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Why do Public Blockchains Need Formal and Effective Internal Governance Mechanisms?

Published online by Cambridge University Press:  18 September 2019

Karen YEUNG  and
David GALINDO Open the ORCID record for David GALINDO [Opens in a new window]
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Abstract

With the birth and rise of cryptocurrencies following the success of Bitcoin and the popularity of “Initial Coin Offerings”, public awareness of blockchain technologies has substantially increased in recent years. Many blockchain advocates claim that these software artefacts enable radically new forms of decentralised governance by relying upon computational trust created via cryptographic proof, obviating the need for reliance on conventional trusted third-party intermediaries. But these claims rest on some key assumptions, which this paper subjects to critical examination. It asks: can existing mechanisms and procedures for collective decision-making of public blockchains (which we refer to as internal blockchain governance) live up to these ambitions? By drawing upon HLA Hart’s Concept of Law, together with literature from regulatory governance studies, we argue that unless public blockchain systems establish formal and effective internal governance, they are unlikely to be taken up at scale as a tool for social coordination, and are thus likely to remain, at best, a marginal technology.

Type
Symposium on Blockchain Regulation and Governance
Information
European Journal of Risk Regulation , Volume 10 , Issue 2: Symposium on Blockchain Regulation and Governance , June 2019 , pp. 359 - 375
Copyright
© Cambridge University Press 2019 

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Footnotes

*

Interdisciplinary Professorial Fellow in Law, Ethics and Informatics, Law School and School of Computer Science, the University of Birmingham, UK, and Distinguished Visiting Fellow at Melbourne Law School, Melbourne, Australia. Karen Yeung’s research on blockchain governance is partly funded by a Wellcome Trust Seed Award in Humanities and Social Science, “Regulating healthcare through blockchain: Mapping the legal, ethical, technical and governance challenges”, 210337/Z/18/Z. This article is based on a keynote speech delivered at the “Blockchain and Public Policy” conference, University of Groningen, 29–30 November 2018.

**

Senior Lecturer in Computer Security, School of Computer Science, University of Birmingham and Head of Cryptography, Fetch.AI, Cambridge, UK, email: [email protected]

References

1 Bitcoin Cash vs Bitcoin SV: Bitcoin Cash originated as a hard fork of the original Bitcoin blockchain with the main goal of increasing Bitcoin’s ledger block size to achieve higher transaction processing rates. Bitcoin SV, or Bitcoin “Satoshi Vision”, is the latest Bitcoin hard fork that increases the block size of Bitcoin Cash from 32 MB to a maximum of 128 MB, again to achieve extra transactions rates. At the time of writing, the market cap of Bitcoin SV is about one fourth of that of Bitcoin Cash (source coinmarketcap.com). See eg J Magas, “Opposing Bitcoin ABC and Bitcoin SV Factions’ Debates Grow Heated as the Bitcoin Cash Hard Fork Draws Closer” Cointelegraph (2019), available at 〈cointelegraph.com/news/opposing-bitcoin-abc-and-bitcoin-sv-factions-debates-grow-heated-as-the-bitcoin-cash-hard-fork-draws-closer〉 (last accessed 4 July 2019).

2 See for example Rocco, “On Governance: Coordination, Layers, and Structural Integrity” Medium (2019), available at 〈medium.com/alpineintel/on-governance-coordination-layers-and-structural-integrity-81a722ba1bc0〉 and Haon, “Blockchain forks and chain splits: why we should avoid them” Good Audience (2019), available at 〈blog.goodaudience.com/blockchain-forks-and-chain-splits-why-we-should-avoid-them-f54c693a90f1〉 (last accessed 4 July 2019).

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9 See eg P De Filippi and G McMullen, Governance of blockchain systems: Governance of and by Distributed Infrastructure (2018), available at 〈hal.archives-ouvertes.fr/hal-02046787/〉 (last accessed 16 July 2019).

10 This conception of regulation reflects our common practice of referring to the regulation of particular sectors or domains, such as environmental regulation, financial regulation, workplace safety regulation and so forth.

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13 A particularly ambitious proposal is that of “Liberal Radicalism”, that seeks to organise some societal functions purely by algorithms and game-theory: see V Buterin, Z Hitzig and E Glen Weyl, “Liberal Radicalism: A Flexible Design For Philanthropic Matching Funds” (2018), available at 〈papers.ssrn.com/sol3/papers.cfm?abstract_id=3243656〉.

14 Finck, supra, note 4, ch 7.

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20 Walch, supra, note 18.

21 Vidan and Lehdonvirta, supra, note 17, p 10.

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24 Dodd, supra, note 18, p 46.

