December ‘21, Berlin
For this second edition of my column Tour D’Horizon (read the first here), I'd like for us to embark upon a potted history of crypto-governance and in particular to evaluate efforts to date to overcome social challenges with technological solutions. For the next few installments, together with friends and colleagues we will recount some unusual tales in the emerging milieu of distributed peer-to-peer networks which are often tied together under the oft-used monikers of cryptocurrency, blockchain and Web3. This particular sphere has been gaining in attention, popularity, and/or notoriety recently but despite being a relative upstart — Bitcoin’s whitepaper just entered its teenage years — there is already quite some history to draw upon.
As the saying goes:
“Those who cannot remember the past are condemned to repeat it.”
With this in mind, let's proceed carefully. Unfortunately in the gung-ho ‘Wild West of Crypto’, this has not always been the case. Another famous quotation is particularly apt to keep in mind as we journey towards our first destination in this hop-on-hop-off tour through blockchain history:
“Fools rush in where angels fear to tread.”
Let’s first say something in general about governance and polity to set the scene, but not too much otherwise I’ll be epistemic trespassing once again! You, dear MIT Computational Law Report reader, will certainly be far more versed in its history, nuances and intricacies than I. The recursive problematic of regulative technology governance (of governance (of governance (…)))) was neatly encapsulated by Kei Kreutler a few years ago:
According to the power law editor crowd of Wikipedia, the definition of governance is “the process of decision-making and the process by which decisions are implemented (or not implemented).” This definition, however, leaves out a critical first-mover question: How do you make—or more pointedly, who makes—the first decision about the decision-making process without one already in place?
While a paradoxical problem on paper, each day “first decisions” are made at differing scales. Whether it’s sweeping gestures or incremental everyday actions, the ability to establish a new foundational process for how decisions are made and how action is undertaken structurally determines the course of a society, government, or organization. The tyranny of structurelessness—a poorly lit space filled with vague cultural norms and technical limitations but still anything other than empty—is the space from which explicit governance always emerges and into which it sometimes returns.
We can most readily trace the origins of (modern Western) strains of political governance to Athens and the likes of Plato, Socrates and Aristotle - though this naturally leaves many contributors by the wayside. Indeed, having recently travelled to Greece, eating breakfast each day in the literal shadow of the Acropolis' Parthenon this is particularly personally poignant! In many ways, us humans - and those working with blockchain technology in particular - are still stuck inside Plato’s Cave, Socrates’ Prison or any number of other Greek philosophical allegories concerned with the limits of our knowledge.
Tangentially related: I’m participating in a long-lived art project ‘Reverse Synergy’ by The Mycological Twist at the 7th Athens Biennale building economic and political systems in the ecologically oriented Minecraft-like game ECO. If you’d like to hear me talk about resource-based economic systems and governance of synthetic worlds from inside the game, here’s a YouTube link.
Plato in his legendary 'Republic' work characterised five types of 'politeia' which today we would think of as governance paradigms in order of (his) preference: aristocracy, timocracy, oligarchy, democracy, and tyranny.
We might not agree with his ranking today: conveniently for him placing aristocracy - a word derived from 'aristokratia', made up of ‘aristos’ (best) + ‘kratia’ (power) - with rule by a 'Philosopher King' at the apex. The ideal of aristocracy gradually degenerates through inequality and asymmetry into timocracy, where nepotism and elite overproduction makes the elites of successive generations become simpler-minded, selfish and militaristic. In other words, a zero-sum mindset proliferates. Oligarchy — which we know well today both inside and outside of blockchain power structures — occurs as the richer classes consolidate power regardless of their suitability for office, which then decays into democracy where freedom simultaneously occupies the paradoxical roles of supreme good and slavery.
It's interesting to see democracy as but a single step above tyranny, taken by Plato to be akin to a chaotic anarchy where all discipline is absent. John Stuart Mill described democracy as 'the tyranny of the majority' , and this is something that is particularly relevant in the blockchain space with leaderless consensus protocols and voting schemas relying on simple majorities regardless of context. From Ethereum’s Carbon Voting debacle in the wake of the collapse of ‘The DAO’ in 2016, to the Brexit referendum, or any given dictator’s sham elections, there are abundant examples out in the wild. As a member of the large Iraqi diaspora whose family had to leave Baghdad suddenly as Saddam Hussein rapidly and brutally consolidated power following ‘democratic elections’, it is palpably clear that the historical playbook taking democracy to tyranny holds to this day. Many other examples persist in the world around us, sad to say.
