Depending on your location, the MAXIMUM damages for small-claims court is $5000 to $10,000. The whole system is designed so that smaller issues can be resolved quickly.
> And many contract provisions are often not honored in bankruptcy
That's literally the point of bankruptcy. The courts say "X has paid enough to its debtors and no longer needs to pay any more". You can't squeeze blood out of a stone. If the defendant doesn't have any money left, it doesn't make sense to sue them.
> Litigation is an unwieldy tool and preferably avoided where possible.
How does Blockchain stop litigation?
* If your Ethereum smart-contract says you owe your Car (or House) to somebody, but you don't give it to them... they'll be forced to go through the court system anyway to force you to give them the promised goods.
* If you fraudulently reported to the smart-contract the temperature of goods or... otherwise tricked the sensors on "smart contract temperature sensors", you have to be taken to court.
* If you put 20 BTC into an exchange (in promise for 550 ETH or whatever), but the exchange goes bankrupt... you lose both your BTC and your ETH. You have to go through the courts to try to get your money back.
This is such a US-centric answer it hurts. Small claims court doesn't mean anything when the other entity isn't even in your country. If you and I make a contract and you flake on it then I have no reasonable legal recourse because an international lawsuit is way too expensive for me.
Okay. And if the same is said about a smart contract, like The DAO, what happens?
https://medium.com/@MyPaoG/explaining-the-dao-exploit-for-be...
That's actually solvable with atomic swaps [1]. They anable you to trustlessly exchange crypto currencies at an agreed on price.
Unfortunately, it doesn't generalize to BTC / USD (or other fiat currency), which is probably the bigger exchange that most people use.
----------
The second issue is that BTC / ETH prices can change dramatically. Set your timer too long: and your opponent can use time to take advantage of the trade... only executing it when the BTC/ETH exchange floats towards their favor.
Because BTC / ETH prices vary dramatically on a day-to-day basis, "gaming" the exchange price is going to be trickier. With a traditional exchange, you either market order (always get a price, immediately), or limit-order (get the price as soon as the threshold is reached).
The fact that it's impossible to implement trustless atomic swaps in USD is a USD problem, not a Bitcoin problem.
You asked how Bitcoin avoids litigation, you were given an example, and you dismissed it because it doesn't work on fiat. The reason Bitcoin had to be invented is precisely because these things aren't possible in fiat.
I'm sure you'll bring up the point that you still need exchanges for USD -> stablecoin. You can alternatively use crypto ATMs, or trade with someone you know.
This about the worst of all cases: they pretend to be a blockchain, but they're really just a standard old bank operating without any regulatory behavior what-so-ever.
That means they aren't actually cryptocoins. That means those are banks, which are backed by the court system and the ability to sue those banks for your money if they mess up.
That's not the argument here. I'm showing you that there are legitimate alternatives to USDT.
If that person ends up duping you, then you need to sue them (litigation)
That's the problem right there- defining "objectively measured completion" in such a way that the contract can act on.