California Blockchain Working Group Meeting #1: The Future of Blockchain Law
Written by Kirk McGregor and Samarth Sandeep
In September of 2018, the State of California officially signed a bill that would create a Blockchain Working Group that would be responsible for defining the technology, understanding possible use cases, and providing insight into what type of legislation is necessary in order to balance privacy and business growth in an equitable manner. As the Number 5 economy in the world and as a state with some of the top Blockchain talent, working at companies like Ripple, Coinbase, Binance, and others, this working group is not only important for the future of California; it is important for the future of the industry as a whole worldwide. Already, many American companies, such as Tezos (https://tezos.foundation/), are relocating their businesses to Switzerland (on paper) in order to avoid regulations that could seize their assets and render their businesses inoperable.
As such, the first meeting of the Blockchain Working Group (https://www.govops.ca.gov/blockchain/) held in Sacramento was an event that seemed of principal importance to our team at Blockchain at Davis, a group that is building various tokenized platforms, most notably a solution for hardware pre-orders through the Hard Tech Fund. We attended the first workgroup meeting to not just take account and see for ourselves how their process would develop, but also to put forward what we hope to see, and how we hope to help in this process.
What we saw
As with any working group meeting in the state of California, the meeting began with a description of the Bagley-Keene Open Meeting Act from a legal representative of the Attorney General’s office. This part of the program was given fifty minutes of the total daily agenda time. However, it turned into a two-and-a-half hour discussion that showed the antiquity of the Act, as it was written in 1967. One of the key issues of having the different members of the committee not be able to talk about the topic with one another in groups of 3 or more without declaring the meeting as a subcommittee. But, this proved to be quite difficult because many of the committee members worked with one another on a regular basis and often participated in panels and events where they give their insights on the blockchain industry together. To the concerns of the working group, the attorney general representative did not have any real solutions to the problem besides just following “common sense,” which included apparently not using shared online platforms for editing as this could also be construed as breaking the open meeting guidelines. Rather than developing and supporting a shared, online, digital document and multimedia workspace that could surmount the Byzantine criteria of Bagley-Keene Open Meeting Act, the two ancillary lawyers representing the state were adamant about centralized communications via the communications liaison. This seemed strange given that it is a well-known act governing a wide variety of open meetings, and surely some historical recourse had been sought, if not developed, in some capacity elsewise.
However, despite this natural pessimism towards an ineffectual centralized governmental bureaucracy, there is a ray of hope in the working group’s interest in potentially resolving the long-standing conflict in document sharing for open government meetings under the very theme of their concourse. Most prominently, Arshad Noor, CTO of Strongkey, pointed out that in his industry, many forums use standard protocols, such as the one used by ICAN, for communication similar to Bagley-Keene, and are perfectly functional as web based systems. To add to this, a member of the public reminded the working group members and the state’s lawyers that blockchains are the obvious solution, which was intended as a partial reprimand to the junior legal counsel representing the general attorney’s office that her claim that the attorney-general’s position and judgement that no online document sharing technology could be used in any capacity whatsoever, nor that were there any technological resources for shared document generation and editing, was flatly false. This would be logical, as the nature of programming languages is to execute instructions according to a comprehensible system, and blockchain technology is allegedly Turing-complete enough to represent the axiomatic esoterica of Bagley-Keene (however, even Turing-completeness doesn’t quite cover the nature of distributed communications of both blockchains and Bagley-Keene). Interestingly enough, another member of the public gave a comment about how “we” are working with staff to come up with a tool that would be up to the standards of the modern age, but did not identify himself.
After this discussion, there was a debate over whether there should be more meetings or if they should have subcommittees because the blockchain working group was scheduled to meet only 3 times over the course of 9 months, but still needed to write a document detailing the uses and risks of blockchains as well as possible legislation around blockchain. Thoroughly doing this much work in such a short amount of working hours and total time is quite difficult, considering that the Swiss banking regulatory body, FINMA, took 5 months to turn its extant statements around Initial Coin Offerings (ICO) into a single detailed guideline. All the working group members wanted more engagement in either form, but were wary about more fully open meetings such as the one they held as a kickoff because of the time commitment. This topic was revisited during the meeting, when subcommittee formation received further support.
Then, the discussion around blockchain began. First, members of the committee were prompted with providing a definition for blockchain, which was answered by Brian Behlendorf, director of Hyperledger and a major proponent of the free software movement, to which he talked about Hyperledger’s attempt to solve decentralized problems.
After this, the different topics of possible uses for blockchains was discussed. However, the committee members did not feel that this was necessarily something that made sense since the framework around blockchain development itself was not established: Mr. Noor added to this by talking to the lack of framework regarding security within blockchain based systems that needs to be established.
