Blockchain Governance: Redistributing Societal Interactions and Institutions - A Research Agenda

Andrea Leiter

Published in

Crypto Law Review

12 min readOct 30, 2019

Outi Korhonen, Delphine Dogot and Andrea Leiter[1]

Introduction

Blockchain technology has arrived in mainstream academic circles and understanding its implications for societal organization has become a major task. Blockchain attracts attention and invites original applications because it reignites debates that heretofore were considered settled. Its premise of decentralization calls to think about what decentralization looks like; how it should be measured; and what role would be left — if at all — to the traditional centralized institutions. The advent of Bitcoin has put the question ‘What is money and who gets to control it?’ front and centre. And our contemporary legal system is seemingly unable to fully process the introduction of autonomous, self-executing pieces of code, now also understood as smart contracts. Should we think of them as a legal contract or as a new corporate form, and should they have legal personality?

What is at stake in these analogies? Which laws should govern them? How should law govern them? And what is the legal system of the Internet of Value?

One way of addressing these questions is to think of blockchains as jurisdictions with various modes of governance.[2] In its broadest sense, governance stands for the rules pertaining to the distribution of control and of assets. Different blockchains allow for multiple transactions among participants, which take part on the foundational level that organizes the relationship between developers, operators, and users. But the interaction takes part also on the level of defining the premises of interoperability and app development. In various ways, they shape modes of social engagements — publics, audiences, and communities.[3] The consequences of these new modes of communication may be interpreted as innovative designs for social interaction and engagement, as new institutions and political communities. Currently, the debate is framed in the language of on-chain and off-chain governance and the respective possibilities and disadvantages of each. What is bound up in this debate are the main themes of blockchain technology, namely rational choice theory, game-theory incentive structures, and absolute formalism; and, in general, the social philosophies of the rising actors.

The former ideas have appeared in different iterations over the past century and have played a significant role in societal ordering. Consequently, they also had their share of scrutiny in various disciplines. The rise of the new technologies (distributed ledger technologies and blockchain) fuels socioeconomic changes as we speak.[4] It is no longer a question of whether they should be accepted and integrated but how regulatory schemes can support the socially and economically sustainable developments and counteract rampant digital globalization.[5]

There are those who think that existing legal policies should be brought to cover the new phenomena and where they fail, a ban is the best policy. On the other end of the spectrum are those who think that law as we know it is useless in governing the new phenomena. Between the extremes lie different approaches that envisage some bans and some facilitations seeking support for existing legal tools from the code (‘as law’) or the culture of coders (those who control the functioning of the internet, DAOs, etc).

The State of (Critical) Play

Although there is much scholarship and many events on emerging technologies and law, the critical theory-based approaches are not commonly available. Our workshop was a unique opportunity to map the various critical theory or general critical takes on law and emerging tech debates. As with many other emerging academic discourses that foreground new buzzwords such as blockchain, the debates concern the very grounds of the debate which often tend to be quite polarized.

The existential question — whether any new debate or discourse is taking place, or if this is the old debate with the old postures in a new guise — commands a lot of room and, as critical traditions tend to implicate, will never be put to rest. We consider it one of the main tasks of our project to discuss and posit what can be grasped in old terms and what should be treated as genuinely new. The critical trope/move? of bringing the discussion back to its historical and ideological roots has an important role in checking any hype-induced false consciousness that new techie concepts may introduce.[6] Therefore, it is important to take the starting point of our mapping of the critical takes on blockchain governance and law as a conditional axiom; although we must prepare ourselves to take stances on the implication of the economic, market, finance, corporate and public sector changes and challenges that are emerging from technology’s push, the newness of the stances and takes remain ’iffy’ with the appropriate existential challenge (anxiety) attached.[7]

This conversation is already taking place and could be mapped along the lines of Digital Realism vs. Hope Camp. Digital realism considers the law of the internet as unnecessary as the law of the horse; and thus, our existing regulatory tools and policies can be brought to bear on any novel issues through the correct analogies and tests (e.g. the Howey test).[8] The obvious risk of digital realist postures and historical ’reductionism’ is that they may appear as conversation stoppers lulling us to one of two unproductive positions: Either that we already know the answer to every issue that may arise with these technologies and we will take care of them in the course of familiar legal policy making, or, that the available ideological positions were exhausted in history long ago and there is nothing to do beyond our existing political engagements.

