Interesting Ethereum Dustup

[jim bell]

http://www.bloomberg.com/view/articles/2016-06-17/blockchain-company-s-smart-contracts-were-dumb


Partial quote:

Blockchain Company's Smart Contracts Were Dumb
2
JUNE 17, 2016 5:46 PM EDT
By
Matt Levine
There's a fairly incredible trial going on in London right now. The Libyan Investment Authority is suing Goldman Sachs over some trades that they did together. To oversimplify slightly, the LIA handed Goldman a pile of money and signed some complicated contracts describing the circumstances in which Goldman would have to give LIA money back, and how much. And then everyone closed their eyes and counted to 10, and when they opened their eyes, poof, the money was gone. It was $1.2 billion. Libya is mad, and suing.
The LIA has various arguments in its lawsuit, but none of them amount to "Goldman owes us money under those contracts." The contracts specified a set of functions that took inputs (mostly, the prices of some bank stocks) and produced as outputs a set of dollar amounts that Goldman was supposed to pay Libya. The specifications in the contracts are perfectly clear; there's no dispute about how to read the contracts, or about how the functions work. Everyone agrees that the total dollar amount produced by the functions is zero. 
Instead, Libya's arguments take the form of: We didn't really mean what those contracts said. We didn't understand them. We were bamboozled into signing them, overwhelmed by a "swarm" of Goldman bankers, seduced -- literally -- by the bankers' offerings ofinternships and aftershaves and prostitutes. We were unsophisticated, we trusted Goldman to look out for our best interests, we thought the functions were something other than what they turned out to be.
Whatever you think about those arguments -- my own views are complicated -- they are definitely the kinds of arguments that are, like, allowed in court. The contracts specifying the functions are important. Ninety-nine-point-whatever percent of the time, derivatives contracts just work: I pay you a premium for a call option, and you promise to pay me if it ends up in the money, and if it does, you do, and if it doesn't, I shrug and walk away. We knew what we were getting into, and we got out of it what we expected. But every so often, people don't know what they're getting into, or what they get out of it isn't what either side reasonably expected. And when that happens, they go to court and argue about it. Usually one side did well out of the deal, and argues that everything's fine and everyone got what they expected; the other side did poorly, and argues that something fundamentally unfair happened and the deal should be altered.
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