Possession is 9/10 of the law. A guarantee of possession gives you that 9/10. A legal contract leaves you calling a lawyer to grasp at the other 1/10, if it's even worth it for the financial value of your contract.
In short, the legal system is pretty useless in enforcing any broken contract that's worth less than a few thousand dollars, especially one of any complexity.
And as an aside, I feel like I enter into low-trust transactions all the time. Don't you?
* I don't trust people who sell products to me online. I've gotten bad product many times. But I need to be able to buy from independent sellers online.
* On a related note, I don't trust half the websites I put my credit card info into. But it's an important part of sending money over the internet.
* I don't trust my ride share drivers or short-term-rental hosts. I could do without short-term-rentals by only staying at trusted hotels, but I can't really do without ride shares.
* When I trade a stock with some random counterparty, I don't trust them to actually deliver the stock to me at T+1. But I need to be able to trade stocks with whoever else can give me the best price.
The typical solution is to have a corporation step in to act as judge and jury for contract breaches that are too small to be worth bringing to court (brokerages, credit card companies, Amazon, PayPal, AirBnB, Uber). In fact, these companies' main value creation has come from adding a layer of trust to traditionally zero-trust transactions. Thus, these zero-trust transactions have been able to thrive while the dispute resolution corporation charges fees for their value-added trust.
The only reason these roles traditionally have to be performed by companies is that autonomous money-custodying software did not exist. But programmable blockchains now allow for this. You could easily imagine a dispute-resolution alternative to PayPal where the organizational structure is a piece of autonomous software directly employing people/AI, rather than a traditional corporate entity.
In short, the legal system is pretty useless in enforcing any broken contract that's worth less than a few thousand dollars, especially one of any complexity.
And as an aside, I feel like I enter into low-trust transactions all the time. Don't you?
* I don't trust people who sell products to me online. I've gotten bad product many times. But I need to be able to buy from independent sellers online.
* On a related note, I don't trust half the websites I put my credit card info into. But it's an important part of sending money over the internet.
* I don't trust my ride share drivers or short-term-rental hosts. I could do without short-term-rentals by only staying at trusted hotels, but I can't really do without ride shares.
* When I trade a stock with some random counterparty, I don't trust them to actually deliver the stock to me at T+1. But I need to be able to trade stocks with whoever else can give me the best price.
The typical solution is to have a corporation step in to act as judge and jury for contract breaches that are too small to be worth bringing to court (brokerages, credit card companies, Amazon, PayPal, AirBnB, Uber). In fact, these companies' main value creation has come from adding a layer of trust to traditionally zero-trust transactions. Thus, these zero-trust transactions have been able to thrive while the dispute resolution corporation charges fees for their value-added trust.
The only reason these roles traditionally have to be performed by companies is that autonomous money-custodying software did not exist. But programmable blockchains now allow for this. You could easily imagine a dispute-resolution alternative to PayPal where the organizational structure is a piece of autonomous software directly employing people/AI, rather than a traditional corporate entity.