@@ -0,0 +1,330 @@
4+title: The DAO as a lesson in decentralized governance
6+preview: The DAO as a lesson in decentralized governance
16+# The DAO as a lesson in decentralized governance
18+What's the right lesson for the decentralization community to
19+learn from the collapse of the DAO?
21+Perhaps the simplest lesson is that even decentralized networks
22+need governments, and have governments. Every network is a
23+state. Every state has a government.
25+## Decentralization theater considered harmful
27+In Dijkstra's terms: *decentralization theater [considered
28+harmful](https://en.wikipedia.org/wiki/Considered_harmful)*.
30+*Decentralization theater* means any system that produces not
31+decentralization, but the appearance of decentralization.
33+theater](https://en.wikipedia.org/wiki/Security_theater) is the enemy of real security; decentralization
34+theater is the enemy of real decentralization.
36+A network without decentralization theater is one that admits:
38+- any network is a digital state with a central government.
39+- any new state is born at war with full emergency powers.
40+- limiting and/or eliminating governance is a slow, hard task.
42+TLDR: true decentralization isn't just a technical problem. It's
43+also a political problem, and not an easy one. Believing you've
44+solved it, before actually solving it, is not a way to solve it.
46+## Decentralization and legitimacy
48+Steve Randy Waldman is not alone in pointing out that [a
50+parliament](http://www.interfluidity.com/v2/6581.html). It's
51+just the technical reality that a majority of miners in a
52+proof-of-work blockchain, or stakeholders under proof of stake,
53+have the mathematical power to govern the network absolutely.
55+But this power does not give them the legitimate authority to do
56+whatever they want. Mathematically, the Ethereum miners can
57+easily roll back the DAO. Do they have the *right* to roll back
58+the DAO? As we write, this question is one much debated.
60+We have an easy answer: no. The most basic principle of law is
61+that *pacta sunt servanda*, agreements must be respected. A good
62+clue is that before the DAO hack, everyone swore great oaths to
63+"the steadfast iron will of immutable code." Methinks the lady
64+did protest too much. But these oaths make rolling back the DAO
65+blatantly illegitimate.
67+From a governance perspective, the line of lawlessness isn't the
68+line between soft and hard forks. It's any fork which makes an
69+exception for a specific address. Ethereum has already done this
70+by freezing the DAO contract. At this point, it might as well be
71+hanged for an ox, and go through with the full rollback.
73+## Illegitimacy and belligerency
75+Within the ethos of Ethereum (we are obviously not qualified to
76+comment on "real" law), a rollback is a *lawless act*. This does
77+not make it a wrongful act. It simply cannot be judged as an act
78+of law. Rather, it is an act of war.
80+And judged as an act of war, a DAO rollback is *exactly right*.
81+Ethereum is not dealing with a "participant." It is dealing with
82+a pirate, a thief, *hostis humani generis*.
84+As a state at war with an external enemy, the Ethereum network
85+shouldn't just zero the DAO hacker's booty. It must do all it
86+can to destroy her. If possible, it must dox and report her.
87+The right place for this fool is the supermax, not the Riviera.
89+But does Ethereum really want to be at war? And if Ethereum is
90+at war -- and this certainly isn't the only pirate in the sea --
91+how does it become decentralized? If Ethereum is at war, where
92+there is no law, how can it achieve its goal of creating a world
95+But we really shouldn't panic. It is actually possible to go
96+from wartime government to peacetime government, from absolute
97+martial law to absolute rule of law. It is just nontrivial.
98+It's a political engineering problem that can't be ignored.
99+If it has to be solved, it should be solved properly.
101+What really doesn't work is to declare martial law, execute all
102+traitors, terrorists and enemies of the state, then declare that
103+elections will proceed as scheduled next week. If the goal is
104+the decentralized rule of code as law, a rollback takes an
105+enormous step backward. Reversing this setback isn't trivial.
107+Should Ethereum actually go to war? Or should it just let the
108+hacker win? Clearly, from a pure blockchain perspective, the
109+only correct thing to do is let the DAO burn -- as a painful
110+warning to all future contract authors and participants.
112+At present, it seems that Ethereum's leadership has chosen war.
113+Certainly, neither choice is obviously imprudent. Ethereum is a
114+winner and probably has a bright future either way. But who
115+chooses war needs a plan to win that war, and return to peace.
117+## Sovereignty is conserved
119+For a government to even have the power to consider wartime
120+measures, a government has to exist in the first place.