On the other side we can identify something like a discourse of hope. The blockchain optimists have become known by the futurological concept of “The Blockchain Society” as espoused e.g. by Swan.[9] The hope-camp argues that the destabilization and the alternativization made available in the financial market as to currency, value transfer and financing (e.g. through ICOs)[10] empowers the small and the medium-size actors and distributes economic/financial opportunity both vertically and horizontally.[11] In the extreme, this position creates a sort of ’Happy Wild West’ scenario while in the more realistic variations the proponents of these views emphasize the growth of micro-loans, the emergence of small and limited pathways to circumvent monopolised banking and financing sectors, the avoidance of e.g. extortive transfer fees for cash remittances (e.g. through Thomas Cook, Western Union etc) etc. The next level of the hope-discourse argues that the very opening of the discussion and the possibility of the destabilization of fundamental concepts of capitalism, e.g. money, asset, sovereignty, property, contract, is already a welcome achievement that undergirds the push to rethink capitalism, the corporate revolution, and the transformative business movements. The destabilization argument is affirmed by the fears of the US Federal Reserve and the banking sector publicly expressing concern, respectively, for the destabilization of the dollar (in connection e.g. to the Facebook crypto initiative) or the destabilization of the private banking sector if the public central banks will join Sweden in issuing a digital currency operable through private person’s accounts in the central banks, without the intermediation by commercial banks.[12]

For the moment we would like to insist on the positive potential, arguing that — regardless of the risk of ideological capture — it is important to seek ways and openings to support the progressive, disruptive energies of the emerging tech ’movements’ that are gaining ground and popularity. This can be justified by looking back on the enormity of changes brought about by the so-called Internet 1.0 and the Some-Internet (2.0). Their impacts are still unfolding and many of them, e.g. the exploitation of the mining of personal data and big data, came as unwanted surprises to all strata of society.[13] Consequently, there is a need to prepare and get involved in large-scale governance efforts to support the progressive redistributional potential and undercut the negative Elephant-curve-precipiting trends.[14] However, we believe that our training allows us to combine the classical critical move of seeking familiar points of entry with a genuine commitment to searching for the progressive potential.

With that caveat, we find ourselves in a situation in which we are implicated in defining the direction that the governance of emerging technologies takes in domestic, regional and global contexts. There is no ’us versus them’, no ‘inside versus outside’ and consequently we want to pick up the responsibility of shaping the governance discourse.

Points of entry

The questions testing the societal limitations and potentials of the institutional changes that blockchain and other emerging techs will bring about include, e.g. What difference do they make in terms of redistribution? What is their social usefulness? Which differences and improvements are we likely to see in our social institutions — including law, public and private organisations, local and global?

Trust or hyperformalisation

The cryptocurrency movements, started by the creation of Bitcoin and the Nakamoto White Paper (2008),[15] foregrounded the concept of trust in society.[16] It is based on the hyperformalization of private law relationships achieved through taking the human discretion out the legal and social interactions as promised by the ’trustless’ or no-fraud utopia. Depending on the debate, the fundamental importance of changing the social dynamics of trust is made in either negative or positive terms. In the negative mode, the argument states that blockchain technology with its ’absolute’ transparency and immutability, does away with the need of inter-personal/human trust in economic transactions. The algorithm and the code are pre-ordained to execute tasks that, in the old economy, required a period of escrow, during which a trusted ’man’/party/account holds and verifies everything before an exchange is completed. These intermediaries that hold, guarantee, supervise and oversee are needed no longer even in exchanges across the globe — the algorithm executes and cannot be stopped or intermeddled to change what was agreed.

