Blockchain Governance: An Outsider’s Perspective

Commentary

Adriana Z. Robertson is an Assistant Professor at the University of Toronto Faculty of Law and is cross-appointed at the Rotman School of Management. She holds a JD from Yale Law School and a PhD in Finance from the Yale School of Management. She has no financial interests in any cryptocurrencies, or any other crypto- or blockchain-related entities. The views expressed herein are her own.  


On May 1 and 2, 2018, I had the great pleasure of joining some members of the Ethereum community for EIP0. The purpose of the meeting was to discuss the non-technical side of Ethereum governance. I am very much an outsider in this world; I was there because one of the organizers thought that as a law and finance professor, I might be able to offer a different perspective on governance. I don’t know how helpful I was, but I can certainly say that I learned an enormous amount over the course of the two days.

While less well-known than its older and more prominent cousin Bitcoin, the Ethereum blockchain represents a far more flexible platform. Whereas Bitcoin essentially operates as a ledger – intended to facilitate transactions – Ethereum can be used for a variety of applications, including, most prominently, so-called “smart contracts.”[1]

The two days were simultaneously encouraging and alarming. Alarming because while the current market value of Ethereum was roughly USD 80B when this essay was written, its current governance structure is largely ad hoc. To paraphrase one participant, Ethereum has become too valuable too quickly. What made sense for a project where only small sums were at stake just doesn’t work very well when tens – or hundreds – of billions of dollars are on the line.

At the same time, it was encouraging, almost to the point of being downright inspiring. It was immediately obvious to me that there were a lot of smart people at the meeting who genuinely wanted to work towards a more sustainable governance model. As I listened to them discuss the governance issues facing Ethereum, so many sounded like variations on a familiar tune. While some of the issues are new, they are not so fundamentally different from issues that have arisen – and been addressed – elsewhere as to be unrecognizable. This family resemblance means that there is scope for applying existing governance solutions to Ethereum. That is not to say that these solutions need to be – or even should be – adopted whole-hog. Rather, they can, and should, be seen as a menu from which the community can pick and choose, as appropriate. While there was some reluctance to look for solutions outside the community, I was pleasantly surprised at how receptive many participants were to ideas and insights from other contexts. Overall, I left optimistic about the future.

Indeed, some of the central issues that “the Ethereum community” faces are ones that we have seen before, including the very idea of "the community.” Defining “the community” was one of the most difficult issues that was addressed at EIP0.[2] Because decentralization is a fundamental feature of the Ethereum blockchain, the concept of “the community” is incredibly important. Far more so than even other collaborative online projects, Ethereum is emphatically and self-consciously designed to be decentralized,[3] and eschews any kind of centralized decisionmaking. As a result, the only "there" there is a set of individuals, collectively known as “the community.” As such, one can think of Ethereum as a giant governance experiment.

While I recognize that I may not fully appreciate all the nuances of just how central the concept of “the community” is to the project, it became clear to me that there were two separable questions here: (1) the question of who gets to decide things, and (2) the question of whose interests should be considered when decisions are made. These two groups don’t necessarily have to be the same all the time. To this, I would also suggest that there is a third group that also merits consideration: potential future members of "the community.” Ethereum’s potential is still just being explored; the community would benefit from thinking about where it wants to go and not just where it is today.

A second issue that stood out is a deep-seated concern about process. In particular, there was a strong desire to ensure that people outside of the room felt included in the discussion and the process. This desire manifested itself in various ways: from live streaming the daily summaries, to the livestreamed “ask me anything” (“AMA”) on Wednesday morning, to the public meetup on Wednesday evening. These concerns about providing sufficient notice and opportunities to comment have obvious parallels to existing legal and regulatory systems. Indeed much of administrative law is concerned with ensuring that appropriate processes are followed. While administrative law is not the sexiest field, there is a lot of accumulated wisdom there, and I do believe that Ethereum can benefit from taking some of that wisdom and adapting it to its particular needs.