As we are discussing the subject of cryptocurrencies and governance let’s take a relevant aside: El Salvador recently made Bitcoin legal tender — the first nation-state in the world to do so — and many fear that the country's elected President Nayib Bukele is using the financial restructuring as a pretext to loot the country's finances and further consolidate his power.
The modern day democracy→tyranny pathway tends to proceed along the following lines:
Assume political power by election, coup d'etat or however else
Purge the legislative branch: particularly Supreme Court and wider judicial offices, replacing stalwarts with supplicants
Remove Parliamentary and/or Presidential term limits
I argued as far back as 2018 for term limits and graceful degradation of Decentralised Autonomous Organisations (DAOs), in keeping with the original goal-oriented corporation structures, and hope to see similar limitations on the accumulation of power and resources enacted in the blockchain space. Still waiting…
Some recent thoughts on DAOs in this interview with Diffractions Collective, starting around 36:30.
Fast-forwarding to late 2008: in the shadow of 'The Credit Crunch' and ensuing 'Great Recession', storied financial institutions such as Lehman Brothers and Long-Term Capital Management failed suddenly and spectacularly against all expectations due to excessive risk-taking.
At this time, the Bitcoin Whitepaper began to circulate on the Cypherpunks Mailing List, and few months later software for the node client followed with a very low-key network launch. This has been extensively chronicled elsewhere (see here for example) so in the interests of brevity, let's keep moving. Interestingly, one of the first (off mailing list) replies to Satoshi's big reveal was responded to by the protocol's creator and has important implications for the governance of decentralised systems which still do not appear to be fully heeded today. Let us call back to Santayana once more.
ANON: "You will not find a solution to political problems in cryptography."
SN: "Yes, but we can win a major battle in the arms race and gain a new territory of freedom for several years."
Bitcoin's governance ‘mechanism’ may be better thought of as ungovernance, or even anti-governance. How can there be leaderless steering, decision-making or regulation with rules-but-no-rulers? There is no formal method for achieving agreement over intra- or extra- protocol parameters other than 'off-chain'. This bears a striking resemblance to the political systems Bitcoin was heralded as a departure from and an alternative to. Due to its relative simplicity — compared to other blockchain systems, though the inner workings of Bitcoin are still quite a challenge to understand — some refer to its intrinsic decision making processes as a ‘minimized argument surface’ after comments by Nick Szabo (discussed below). This benefits the inside of the system but, as with many other things in Bitcoin, this is at the expense of pushing regulative externalities to the outside. There is no alternative in Bitcoin to off-chain coordination, with all of the potential issues that may pose: information asymmetry, collusion, bribery, preference falsification, hidden power structures, majority tyranny, self-appointed figureheads, and so on.
“…several analogies have been made between Bitcoin governance and governance in other disciplines, spanning from constitutional law and corporate governance to internet governance. One such analogy draws parallels between Bitcoin nodes and the executive branch, the miners and the judiciary, the developers and the Senate, and finally, the business and infrastructure community and the House of Representatives. In this analogy, the users, who may also be node operators, often use businesses to interact with the network.
However, the analogy to the constitutional checks and balances system remains misleading at best. In the Bitcoin ecosystem, there is neither a clear separation of powers/roles nor even a clear division of labor. For example, a Bitcoin user can be a developer, may run a fully validating node, and at the same time be a miner or engage in other Bitcoin related businesses. The same applies to other participants in Bitcoin governance. As the constitutional checks and balances system is heavily built on the idea of separation of powers, in the absence of such separation, a checks and balances system would be at best dysfunctional, and at worst redundant.
The second problem with such analogies is that there is no real representation or agency relationship between the user community and developers, miners, or node operators. For example, when a developer writes a piece of code, or otherwise contributes to the protocol, one could hardly imagine that she is acting on behalf of or as an agent to users. Therefore, such analogies fail to convey any meaningful message about Bitcoin governance.”