In the positive version, the impact on trust of the blockchain revolution can be expressed in the reverse that the non-human, self-executing, transparent and automatic execution of algorithmic governance of e.g. exchange or transfer of value creates ’absolute’ or, at least ’super-human’ trust in society while it does away with fraud and corruption. Ultimately, the positive trust-rhetoric elevates the code, the algorithm, the math onto the level of God, who will not fail us like the untrustworthy, self-interest driven, unstable humans. There is a certain parallel to constitutional processes whereby the idea of God is replaced by good laws. One of the most famous examples is the 1789 State Constitution installing ‘a government of laws, not of men.’ This techno-positivity is familiar and popular; and the blockchain debate takes its proponents to a new level of technological advancement.[17] The softer version of the trust-discourse attaches to changes in ’the environments of trust’. It proceeds from the observation of social alienation and exclusion, democratic and social apathy, frustration with institutions, increased automation, self-service, the elimination of the human from social processes, public services and administration, the explosion of the digital interaction in social media at the cost of the corresponding disappearance of human contact and intimacy, the intensifying replacement of human employees with robots, the loss of workplace and colleagues and the ideological backlash against migrants. All of these phenomena have profoundly affected the sense of belonging.

The positive argument for blockchain communities and decentralized autonomous organizations is their promise that disenfranchised people will have somewhat more control on how and what kind of communities will be built digitally to substitute for the loss of belonging. The underlying thinking is that the move of life to digital environments is presently only architectured by public and private central actors — governments, those with means — and that through distributed architectures and decentralized governance the disenfranchised people would have more influence on the design of the digital environments where community and belonging may be supported.

Human-nature-tech relationship

This touches on a different possible point of entry for the debate on critical theory-based stances toward emerging tech, namely their societal consequences and the implications for the regulator. Blockchain technology made possible the long-awaited seamless linking of digital networks of a great variety across institutional domains. These new possibilities of relating could be investigated with a focus on the form and primacy of human relationships. For instance, if our governance efforts support decentralized, distributive organisations in the cyberspace, how does it impact intimacy, person-to-person contact, Merleau-Ponty’s concern for le chair du monde. Furthermore, the looming environmental catastrophe demands a reconsideration of our anthropocentric understanding of reasoning and decision-making. The internet of things, algorithmic governance, artificial intelligence and the legal personhood of self-owning forests (see e.g. Terra0 or Nature 2.0), waters and seas stand to challenge, if not our fundamental philosophical views, at least our regulatory options. If the social institution of law changes to accommodate such legal persons and their (inter-)relationships, the effects to the debates of anthropocentrism, biocentrism, ecocentrism, humanism, subalternity, the I-Thou-relationships, and, thus, existential ethics (moral theory) will be felt.

Distributed complex cooperation

Another possible move would be to take the claimed virtues of the ’blockchain revolution’, e.g. redistribution, decentralization, privacy and property back to early capitalist social ideas and expose their liberal nature together with the critique. Fantasies of neutral, self-ordering complex systems organised through something as simple as the price mechanism have inspired most of 20th century thinking in the (neo)liberal tradition.[18] As Bitcoin and the hundreds of Initial Coin Offers (ICOs) creating different sorts of tokens and crowd-funding schemes demonstrate the blockchain technology established and continues to fuel a new kind of a global incentivization mechanism for cooperation of various kinds.

The Minimalist Take-Home on the Critical Tech Debate

It seems to us, with all the initial caveats expressed above, that we cannot ignore, defer or step aside from facing the question what kinds of social changes we can and want to support by governance and regulation while the new tech permeates the physical and virtual space in our homes and our lives. Whichever positions, argument and ideological strategies we choose, we need to have a sense of the changes — their light and dark scenarios — that emerging techs, like blockchain, promises.

