For a moment, entertain the opinion that Bitcoin's architecture should be divided into layers, with "Bitcoin" (as we know it today) being the base layer. Most of you probably already have. As a simple reference, this would be analogous to the architecture of the Internet, in many respects.
That foundation layer allows for "smart contracts", contracts that are deterministic in nature, enforced in code, and backed by the network's growing hashing power. In the real world, contracts are enforced in a court of law, backed by physical force (ultimately, a nation's military). On the Internet, value moves seamlessly and contracts, specifically smart contracts, are enforced by code. And code, unlike natural language, can encapsulate absolutes. It's deterministic and incorruptible (unlike humans), when properly engineered and deployed.
In the physical, everyday world, contracts are rarely enforced. You sign contracts every day. Why are contracts rarely ]taken to a court of law? Because the judicial system isn't free (very far from it) and the parties involved know the evidence, should it exist, could be enforced, if one party attempts to break the agreement. A certain trust exists in the judicial system and, more generally, in the government.
On the Internet, there are no nation borders, and smart contracts also rarely need be enforced. Like in the physical world, nodes on this network can transact with each other and exchanging value without having to enforce every transfer. Enforcing transfers costs money ("bitcoins"), just like going to court costs money. All that is really required in the system is the faith that one could enforce the transfer if the other party breaks the agreement. An example of this would be if the receiving party claimed he never received a transfer, when if fact he did.
In both cases, the integrity and harmony of the judicial system is the utmost important. WIthout a solid, well-funded foundation, the entire system fails. But with that proper foundation, incredible things can be built.
Submitted January 30, 2016 at 12:15PM by SheHadMANHands http://bit.ly/1VykKtu
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