One might describe Bitcoin’s present-day reality as a mix between initial hopes of machine democracy (1 CPU = 1 vote, as the Whitepaper specified) with the reality of tyranny of the majority. This is because Nakamoto Consensus — which canonises the longest blockchain timeline with the most accumulated work — sanctions 51% attacks and necessitates that Bitcoin remains ‘après la finitude’ in eternal contingency. Bitcoin (in keeping with its roots in the Open-Source Software movement) relies on so-called rough consensus to make decisions, but in the absence of any formal and intrinsic decision-making process this is relegated to asynchronous discussions and coarse signalling on various public fora such as Bitcoin Developer Mailing Lists and the Bitcoin Improvement Proposal meta-protocol managed by a very small number of 'trusted custodians' via Github. I should note here for the sake of transparency, until late 2020 part of my time was spent raising funds to pay some of these developers’ salaries in my prior role at the MIT Digital Currency Initiative. These people did not seem to particularly seek or desire the limelight, quite the opposite. The intense scrutiny from people criticising the faux-social-decentralisation of Bitcoin (which I wrote about for In The Mesh here prior to joining MIT) made them very uneasy.
Szabo writes that where in network security there is an attack surface, in questions of governance, there is an ‘argument surface’: the total optionality in a given system or organisation. As each decision can be made in more than one way opens the space for friction and debate over grey areas, and thus by delegating as much as possible to a technical system smoother operation should be possible in principle. These peer-to-peer systems (like any institution of yore) essentially exist to nourish and protect themselves. That is typically achieved by creating some sort of transcendental criteria, creating ‘insideness’ and ‘outsideness’ in the vein of Kant’s German Idealism, particularly in The Critique of Pure Reason. This by necessity pushes 'unwanteds’ out to keep 'wanteds’ in, as determined by the relative, subjective morals of those inside. Bitcoin as a de minimis regulative attack surface is interesting in comparison to the blockchain systems which came after — that we will explore in future columns — because of the implicit lack of heed paid to the usual challenges of human coordination. As Satoshi’s anonymous naysayer prophesied back in 2008, Bitcoin truly did not find a solution to political problems with cryptography.
In such a complex system, the groups of stakeholder constituents which have their 'hands on the pumps' are at a clear advantage to those without insider sway. In Bitcoin, this is very much the case for the developer technocracy and miner oligopoly. We are currently discussing the outsize influence of these stakeholder groups in the 0x Salon topic ‘The Indifference Engine’. The developers — as the ordained priests in this particular ‘Open-Source Cathedral’ — in essence steward the trajectory of the canonical software client’s code and therefore by implication the protocol, network and asset. The miners — more precisely, each miner or pool of miners that finds canonised blocks one-by-one — ultimately decide what goes into the permanent record. In effect they choose who can and who can't transact, which upgrades get 'approved' and which do not. A central bank without a government is an apt encapsulation of what many Bitcoiners think of the network as: the epithet "be your own bank" is well-worn by now. The key difference to a 'real central bank’ is that if a sufficiently large subset of stakeholders doesn't agree with the network’s trajectory, they can readily attempt to exit (see below).
We are all surely familiar with the concept originated by William Forster Lloyd in 1833 and later popularised by the (by all accounts, very unpleasant) Garret Hardin in 1968 of 'The Tragedy of the Commons'. One could argue that due to a lack of in-built formal governance mechanisms, the tragedy of the Bitcoin commons is all but inevitable. I wrote about a similarly ungoverned blockchain several years ago which has a similar mode of decision-making, albeit at much smaller scale. We will examine Ethereum Classic in more detail in future columns.
Let’s also make an honourable mention for that most tragic of digital commons: Twitter, and more specifically the sub-community known as 'Bitcoin Twitter'. As a committed Bitcoiner from 2013-9, I spent countless hours tweeting, scrolling, liking, retweeting and replying to my fellow colleagues as we collectively navigated the social scene taking shape around the network. Most of my tweets are still archived, so you can see for yourself. Even when engaging in discourse with like-minded 'believers' there was still a great deal of friction and ill will exchanged, and the quality of discourse appeared to be inversely proportional to the market price of BTC. It seems that platforms such as Twitter, which have advertising-supported revenue models that live or die based on temporal retention of their userbase, are optimised for misunderstanding and conflict. But not just any conflict: the discourse on Twitter appears to suffer due to structural limitations (140 / 280 characters) and a lack of application of the Principle of Charity.