122+Again, we can't remind ourselves too often that a blockchain just
123+puts absolute authority in the hands of the miners. We just
124+think of this power in terms of the law it's supposed to enforce.
125+But the two are different -- at least in wartime.
127+Why is it so hard to eliminate unaccountable power? Who watches
128+the watchmen? The German legal scholar [Carl
129+Schmitt](https://en.wikipedia.org/wiki/Carl_Schmitt) defined the
130+problem well when he wrote: "the sovereign is who decides the
133+In the American regime, the Supreme Court is sovereign by
134+Schmitt's definition. We have a complex system of laws, which
135+are not formal code but in some ways aspire to be; above it, we
136+have a judiciary system that can decide arbitrary exceptions to
137+those laws. Pure rule of law, Schmitt tells us, is always and
138+everywhere an illusion. We can and should strive to approach
139+this limit, but it's an infinity that we can't actually reach.
141+Schmitt's exception principle can be rephrased as "sovereignty is
142+conserved." There is always someone who answers to nobody. We
143+cannot eliminate government; the best we can do is tame it.
145+One way to think of the problem of reducing exceptional force to
146+zero is to compare it to a simple unstable equilibrium, like a
147+pencil standing on its point. The pencil on its point needs
148+almost no force to stay upright. But the farther it deviates
149+from this orderly, self-sustaining equilibrium, the more energy
150+must be applied to return it to vertical.
152+Vitalik seems to have grasped more or less Schmitt's point:
153+"*Intent is fundamentally complex*... we believe that we value
154+things like 'fairness', but it’s hard to define what fairness
157+If we could define fairness, we would have a rule to which there
158+were no exceptions. We would need no judges, or governments, or
159+even soldiers. We would need no sovereignty. But since we can't
160+define fairness -- yet need to enforce some clear vision of
161+fairness -- sovereignty remains conserved.
163+## Bitcoin, a blockchain at peace
165+Bitcoin has done an excellent job of freezing the war power of
166+its own "parliament." Ironically, mining power in Bitcoin is
167+quite centralized -- a small number of Chinese mining-pool
168+managers, who have every opportunity to collude, could roll back
169+anything. But they never have and they probably never will.
171+Even if a single pool controlled 51% of Bitcoin mining power,
172+they'd have no incentive to break the rules -- quite the
173+converse. We equate physical decentralization with limited
174+governance, perhaps because we think of the physical difficulty
175+of coordination as the main protection against arbitrary power.
177+Bitcoin shows that this isn't true. As far as we can tell,
178+Bitcoin would keep working fine if there was only one miner.
179+This uni-miner would have still have no incentive to corrupt the
180+network -- though another party, such as a real government, might
181+have an incentive to coerce the miner.
183+The important success of Bitcoin is the collective acceptance --
184+mathematically false, but politically true -- that rollbacks are
185+Bitcoin are inconceivable. Bitcoin has governance problems, but
186+they're confined to relatively unimportant questions, like the
187+blocksize debate. "Decentralization" may not be quite the word,
188+but somehow Bitcoin has achieved limited government. The pencil
189+is standing on its point. For now.
191+## Ethereum's dilemma
193+A rollback creates a scary precedent. It's a sort of military
194+coup. Just as the miners have the power to rule any blockchain,
195+the military has the power to rule any country. Do they want it?
196+The first coup makes the next coup much easier. Same with the
199+In retrospect, the great mistake here was that Ethereum didn't
200+know it needed a government, and did its best to pretend it
201+didn't have one. After a rollback, Ethereum doesn't just have a
202+government. It has a military dictatorship.
204+Ethereum and Bitcoin are qualitatively different. Bitcoin has a
205+simple UI metaphor: cash. Everyone knows how cash works. A
206+smart contract has its own UI metaphor: law. But as we see,
207+mechanically administered law, law without judges, is a very
208+different thing from ordinary human law.
210+What the DAO shows is that Ethereum just wasn't ready to be
211+decentralized. It was not ready to allow a $150 million contract
212+with no supervision or appeals process. The problem was not
213+Ethereum's code per se -- although Solidity doesn't seem terribly
214+well designed for preventing these pitfalls -- but the human
215+understanding of its capabilities and limits.
217+A rollback acknowledges this. It acknowledges that Ethereum
218+wasn't ready for complete self-government, and *someone* needed
219+to have stopped the DAO from trading. It's not quite clear what
220+the principle behind the rollback was
222+Perhaps the best kind of DAO rollback would be a rollback which
223+understood this error fully, and acknowledged that -- for the
224+moment -- Ethereum needs a sovereign government, with the power
225+to restrict and/or steward contracts.
