer to do a real estate purchase, you can see those tracking them real time.

So those are the things that I'm familiar with that are being piloted and or ruled out. And I was just curious as to whether you know, you had any thoughts about the future of smart contracts in relation to real estate and or enterprise needs? Because we already talked about the fact that yeah, private or permission absolutely seems to be more flexible. But any general thoughts around real estate and more of that enterprise structure? Yeah.

So for real estate, I mean, there's several different applications, right? You mentioned leasing. There's also title. So there's a number of different ways it can be applied. People want to be able to syndicate and tokenize real estate.

So that's another application. Real estate seems to be the hot topic. And I am bullish on it. There also is a limit, right? Because there is a transaction cost towards, for example, tokenizing real estate.

And if you have really cheap real estate, maybe it doesn't make sense to tokenize it. So I think that's something that people have to keep in mind. As far as enterprise goes, I think there definitely are a lot of opportunities for enterprise to be able to utilize blockchain. I know a lot has been invested by enterprise to figure it out. Sometimes it seems to even be the hot thing.

Like we've talked to some enterprises that they just want to use blockchain. They don't even know. They don't really necessarily even need it, but they just want to do it because it's the hot new thing that everyone's talking about. So I do think there are enterprise use applications. I just think that people need to be very careful.

Otherwise, they're going to build out a lot of systems that aren't necessarily super useful. That's fair. It's about not putting the cart before the horse. It's about doing it in the proper way. If you don't need blockchain, then you don't need it.

It's just the truth of the matter. It's good to understand it. And I think that's what I'm venturing to build awareness, essentially, about the proper ways to address this hot new topic. I really appreciate your perspective on that. So given that that's the case, let me ask you about what your next steps are for SageWise.

You guys are helping blockchains build in that dispute resolution layer to provide a safety net. What are your ideal scenarios you would like to get involved with? Is there any hot project that you're working on that is really exciting for you? The way we are approaching the dispute resolution process, we are actually dispute resolution process agnostic and blockchain agnostic because dispute resolution has to be flexible and it has to be able to fit the needs of different people in different situations. Sometimes you have small transactions.

Sometimes you have celebrities with incredible sensitivities. There are a couple of factors that we look at. It's transactional size. How you resolve a $5 dispute is very different from how you resolve a $5 million dispute. We look at sensitivities of the parties.

With enterprise, for example, their general counsels are going to want their dispute resolution likely to be done by a professional panel of federal judges, whereas a more crypto-oriented project might use a crowd jury and small financial microtransactions might use a bot. So it's got to be flexible. So that's kind of how we are approaching our project. We're obviously talking with a lot of blockchains. We had started voting on Ethereum.

We recently announced that we will be voting also for Hedera Hashgraph. We're also in conversations with a couple others to support their blockchains. As far as what we are excited about, the construction real estate industry, I broadly classify more so as the tokenized asset industry is definitely on our radar, but that industry isn't quite evolved yet. We're very interested also in financial services, supply chain, insurance, and consumer marketplaces. Those are kind of the places that we think will be the early adopters or have at least early traction.

So you have the opportunity to talk to quite a lot of people from time to time about what you guys are doing at Sagewise. And fortunately, you have been a practicing attorney, but there is a gap sometimes between people who understand, say, law and then also people who understand the technology and then those who are just excited about it and may not understand either side. I'm just curious, Sista, are there some steps that you would recommend for someone to take to really build their awareness to understand about governance and then also about just the technology?

You know, I think the most important thing is to stop and take a second and look around at how people work and how society works and how transactions happen in the real world. I think that is not to tell you everything you need to know about how the blockchain industry needs to take shape. You know, law is law, but at the same time, law has evolved because of human behavior and because of how society works. So it's more reactionary. It's a reflection of human nature.

Our company is very interesting in that we are basically half technologists and half lawyers. And the lawyers are always learning from the technologists and the technologists are constantly learning from the lawyers. It's a fun little exercise where I think we're very truly legal tech in that fashion. Is there anything else that you'd like to share with the constructor audience? Only that, you know, I think there's a lot of conversation to be had around smart contracts, around governance, about how dispute resolution needs to take place in this ecosystem.

And so to the extent people are interested in engaging that conversation, I would encourage them to join the conversation in our Telegram group. We are at Sagewise and be active, follow us and be engaged. Is there a good way to reach out to you or to the Sagewise team? Is that just through Telegram or? Yeah, we're on all the social media channels, but I would say Telegram is probably where people have the best chance of interacting with us in a personal manner.

I really appreciate just having this conversation with you. Thanks so much, Amy. Great. Thanks. If you want to learn more about Amy Wan, check out the show notes at constructor.com slash EP 90.

If you learned something valuable in this episode, share it with your friends and colleagues. You can let me know if you enjoyed our discussion by connecting with me on Twitter at Brittany underscore CT or find me on LinkedIn. Or you can just email me to at Brittany at constructor.com. That's B R I T T A N I E at construct double R dot com. Next episode, we'll be speaking with Tony Llewellyn.

He's the collaborative director at Resolex. He's the author of two team coaching books, performance coaching for complex projects, influencing behavior and enabling change and the supporting toolkit, the team coaching toolkit, 55 tools and techniques for building brilliant teams. Tony and I review the team dynamic and how blockchain can teach us about effective teams and resilience within those teams. I look forward to sharing this interview with you next week. If you haven't already subscribed to the podcast, you could do so at your preferred podcast player.

I look forward to connecting with you next week.