Due to the dearth of formal intra-protcol governance mechanisms, and due to the peculiarities of the blockchain mileu, it is often said that there are two mechanisms for stakeholders to make their opinions known: voice & exit, after Hirschman’s ‘Exit, Voice & Loyalty’ (1970). In this case, voice represents the signalling we have discussed above, and exit represents a new paradigm of schismatic secession or factional disintegration which are referred to as ‘hard forks’ (or more loosely as 'forks').
For a range of reasons, there is often strident resistance to hard forks — irreversible protocol upgrades or relaxing of the existing consensus ruleset — in ‘trust-minimised’ cryptocurrency networks such as Bitcoin. The lack of controlling entities may lead to an irreversible network fracture and persistent partition if the delicate balance of orthogonal stakeholder incentives fails in the presence of a potential divergent event. The implementation of Segregated Witness (SegWit) by the Bitcoin network was eventually achieved in 2017 as a backward-compatible ‘soft fork’ following several years of intense political and strategic maneuvering by the constituent stakeholders in the Bitcoin network. This off-chain governance process of rough consensus requiring de facto supermajority or unanimity measured by miner signalling has proven to be an inefficient and gameable mechanism for administering the Bitcoin network. Certain stakeholder constituencies such as the developers maintaining the reference Bitcoin Core software client implementation of Bitcoin could not easily reach agreement with mining oligopolists and so-called ‘big block advocates’ over the optimum technological trajectory for the Bitcoin network, particularly with regard to trade-offs around various options for transaction capacity upgrades.
The adopted SegWit solution combined a fix for transaction malleability and network capacity increase through the restructuring of block contents, principally through the addition of a second Merkle tree which includes witness (signature) data but excludes coinbase (miner) transactions. This was initially conceived as a hard fork, and was only found to be implementable as an opt-in soft fork due to inventive engineering. Despite this, major stakeholders of the mining constituency strongly opposed SegWit as it would render a previously clandestine proprietary efficiency advantage known as covert ASICBoost ineffective on the canonical Bitcoin chain. A grassroots Bitcoin community movement campaigning for a so-called ‘User Activated Soft Fork’ (UASF) for SegWit implementation and a face-saving Bitcoin Improvement Proposal BIP91 from mining farm operator James Hilliard in tandem facilitated the eventual lock-in of the SegWit upgrade in the summer of 2017.
A new and contentious network partition took place in August 2017 as SegWit locked in for later activation, giving rise to the Bitcoin Cash network which rejected SegWit and instead opted for linear on-chain scaling. This was implemented in the form of block size increases which have the effect of externalising network resource burden onto node operators, chiefly in the form of increased bandwidth and storage performance requirements. By changing the block size and loosening the consensus ruleset without overwhelming agreement from all constituencies of the Bitcoin network, it is difficult to find a basis for Bitcoin Cash or other Bitcoin-derived network proponents’ claims to be the canonical Bitcoin blockchain without invoking appeals to emotion, authority or other fallacies.
Hope you enjoyed our first step into the murky waters of crypto-governance, there’s more to come on Ethereum and all things DAO next time! Signing off with a few recommended materials & recent goings-on for your perusal. Tweet me @wassimalsindi if you want to discuss any of the above!
Thanks to Nick Houde for helpful comments during the preparation of this article.
Bitcoin Governance as a Decentralized Financial Market Infrastructure - Hossein Nabilou
What the Forkgov! Does staying together tear you apart even more? - Wassim Alsindi
The Polarity of Bitcoin in El Salvador - Alex Gladstein
Cryptoeconomics as a Limitation on Governance - Nathan Schneider
Read the latest 0x Salon news on our Research Residency launch and events programme in our ‘Sweeping Statements’ Newsletter - Wassim Alsindi
Podcasts & Talks:
I gave a short presentation on ‘Metrics, Limits & Externalities’ of decentralised networks at 221a’s ‘Blockchains and Cultural Padlocks’ event celebrating the launch of theorist Patricia Reed’s essay ‘The Valuation of Necessity’.
Hear me talk about resource-based economic systems and governance of synthetic worlds from inside the Eco game, alongside Dorota Gawęda and Eglė Kulbokaitė, Angela Chan and Alison Sperling - Wassim Alsindi
A wide-ranging interview covering Bitcoin, DAOs, 0x Salon and my MIT editorial work in this interview with Diffractions Collective - Wassim Alsindi
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