227+Contracts are not payments. They are infinitely more complex.
228+They will keep blowing up. Ethereum is full of buggy contracts,
229+scammy contracts, ponzis and casinos, etc. A governed Ethereum,
230+in the present state of the technology, might well choose to vet
231+all contracts centrally *before* they started trading.
233+Would this be a permanent feature? Certainly not -- it would be
234+a way for the community to collectively define a good contract.
235+Once we know what a responsible, well-tested, non-scammy Ethereum
236+contract looks like, it's much easier to return to the principle
237+of _caveat emptor_ and let good contracts outcompete bad ones.
239+But after the DAO hack, how does anyone trust any contract?
240+Arguably, Ethereum is ready to be decentralized only when users
241+are able to make this decision rationally, and get it right.
242+This work simply hasn't been done.
244+Perhaps the worst-case scenario is one in which Ethereum approves
245+the hard fork, on the "just this once" principle. To save the
246+country, we need a military coup. But don't panic! "After
247+executing all traitors and enemies of the people, the generals
248+will immediately restore democracy and the rule of law."
250+The "just this once" fork takes us back to decentralization
251+theater, where Ethereum pretends not to have a government. But
252+now, this pretense is even more threadbare. The next hack, which
253+will certainly happen, will produce yet another coup -- or at
254+least a food fight over whether to have a coup. This is the path
255+to a "digital banana republic," where the tattered illusion of
256+law barely conceals the real law of nature.
258+The bottom line is that if a rollback happens once, we can expect
259+it to happen again. This time, the rollback can be treated as an
260+act of war, and no process is necessary. Next time, there needs
261+to be a process -- or the dream of code as law will drift further
264+Having a central government isn't inconsistent with the ultimate
265+objective of eliminating central government. Certainly, before
266+Ethereum was released, its developers were its government. Every
267+government is born in a state of chaos and war.
269+The mistake is just in thinking something as complex as Ethereum
270+can jump directly to decentralization in a single step. The
271+pencil is not standing on its point, or anywhere close. Before
272+anyone can think about letting go, someone needs to actually lift
273+it. To reach law, first enforce peace.
275+## Constitutional structure
277+One of the governance problems of blockchains, related to the
278+fundamental error of decentralization theater, is the failure to
279+build deliberative institutions on top of the "parliament of
280+miners." Voting by proof of work is great, especially if the
281+majority is well above 51%, and can demonstrate its strength
282+without an actual hashing race. It's a good way to finalize
283+decisions. But not a good way to make them.
285+But blockchain governance would be considerably improved if the
286+miners actually had a formal way to delegate their power to a
287+structured institution that represented them. Both Bitcoin and
288+Ethereum have foundations and/or core teams, but authority in
289+these institutions isn't tied in any way to actual mining power.
290+Informal politics fills this void with personality cults and
291+eloquent blogposts, all hoping to create collective agreement
292+among the actual voting miners.
294+History shows this is not a great way to run a railroad.
295+Misalignment between a fundamental power, like the miners, and a
296+group purporting to represent them, like the foundations, is
297+inherently dangerous.
299+What's the alternative? An actual constitution. Perhaps the
300+first smart contract that Ethereum needs is not the DAO, not even
301+well-engineered, high-quality smart contracts like Augur and
302+Maker, but just its own equivalent of 1789. If Ethereum needs a
303+government, it must govern itself. It certainly has all the
304+technical tools it needs!
306+Or, of course, it could just let the hackers win. This is the
307+easiest path. And in the end, it may still be the best. War,
310+## A quick Urbit plug
312+Technically, Urbit needs governance much more than Ethereum.
313+Decentralization remains our goal -- but it's a long-term goal.
314+Decentralization theater has never even been a temptation. It's
315+just technically impossible.
317+For example, until the Urbit OS and language (Arvo and Hoon) are
318+frozen and perfect -- which, unlike Nock, will take a while --
319+Urbit is still "evergreen" -- it still needs automatic hotpatches
322+Whatever institution signs these updates is, by any standard, an
323+absolute government. It's as if the Ethereum Foundation could
324+push a hardfork of all clients by signing the new code on the
325+blockchain. Getting out of this situation is a long-term goal --
326+where "long term" means years. Decentralization is hard.
329+constitution](http://urbit.org/posts/constitution) and our
330+[beliefs and principles](http://urbit.org/posts/principles).