25 A prominent example affecting the Ethereum network took place recently, in which a scheduled update called Constantinople had to be reversed halfway through its implementation by the network when bugs therein were discovered by a team of academic researchers. The process followed is consistent with the informal governance mechanisms hereby described. See Aniket, “Ethereum Constantinople Upgrade: Things you should know”, Coinmonks (2019), available at 〈medium.com/coinmonks/ethereum-constantinople-upgrade-things-you-should-know-aa75e7655345〉.

26 As Vidan and Lehdonvirta observe, “any live software system is not a static artefact, but an ongoing sociotechnical project”: Vidan and Lehdonvirta, supra, note 17, p 8.

27 Walch, supra, note 18.

28 S Falkon, “The Story of the DAO – Its History and Consequences”, The Startup (2019), available at 〈medium.com/swlh/the-story-of-the-dao-its-history-and-consequences-71e6a8a551ee〉.

29 Finck, supra, note 4, ch 7. Singh and Chopra make a conceptually similar claim by arguing that the inexistence of a universal mechanism to establish the correctness of smart contracts written in a Turing-complete language (such as Ethereum smart contracts) implies the need to take account of social meaning to govern blockchain systems: MP Singh and AK Chopra, “Violable Contracts and Governance for Blockchain Applications”, arXiv (2018), available at 〈arxiv.org/abs/1801.02672〉.

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31 Dodd, supra, note 18, p 45.

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33 See Galligan’s account of the “functions” of law which he ascribes to Hart, and Galligan’s scepticism about them: Galligan, DJ, Law in Modern Society (Oxford, Oxford University Press 2006)CrossRefGoogle Scholar.

34 Hart’s methodological approach rooted in the tradition of analytic jurisprudence has been subject to sustained criticism from a variety of perspectives over time. In particular, to acquire a holistic understanding of modern legal systems, it is important to supplement this analytic approach with a law and society perspective; see for example, Galligan, ibid. Our present purpose in drawing on Hart’s approach is narrow and limited: as an illuminating springboard for a critical interrogation of unified and self-sustaining systems of governance in order to illuminate the promise and potential of public blockchains, rather than necessarily endorsing Hart’s particular theory of law in an uncritical fashion.

35 Hart, HLA, The Concept of Law, 2nd edn (Oxford, Oxford University Press 1994) p 95.Google Scholar

36 ibid.

37 ibid.

38 Hart comments that there is clearly a very close connection between the rules of change and the rules of recognition: for where the former exists, the latter will necessarily incorporate a reference to legislation as an identifying feature of the rules, though it need not refer to all the details of procedure involved in legislation. Usually some official certificate or copy will, under the Rule of Recognition, be taken as sufficient proof of enactment: ibid, p 96.

39 Hart comments that there are intimate connections between the rules of adjudication with the other secondary rules. A system which has rules of adjudication is necessarily also committed to a rule of recognition of an elementary and imperfect sort: this is so because if courts are empowered to make authoritative determinations of the fact that a rule has been broken, these cannot avoid being taken as authoritative determination of what the rules are. So the rule which confers jurisdiction will also be a rule of recognition, identifying the primary rules through the judgements of the courts, and these judgements will become a “source of law”. Although such a simple rule of recognition will be very imperfect and be inseparable from the minimum form of jurisdiction: ibid, p 97.

40 ibid.

41 ibid, p 117. However, Hart warns that the combination of primary and secondary rules does not of itself illuminate every problem, though it is at the centre of a legal system – and as we move away from the centre, we must accommodate elements of a different character.

42 C Kim and N De, “Ethereum’s Constantinople Upgrade Faces Delay Due to Security Vulnerability” CoinDesk (2019), available at 〈www.coindesk.com/ethereums-constantinople-upgrade-faces-delay-due-to-security-vulnerability〉 (last accessed 16 July 2019).

43 Atzori, supra, note 30.

44 Hart, supra, note 35, p 116.

45 ibid.

46 ibid.

47 Walch, supra, note 18.

48 ibid, p 15.

49 The Bitcoin hash-wars offer a lesson in research methodology: the limitations of a purely theoretical approach to blockchain (ie “white paper” analysis) as opposed to one that regards its interaction with the social world and surrounding context as vital and indispensable to a clear-eyed understanding of its operation, potential and limitations. This does not, however, detract from understanding the Nakamoto White Paper as a theoretically robust and elegant proposal to the problem of cooperation between strangers – but its capacity to facilitate the delivery of essential social goods (eg facilitating social cooperation) cannot be evaluated in purely theoretical or technological terms.

50 De Filippi and Loveluck, supra, note 32, p 11.

51 Simpson, TW, “Computing and the search for trust” in Harper, RH (ed), Trust, Computing and Society (Cambridge University Press 2017) p 113.Google Scholar