The last thing I took away was a genuine belief that, despite repeated assertions to the contrary, Ethereum already has a constitution. A constitution doesn’t have to be written down and codified to be real. The United Kingdom does not have a written constitution, but that didn’t stop the UK Supreme Court last year from deciding – with no "legal" basis – that “Brexit was just too constitutionally important to be commenced by the Government without legislation.”[4]

Indeed, the term “constitution” has so many meanings and nuances that I hesitate to use it. So what do I mean by “constitution”? At its conceptual core, it is simply the set of fundamental governing principles that underlie the law. More concretely, it is what allows one to say that a particular law or rule is wrong, or inappropriate, or unacceptable. Without a constitution, such a statement is meaningless.

What does this mean in the context of Ethereum? After one of the sessions at EIP0, one of the participants said something to the effect of “the Ethereum protocol is the law.” So I, like any good Socratic law professor, asked:

“Are there ever instances where there is something that is permitted by the protocol, or that is done in accordance with the protocol, that the community nevertheless doesn’t want to allow?”

“Yes,” was the answer I received.

“And in those cases,” I asked, “what happens?”

“It is very contentious,” was the reply, “and the community argues about what to do.”

“Is part of the argument a genuine discussion about whether the community should nullify – undo – this thing?”

“Yes”

“And has there ever been a circumstance where the community has decided to nullify this thing that was allowed by the protocol?”

“Yes”

“Then you have a constitution.” I said.

Indeed, just the fact that the Ethereum community can even have a serious conversation about nullifying something that is “law” means that it has a constitution. The fact that it has actually been used to “nullify” a “law” is just evidence of that. You also don't have to use the term "constitution" – you can call it a statement of values, or anything else. Going forward, it may be useful to try to clarify the contours of these values, as well as a process for how to challenge the “law” (i.e., the protocol) on the grounds that it violates the “constitution” (these values).  

The entire Blockchain space has a serious branding problem, something that was readily acknowledged to me over the course of the meeting. In truth, it is not entirely unwarranted. The space has more than its fair share of hucksters, scammers, and miscellaneous fraudsters. The eye-popping valuations, coupled with the wild price gyrations, make it hard not to think that much of the trading in cryptocurrencies is motivated by a speculative frenzy, and that the “crypto bubble” will eventually burst. And for all its talk of community, most outsiders do not see the Blockchain world, including Ethereum, as being particularly approachable. Rather, the perception is that it is populated by a closed group of people with their own technology, language, and cultural references. And yet, what I found over the two days in early May was a group of people who were desperately looking for ways to safeguard the integrity of a beautiful technology that they have collectively created, and who were surprisingly welcoming of an outsider.

Governance is not something that can be resolved in a few days, and the Ethereum community’s work on this front is just beginning. I don’t know where it is going to end up, but I have no doubt that it is going to be a fascinating journey.  


[1] For a primer on smart contracts on the Ethereum blockchain, see Alyssa Hertig, How Do Ethereum Smart Contracts Work?, Coindesk, https://www.coindesk.com/information/ethereum-smart-contracts-work/ (last visited May 31, 2018).

[2] See, e.g., Rachel Rose O’Leary, New Ideas Energize Ethereum Though True Signaling Solution Still Elusive, Coindesk (May 3, 2018), https://www.coindesk.com/new-ideas-energize-ethereum-though-true-signaling-solution-still-elusive.

[3] For example, the current version of the Ethereum “White Paper” document uses the term “decentralized” 47 times, including once in the title and four times in the first paragraph of the introduction. Ethereum: A Next-Generation Generalized Smart Contract and Decentralized Application Platform, https://github.com/ethereum/wiki/wiki/White-Paper (last visited May 12, 2018).

[4] Timothy Endicott, Lord Reed’s Dissent in Gina Miller’s Case and the Principles of Our Constitution, 8 UK Supreme Court Y.B. 1, 1 (2017).

Recommended Citation

Adriana Z. Robertson, Blockchain Governance: An Outsider's Perspective, Harv. J.L. & Tech. Dig. (June 12, 2018), http://jolt.law.harvard.edu/di....