Primavera De Filippi may be a permanent researcher at the CERSA/CNRS/Université Paris II, a school associate at the Berkman-Klein Center for Internet & Society at Harvard school of law , the “alchemist” for DAOstack and a co-author of “Blockchain and therefore the Law.”
Much discussion is currently happening concerning the character and specificities of blockchain governance, but once we say “blockchain governance” we’re really talking about multiple things.
While people often use the term to explain the mechanism by which the underlying protocol of a blockchain-based network are often modified or updated – in terms of both on-chain and off-chain governance – we focus here on a way broader question:
What are the varied elements or forces that influence the governance of blockchain-based networks or applications?
Harvard professor Lawrence Lessig identifies four different forces that influence behavior: law, social norms, markets, and architecture (i.e., technical infrastructure or code). In doing so, he underlines the very fact that we cannot focus solely on the principles specifically designed to control or regulate one particular individual.
Rather, we’d like to require a bigger ecosystemic approach, watching various forces that influence that individual. Accordingly, when it involves promoting or precluding certain behaviors, we’d prefer to directly regulate individuals via the system or indirectly regulate them through one among the opposite three forces (markets, social norms, and architecture).
Lawrence Lessig’s four constraints of regulation
We propose such an ecosystemic approach to spot the various levers that would influence the operations of a blockchain-based system and therefore the extent to which these levers contribute to the broader notion of “blockchain governance.”
Blockchain-based applications don’t exist during a vacuum. They subsist within a bigger ecosystem of internet applications, each operating consistent with its own protocols and rules.
The internet layer
In particular, the operations of a blockchain-based system – whether it’s a blockchain-based network, platform, or application – are defined by the principles that govern these systems but also answer the various layers of the web infrastructure, which to a special extent contribute to shaping the systems’ overall governance.
Specifically, blockchain-based networks like bitcoin and ethereum operate top of the web and ultimately depend upon protocols just like the TCP/IP, which is liable for routing and transferring packets of data between different nodes on the network. These blockchain-based networks thus cannot operate without internet connectivity.
Most critically, because internet service providers (ISPs) ultimately control the transportation layer of the web , they might discriminate against packets coming from or directed toward a blockchain-based network, effectively tampering with its operations.
Internet governance can therefore have a big impact on the operations of a blockchain-based network. Particularly relevant during this context is that the “net neutrality” debate. The practice of packet discrimination makes it possible for ISPs to favor certain blockchain-based networks, at the expense of others.
More radically, if a government were to ban a specific blockchain-based network, it could require all ISPs operating within its national boundaries to dam or filter traffic coming from or directed thereto network – e.g., through mechanisms like deep packet inspection (DPI) or other traffic detection techniques.
Accordingly, while internet governance is external to the blockchain ecosystem (in that its scope is far broader), regulating the web infrastructure could indirectly affect the operations of a blockchain-based system.
The blockchain layer
Similar problems emerge within a singular blockchain-based network.
While ISPs are liable for routing packets through the web , consistent with specific protocols (e.g., TCP/IP and BGP), miners on a blockchain-based network are liable for validating and recording transactions into the underlying blockchain, consistent with a specific protocol (e.g., the bitcoin protocol), consensus algorithm and fork-choice (e.g, bitcoin’s proof-of-work protocol stipulates that miners should increase the “longest chain” as defined by the quantity of hashing power required to compute the chain).
Today, this task of processing transactions is driven mostly by an economic incentive system, whereby the upper the transaction fees paid to the network, the greater the prospect for these transactions to be included into subsequent block.
But transaction fees and mining rewards – albeit a fundamental incentive for miners – aren’t the sole factors which may influence the behavior of miners. Other levers might inherit play, stemming from the surface of the blockchain infrastructure.
Markets: What would prevent an outsized mining pool from getting into an (off-chain) agreement with third parties, so as to hurry up the inclusion of certain transactions at the expense of others?
Social norms: Could miners collectively agree that specific transactions coming from or directed towards a criminal dapp [decentralized application] won’t be processed into a block?
Laws: Could regulators stipulate that each one miners located especially jurisdictions are prohibited from validating transactions concerning a selected dapp or account?
Architecture: Might the good Firewall of China be constructed to limit the power of miners in China to handle larger blocks?
These external forces, existing beyond the control of any given blockchain-based application, could force radical consequences over the operations of that specific dapp.
The application layer
It becomes clear that the governance of a specific blockchain-based network could directly or indirectly affect the operations of a specific blockchain-based application running on top of that network.
Even if dapps are often designed to be completely autonomous—in the sense that no single party has the facility to regulate or influence their operations—they remain suffering from the operations of the underlying blockchain network and therefore the specific set of protocols that establish its routine .
The governance of a blockchain-based network might be leveraged toward censoring a number of the transactions directed to those dapps, or maybe altering their operations by modifying their code through a tough fork.
This is precisely what happened after The DAO hack, when 3.6 million ether were drained from The DAO’s account thanks to a code vulnerability. The ethereum community responded by intervening with a coordinated action to switch the ethereum blockchain protocol. By transferring funds from The DAO to a different smart contract, a mechanism was provided for returning the siphoned funds back to the first owners.
This extreme remedy has been heavily criticized. Some saw it as a betrayal of the “immutability” and “incorruptibility” of the ethereum blockchain (i.e., the “code is law” paradigm).
The multi-layered governance stack of blockchain-based applications
Going deeper into the stack, there are the varied blockchain-based platforms on top of which individuals can deploy their own dapps.
Some dapps sit directly on top of a blockchain-based network. for instance , Gnosis is implemented as smart contracts on the ethereum blockchain. Others are deployed on top of a dapps framework like DAOstack, which implements its own protocols for creating and maintaining dapps.
While most decentralized blockchain-based applications accompany their own sets of rules, they also depend and thus must follow the principles of the platform on which they operate. this might produce to 2 distinct sorts of problems.
One is that if there’s a flaw in one among these smart contract platforms, the flaw will affect all blockchain-based applications that believe the platform. Recall the bug in Parity’s multisignature smart contracts, which led to the theft of over $30 million worth of ether, followed by a subsequent attack on Parity’s revised multisignature smart contract code, which had been delivered to “selfdestruct,” thereby freezing the funds altogether multisig wallets that trusted this shared code.
Another problem emerges by construction, when platforms implement “proxy” contracts that delegate calls to other smart contracts, which may be updated by the platform developers. While such practices are still uncommon, some platforms (e.g. Zeppelin Solutions) are beginning to experiment with proxy libraries in order that , whenever one among the underlying functions is modified , all dapps counting on these libraries will automatically inherit those changes.
While this provides many benefits in terms of flexibility and upgradability, such a design are often problematic to the extent that it relies on a trusted authority (i.e., the smart contract platform operator) that would arbitrarily influence the operations of those so-called decentralized applications.
(Note that the DAOstack framework doesn’t actually provide such a feature. The set of smart contracts provided by the framework, once deployed, can’t be arbitrarily changed by the platform operators. While DAOstack might, over time, offer a series of upgrades to a number of the platform’s smart contracts, these upgrades can’t be automatically implemented without the consent of the platform’s users.)
With this in mind, we’d reframe our understanding of “blockchain governance” to incorporate not only the principles specifically meant to manage the operations of a specific blockchain-based network or application, but also the principles that contribute to regulating the underlying infrastructure on which these blockchain-based systems operate – which themselves operate top of another infrastructure, and so on.
As the saying goes, it’s turtles all the way down.