This conversation continued for quite a while before it turned to how exactly the group should position some of their work, with Mr. Behlendorf saying “I was wondering if we should stay away from opining or driving recommendations on that [new legislation such as cannabis and banks] or if it’s encouraged,” to which the representative for Senator Hertzberg’s office, Freddie Quintana, said that the legislature is in an armistice and is waiting on results from the working group before making policy decisions. In terms how blockchain could be practically and rapidly involved in such legislation, a professor from Golden Gate University, Michele Neitz, stated that such information on blockchains in new legislative areas could be added as appendices on the new bills. This means that the outputs from the working group could have direct legal implications as soon as 2021, which means that the work it does is very important to many industries and lives in California.
This was the last topic discussed in the meeting. The next steps to be taken by the working group were to have the staff individually interview each working group member and schedule times for the next meetings.
What we want to see
First of all, it would actually be too premature to assume that getting beyond Bagley-Keene is simple or easy, but the implications for resolving the long-standing issues of Bagley-Keene reach far beyond the single Open Meeting Act. The structural letter and spirit of the law is very homologous to the Brown Act that keeps a similar set of rules for municipal and other governmental agents, employees, and elected officials participating in legislative bodies, with Brown Act applying to the smallest scales of government at civil and municipal levels, and Bagley-Keene Act applying to the largest scales of state government. Resolving Bagley-Keene Act issues would also plausibly resolve Brown Act issues, such as enforceability and prosecution, of which there has yet been no demonstrable efficacy. The Brown Act’s enforceability also is problematic given a general dearth of cost-effective and rapidly-efficient deployable technological solutions despite years of grant funding and investment in technological pursuals. Even the Center for Information Technology Research in the Interest of Society (CITRIS), an organization which also happens to be run by the working group chair, Camille Crittenden, has yet to discover new technological approaches for rectifying ongoing issues that the general public and many cities have with either Brown or Bagley-Keene Acts. The attorney general’s office, while thoughtful, is not a technology authority. However, there is significant opportunity for some synergistic operations between the Blockchain Working Group and CITRIS as well as the California Department of Technology. Since more federal agencies are pursuing blockchain solutions to long-standing governance problems as well as putting forth significant grant funding and contracting opportunities for such (DoD, DoE, DoT, etc.), it stands to reason that the state of California should also consider, as part of the deliberation and contemplation of the Blockchain Working Group, to consider that the state could and should financially sponsor more blockchain investments in both grant funding and other financial approaches, perhaps as a renewal funding mechanism for CITRIS in this specific subject, or as a separate and new entity like CITRIS. Perhaps having a state institute on blockchains would also be effective as a permanent working group and/or advisory, as even Oak Ridge National Laboratory is considering establishment of a national blockchain institute, but sadly one that preliminarily does not involve any California universities or national laboratories thus far.
But, there is an even greater implication for analogous language and intent in legal jurisprudence, namely in deliberative behaviors of trial juries and other types of juries. To whit, juries also have the same distributed communication and enforceability problems that Bagley-Keene and Brown Acts do, but on a more fundamental level. This presents a new perspective on a very old intersection between political deliberation and currency regulation, especially in early Sparta under the legal reforms of Lycurgus; Sparta could not successfully bypass that intersection despite taking great pains to avoid and segregate its confluence. Spartan government could not stop the economic utility of distributed communications for practical food and educational economics. State-centralized fiat security tokens (pelanor) and non-state decentralized utility tokens (obol) formed the material backbone of Spartan exchanges. Two of the reasons that cryptocurrencies thrive are due to a lack of trust in a government’s regulation of its currency and in economic misregulation of critical services and consumable products. Sparta had these problems but didn’t have the technology to fix them; California has legislatively, judicially inherited, and economically reinvigorated these problems but has the technology to finally resolve them. This is also to say that Bagley-Keene and Brown Acts are not a hill to die on, as Sparta chose theirs to their ultimate demise; rather, the foundations of American jurisprudence are based upon ancient Greek political ideologies and is one of their paradigmatic inheritors along with those associated problems. While the Greeks were hindered by their own sets of technological limitations and fixations, California has a particular advantage in implementing extensions or amendments of not just Bagley-Keene and Brown Acts but also legal jurisprudence which could advantage the state and push it into a more legally-advanced culture and government. Telecommunications was a major improvement upon Bagley-Keene and Brown Acts in terms of teleconferencing but has not yet made significant impact upon jurisprudence and limited impact upon courtroom proceedings; blockchain implementations can push teleconferencing used for maintaining compliance with Bagley-Keene and Brown Acts into a more advanced form that could finally find homologous teleconferencing implementability into the courtroom, such as for identifying, recruiting, and obtaining selected juries from out-of-area to comply with unbiased juror requirements in tense and sensitive court cases. California, at least internally, could facilitate a new form of telejury process to facilitate out-of-area juror selection when needed and confirm that jurors are of a quality that is sufficient for selection by means of blockchain identification methods; if California implements a decentralized blockchain ID system, jury selections such as for this type of scenario may become easier and faster to achieve, enabling faster trial proceedings that are entitled under state and federal laws. In this way, tackling Bagley-Keene and Brown Acts with blockchains could also open up new advantages of state legal practices that could economically and culturally promote superior state advantage over other states and governments.
