Blockchains Are Governance

A Closer Look at the Innate Governance Models of Blockchain-based Technologies

Go beyond pessimism and optimism

This article argues that blockchains can make the world better, but it isn’t all sunshine. Don’t be turned off. At the end of the day, we should not be optimists or pessimists. We should be realists, working hard to fill the empty half of the glass.

The Silicon Valley Dream is dead

Hear ye, hear ye! The Silicon Valley Dream is dead. What was the Dream? The Dream held that technology would “empower” regular people by “democratizing” everything and finally putting consumers first. It promised that last decade’s high-flying startups (Google, Facebook, Uber) were a new kind of corporation, more benevolent and human than their predecessors.

Alas…things did not transpire as advertised.

Peter Thiel observed that “we wanted flying cars, we got 140 characters.” I would add:

  • We wanted democratization, we got a crisis of democracy
  • We wanted shared prosperity, we got grotesque inequality
  • We wanted transparency, we got the end of privacy
  • We wanted more information sources, we got a cacophony of fake news
  • We wanted an ecosystem of startups, we got a new era of monopolies
  • We wanted to connect with people from other walks of life, we got bubbles

The Dream wasn’t just over-optimistic, it was mad: naive at best, propagandistic at worst. Many still cling to it, but most have awoken to a messy reality. Hooked to our devices, we continue to grant Silicon Valley our attention. But we have seen enough of the Silicon Valley Dream, or the Californian Ideology, or whatever you want to call it. Our credulity has evaporated.

Optimism is no longer sufficient

Good thing, because we cannot afford to repeat past mistakes. Tomorrow’s technologies — artificial general intelligence, genetic engineering, quantum computing, autonomous weapons — carry unprecedented risks alongside their positive potential. If we bungle the next chapter of technological history as we bungled the last, the consequences will be dire.

How can we ensure that tomorrow’s technologies work for us, not against us, and make the planet healthier, not sicker? How can we ensure that tomorrow’s promises do not turn as sour as yesterday’s?

There are no easy answers, but it starts with guarding against a renewed cycle of credulous utopianism. Anyone blithely confident that the next technological revolution will work out for the best is not paying attention.

The Blockchain Dream

And into this peculiar historical moment wander blockchains, promising to cure society’s ills with something called “decentralization.” Your bullshit detector should be beeping…but not because blockchains are a sham. In fact, they can and will change everything. But whether they alleviate or aggravate society’s ills depends on whether the public buys a new bill of shoddy, utopian, ideological goods.

In truth, blockchains (like A.I., genetic engineering, and others) are a risky emerging technology. They could do harm in many ways, including:

  • Unstoppable decentralized/autonomous organizations coordinating and incentivizing wrongdoing
  • Mass adoption of cryptocurrencies wreaking economic and political havoc
  • Decentralized networks performing surveillance for governments, corporations, or peers

Alarmingly, despite clear risks, the present talk around blockchains resembles the early days of the Silicon Valley Dream. Blithe optimism. Half-baked libertarianism. Denying risks and drawbacks, or waving them off as pessimistic/inevitable.

This is not good enough. We must start taking the possible downsides of new technologies seriously. That means disclosing them, discussing them, and vigilantly avoiding them.

Nonetheless, I believe blockchains can do enormous good, and may mark a crucial, positive chapter in humanity’s tango with technology. Why? Traditional governance structures (public and private) look unprepared for our technologically-supercharged future. We need better governance for many reasons, not least because it is so vital to ensure that technology works for us, not against us. And blockchains matter because they will multiply the human capacity to govern. Let me explain.

The internet is communication. Blockchains are governance.

Conventional wisdom holds that Ethereum and other smart contract platforms enable “decentralization.” Yet it is often unclear what we are talking about decentralizing. (Nebulous terms like “systems” or “everything” do not answer the question.) What kind of activity, exactly, stands ripe for decentralization by smart contract-based systems?

A compelling answer is governance. We might say someday that blockchains did to governance what the internet did to communication.

Why? To begin with, note the structural parallels between blockchains and governing bodies. Like governments, blockchains are in the day-to-day business of recording events, verifying facts, and enforcing norms. Blockchains are hard to change, thus binding their users in the distant future — much like statutes, charters, and constitutions. Blockchains recognize and interact with special kinds of entities (e.g., addresses and smart contracts), placing those entities within an ecosystem of rules — just as governments do with legal persons. The analogy between governments and blockchains runs too deep to dismiss.

Nor will it remain a mere metaphor. Blockchains actually perform the core functions of governing bodies, and accordingly, will become important recorders, organizers, restrictors, and incentivizers of human activity. They will reach deep into our lives, influence our norms and behavior, and jurisdictionally overlap in ways that previous authorities could not. In short, they will usurp and remake the functions of public and private governing bodies.

Of course, I might be wrong. But I will try to show you why this big claim might be true. With apologies to Robin Hanson and Ralph Merkle, I will make my case from the bottom up, not the top down. In other words, rather than try to describe how blockchains might supplant complex governing bodies like corporations or governments, I will demonstrate that smart contracts could handle “miniature” governance problems — that is, very simple collective action problems. I will then leave it to the reader’s imagination how such smart contracts might combine and aggregate to form more complex governance structures.

Blockchains and collective action problems

Smart contracts can help solve collective action problems in at least two ways.