[1] These are results from a workshop held in Paris on 14 September sponsored by the Faculté Libre de Droit, UC Lille, Paris Campus and the Institute for Global Law and Policy, Harvard Law School. We thank these institutions and especially our colleagues for their generous contributions and are grateful for the collective thinking effort.

[2] Goldenfein, J. and A. Leiter, ‘Legal Engineering on the Blockchain: ‘Smart Contracts’ as Legal Conduct’ (2018) 29(2) Law and Critique 141.

[3] DuPont, Q. ‘Experiments in Algorithmic Governance — A History and Ethnography of “The DAO,” a Failed Decentralized Autonomous Organization’ in Campbell-Verduyn, Malcolm (ed), Bitcoin and Beyond: Cryptocurrencies, Blockchains, and Global Governance (Routledge, 2017) 157. See also Dallyn, S. ‘Cryptocurrencies as Market Singularities: the Strange Case of Bitcoin’ 10 Journal of Cultural Economy, 462.

[4] See e.g. World Economic Forum, ‘The Future of Financial Infrastructure: An Ambitious Look at How Blockchain Can Change Financial Services ‘(August 2016).

[5] For instance, the most patents in the field are sought by the largest global companies, see e.g. Loney, M. ‘China Companies Dominate Global Blockchain Patent Rankings’ Managing Intellectual Property (13/5/2018) 1.

[6] See e.g. Corradi, F. and P. Hofner, ‘The Disenchantment of Bitcoin: Unveiling the Myth of a Digital Currency’ 28 Revue Internationale de Sociologie (2018), 193.

[7] See e.g., Karlstrom, H., ‘Do Libertarians Dream of Electric Coins? The Material Embeddedness of Bitcoin,’15 Distinktion: Scandinavian Journal of Social Theory (2014), 23.

[8] See Uffer, F. ‘Application of the Howey Test to Cryptocurrencies’ (blog post March 11, 2019), available at https://jolt.richmond.edu/2019/03/11/application-of-the-howey-test-to-cryptocurrency/.

In the Howey case (1946), the US Supreme Court defined that an investment contract exists if there is a contract, transaction, or scheme and the following elements are present: (1) a person invests money (2) in a common enterprise and (3) is led to expect profits (4) solely from the efforts of the promoter or a third party.

[9] Swan, M., Blockchain: Blueprint for a New Economy (O’Reilly, 2015).

[10] Kerri, V., Initial Coin Offering Market Cycle and Investor Returns, Aalto University Master’s Thesis (2018), available at https://aaltodoc.aalto.fi/handle/123456789/36437.

[11] See e.g.: Nakamoto, Satoshi, Brekke, Klara and Bridle James, The White Paper (Ignota Books, 2019).

[12] See, Browne, R., ‘Facebook Libra Cryptocurrency A Catalyst For Reform, Swedish Central Bank Chief Says’ (CNBC 15 October 2019), available at https://www.cnbc.com/2019/10/15/facebook-libra-cryptocurrency-a-catalyst-for-reform-swedens-riksbank.html; also Sveriges Riksbank, ‘E-krona project’ Report 2 (26/10/2018) at https://www.riksbank.se/en-gb/payments--cash/e-krona/e-krona-reports/.

[13] Pasquale, Frank, The black box society: the secret algorithms that control money and information (Harvard University Press, 2015).

[14] See e.g. United Nations. Leaving No One Behind: The Imperative of Inclusive Development. Report on the World Social Situation 2016 (2016).

[15] Nakamoto, Satoshi, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ (Whitepaper, bitcoin.org, 31 October 2008).

[16] For an account of the blockchain space focusing on the notion of trust see: Werbach, Kevin, The Blockchain and the New Architecture of Trust (MIT Press, 2018).

[17] Werbach, Kevin, ‘Bitcoin Dreams’ (2019) (20 August 2019) L.A. Review of Books.

[18] Slobodian, Quinn, Globalists: The End of Empire and the Birth of Neoliberalism (Harvard University Press, 2018).