To what extent could a blockchain and protocol embody law?

[Cryddit]

Bitcoin and other cryptocurrencies bring forth a new phenomenon, and that phenomenon is that the blockchain embodies a sort of "Law" or at least a set of minimal regulations that we have generally agreed about what is and is not a valid transaction and how the ownership of money  changes.

We have thousands and thousands of computers auditing the transactions and histories, and basically, if anybody breaks the rules, we just reject that transaction and proceed as though it hadn't happened.  If a transaction is not consistent with known history, we treat the transaction as having never happened.  And if we are ever in doubt about history, we can browse the blockchain to see what is True (or at least what version of Truth is currently the accepted version on which future transactions may consistently be based).  And the history that the present is based on, or the "True" history, is therefore, perforce, composed entirely of transactions that obey the rules. 

That is a powerful idea.  I'm wondering, how far could it be pushed?  We agree to some notion of law and require that our software enforces/audits all transactions for conformance to that law, and we build a history based on a combined record of conformance to that laws.   The law we have essentially prohibits double spends and counterfeiting, so false statements that would enable those things are trivially disprovable given the blockchain.

Is there a set of rules some community could agree to and audit and enshrine in a blockchain that would more generally allow false financial statements to be checked and disproven in the same way that a cryptocurrency blockchain allows us to easily check and disprove double spends and counterfeiting? 

I mean, what if, say, Bernie Madoff hadn't been *ABLE* to get phony earnings records for his hedge funds past the automatic auditing to send out to his customers?  What if investors instantly know that there is something Dead Wrong if they receive such statements in a non-standard form that won't instantly self-verify against the blockchain?  What if the many cases of outright fraud in the runup to the housing bubble collapse had been flatly impossible, because the blockchain verifiers involved simply would not allow the false statements to propagate due to the fact that they were inconsistent with other statements known true? 

Cryptocurrencies are an intriguing new idea, and the methodology they use is more broadly applicable than we've been using it for so far, I think.  We've been aware that we're obsoleting banking.  But consider that we might also manage to obsolete the investigation of some kinds of criminal financial fraud by making those kinds of fraud impossible?