  1. Where there is a well-defined collective action problem, a smart contract can manage the supervision of the necessary work.
  2. Where there is an ill-defined or undefined collective action problem, a smart contract can manage the process of collectively defining the problem.

In these two functions, illustrated below, we have the DNA of all governing bodies, and we can begin to imagine robust new governance structures running atop a blockchain.

Example 1: Blockchains decentralize supervision

Consider a classic governance problem: the village green needs to be cleaned. It is a straightforward task, but every villager has reason to shirk. What to do? The village government might establish a Department of Green Cleaning, give it a budget, and charge it with (1) defining the work, (2) hiring the cleaners, and (3) overseeing their labor. That would get the job done. But a smart contract could spare the budget by overtaking tasks (2) and (3) of the Department of Green Cleaning. How?

Imagine that the Department of Green Cleaning wrote a smart contract effectuating the following:

  • A list of certain cleaning tasks, to be performed daily, are posted publicly and auctioned to bidders.

Fine, but how to ensure diligent cleaning?

  • Every successful bidder for a cleaning task must post a bond to accept the job.
  • Randomized “spot checks” are also auctioned off as tasks. These too require the posting of a bond.
  • If a spot check discovers subpar cleaning, the responsible cleaner loses her bond. If real identities are known, the cleaner’s “reputation” and ability to successfully bid for future work suffers.
  • Spot checks are themselves randomly spot-checked (perhaps by bidders, or perhaps by village authorities) with enough frequency that the expected return to shirking and corruption is negative.

Assuming the process is well-calibrated, the village green now gets cleaned with little or no central oversight.

This might appear fairly straightforward, but it is a paradigm shift. Before blockchains, the Clean Green Department could naturally outsource the cleaning to contractors, but it would still have to supervise their work and periodically hire replacements. A well-programmed smart contract, however, could handle those functions autonomously. That means the Clean Green Department could dissolve.

This logic extends applies to private enterprises, too. Owners of capital might soon have less need to “manage the managers” of their enterprises, because smart contracts can enable all well-defined tasks, and their supervision, to be handled by the crowd. The blockchain could replace all or most middle management.

Example 2: Blockchains decentralize decision processes

You might be thinking: “Maybe smart contracts can decentralize the performance and oversight of well-defined tasks. But that’s the easy part of governance. The hard part is defining those tasks: agreeing on values, and deciding what to do about them.”

Right. But smart contracts can also decentralize decision-making. Obviously, they can administer polls and votes. But more interestingly, smart contracts can power previously-impracticable gamelike mechanisms for determining group preferences and/or building consensus.

For example, under certain circumstances, smart contracts could organize group decisions according to truthful mechanisms such as the Vickrey-Clarke-Groves mechanism. Truthful mechanisms are basically games structured to incentivize players to answer questions truthfully. Another (oversimplified but illustrative) example: Imagine a poll that didn’t ask your personal opinion on a governance question, but rather offered you an incentive to guess the response of the majority of other players, who are all playing by the same rules. Because you have less reason to express your personal biases, and so do others, you might consider the interests of the group more seriously, contributing to a better result.

Similarly, one can envision blockchain-based debate forums incorporating truthful mechanisms to encourage the serious and disinterested exchange of ideas. Such forums could support and inform decision processes.

Much careful work needs to be done in this area. But it is already possible to imagine well-designed blockchain-based processes leading to better decisions than parliaments and corporate boards.

Uneasy Dreams

In this vision, governance is decentralized and effective, but it’s also everywhere. This is exciting because good governance makes flourishing possible, but also troubling because bad governance is a nightmare. Blockchains’ libertarian boosters overlook a very important point: Blockchains might mean less-centralized governance, but they might also mean deeper governance. Likewise, blockchains’ left-liberal skeptics, traditionally comfortable with more government, fail to see certain positive opportunities.

Thus, everything could go right, and everything could go wrong.

Let’s return to the example of the village-green-cleaning smart contract. It shows that blockchains can remove management layers and streamline work processes. But it also shows that blockchains can decentralize surveillance, incentivizing anyone and everyone to look over your shoulder.

These dynamics might invade private life. Let’s say a restaurant owner wants her customers to follow a rigid dress code, but cannot afford to hire and train staff to enforce it. With the right smart contract, that restaurant owner could pay small bounties to the general public for reporting violators, who would be punished by surcharges or bans. To be sure, if customers didn’t like this regime, they could go to a different restaurant. But not if such norm-enforcement became the standard. We can see how blockchain-based governance might tighten up the pleasant little areas of slackness in life, the “cracks in the sidewalk” where governance cannot reach.

And consider the state. Stalin got citizens to report one another’s disloyalty, but not with the efficiency that may soon be possible. Malicious governance is like a malignant tumor — better kept centralized.

Yet we need benign governance more than ever. It wouldn’t be so bad if more people reported white-collar crimes, or fewer people polluted. Better-structured, more inclusive decision processes might catalyze huge strides for the human species. It would be wonderful to replace parliaments and corporate boards with something better.

Work to Be Done

All told, we need to get to work building blockchain-based governance despite its dangers, because humanity needs to get better at solving collective action problems. It is troublingly hard to imagine our present institutions successfully navigating the challenges of the years ahead, and blockchains might be part of the answer. But there is no room here for irresponsibility: decisions taken now, in the technology’s relatively early days, could have outsize effects. So let’s start a public conversation, think hard about big questions, and make blockchains work for humanity, not against it.

Edited by: Steven McKie