Also, perhaps it would be prudent to ask the Working Group to perform, if not host in some larger industrial community sense, a hackathon to tackle some of their pending and present problems and themes (perhaps sponsored by CITRIS or the state in some other capacity as funded by the auspiced of the Working Group). Given that some municipalities and cities support Github repositories and escalation of legal frameworks and civil codes, perhaps, too, the Working Group should implement and utilize Github or something like it to push definitions and bibliographies not just for definitions of blockchains and smart contracts but also allow the Working Group to dynamically participate, contribute, and review work in a public matter. While the state’s attorney general has opined that even publicly-posted emails are technically disqualifying under Bagley-Keene, the attorney general’s office seems to have avoided several types of email protocol methods in their descriptions that factually achieve requisite concurrency demanded by Bagley-Keene; however, the methods of modifying email protocols is a lesser issue as teleconferencing is already acknowledged as a viable and appropriate method, and thus the leading issue in implementability of blockchains in resolving concurrency is in facilitating extant telecommunications used in teleconferencing or amending them novelly. The Bagley-Keene and Brown Acts are merely networking topology challenges under CAP (a.k.a. Brewer’s) Theorem, but to recount Mr. Noor’s security concerns, any blockchain implementation is fundamentally a cybersecurity problem and should adhere to at least one if not both of the extant federal cybersecurity frameworks (NIST and DOD, and there are several critical differences in either 2019 drafts) to remain economically competitive without compromising safety, security, or state autonomy.
Looking at the actual working group structure, having official subcommittees open to the public on each topic would be very helpful in ensuring that members of the public and committee members with backgrounds in each area interface with another. Instead of having long sessions, these sessions could be a few hours long and could be held in the Bay Area or somewhere more accessible to the members of that particular subcommittee and the members of public they are looking to involve. While we understand the interest to just have 2-person groups working on sections of the report, subcommittees are really important since each topic can only properly be addressed with either more time given to the members with that background to look at or by having more public involvement.
Towards the end of the meeting, Sheila Warren, Director of Blockchain at the World Economic Forum, suggested that more than anything, legislators and the public need a bibliography on the different readings regarding more specific information beyond the thematic overviews that would be covered by the report to ensure thorough statewide understanding on the topic and its implications. Mr. Behlendorf suggested there should be a template for allowing the public to provide examples around blockchain use cases for each topic given. Both are important: there should be a streamlined template for evidence and literature from the public regarding each topic that should also be made publicly available and searchable satisfying Bagley-Keene. Being able to identify meaningful pieces of work that defined the field is something the committee and staff should do to ensure that the state’s population understands the topic.
Lastly, we would like to see more members of the public at the working group meetings or providing comments asynchronously. It was quite disappointing to be two out of only a dozen or so members of the public in attendance, considering that the work the group is doing impacts not only the entire blockchain industry but also legislation around the way business is conducted in many areas of the government. If we do not mobilize around this issue, the state will not take sufficient interest in it. Having high attendance and participation would ensure that the process is deliberate, yet also fast enough to actually enact laws within this legislative cycle.
What we are going to do
Blockchain at Davis now anticipates running three projects based on the first Blockchain Working Group meeting to help aid in the process around these three topics: reading lists, Bagley-Keene, and supporting legislation.
Firstly, we want to create thorough reading lists around Blockchain, with one being on the technology’s development and setup, and the rest of the lists focused on each theme provided in the agenda given by the Working Group. We will try to work with the team at Golden Gate University run by Professor Neitz, which is actively documenting all bills around blockchain in the United States, along with teams worldwide to ensure that we have technological outlines, business greenpapers, and legal framework from elsewhere (if they exist) on every thematic topic. To ensure that this reading list is properly addressed during the working group meetings, we also anticipate having a club member at every working group meeting to make citations whenever needed.
Secondly, teams at our university are already developing coding frameworks that use smart contracts to take essentially what is contractual language and turn it into code that can operate on top of a blockchain, especially our team at 111 that developed a framework around pre-order tokens that we feel answers the SEC’s issue posed by non-securitized tokens. Therefore, we want to codify the Bagley-Keene Act into a smart contract to show that technology does exist to turn law into actionable code.
Lastly, we want to do a thorough audit of many (if not all) bills currently on the docket in the state of California for this legislative cycle; this task perhaps will entail some larger inter-university cooperation. Then, we want to see if blockchain applies to any of them, either in direct infrastructural application or industrial implementation, or perhaps in decentralization of legislative infrastructure, or even a more advanced method of both decentralized legislation management and direct implementation of bill/act subject matter and activities. To do this, we will be running problem solving sessions related to the problems posed by each issue and see if a blockchain presents itself as a natural solution to the problem that needs to be recorded.
Blockchain is an exciting technology that has been thought about, worked on, and finally presented itself in new applications after more than 20 years of research. While we are critical of the work done by the working group and will continue to be, we are excited to see the group tackling this new technology and enjoy being part of the legislative process. If you would like to respond to this article, add any information, or help in any way, leave a comment below!
