The Ethics & Governance of Decentralisation

in innovation, crypto, politics

Decentralised systems have the power to transform the way that we live and do business. Up until a few years ago if you wanted to start a company you needed to do it in a particular jurisdiction, usually a country. Today, using the Ethereum network you are able to start and manage a company, mint your own coin & create secure ways to vote on key topics without having any one country's backing. Disputes are reconciled by impartial smart contracts - bits of code that make decisions in a computational way, arbitrated by thousands of nodes based around the world. If one of the nodes goes down it doesn't matter - others will pick up the slack.


The distribution of Ethereum nodes, from Ethernodes

Decentralisation & Anarchy

The debate around decentralisation from a political standpoint isn’t new. The political philosopher Alexis de Tocqueville wrote in 1840 that:

Our contemporaries are constantly excited by two conflicting passions; they want to be led, and they wish to remain free: as they cannot destroy either one or the other of these contrary propensities, they strive to satisfy them both at once. They devise a sole, tutelary, and all-powerful form of government, but elected by the people. They combine the principle of centralization and that of popular sovereignty; this gives them a respite: they console themselves for being in tutelage by the reflection that they have chosen their own guardians.

Modern governments work because they combine elements of centralisation and control - they hold the monopoly of the legitimate use of violence, for example - with decentralised rule: you are able to decide who is in power with a democratic vote. What de Tocqueville highlights, though, is the need for both elements of governance. A purely centralised government leads to tyranny and an exclusively decentralised government leads to anarchy.

Unrestricted decentralisation is a threat for government - and decentralised currencies and tokens are no different. In the past few days China has legislated for a “comprehensive ban” on crypto currency exchanges. This ban is seen by many as an inevitable outcome of an innovative technology moving quickly; it’s easier to ban that to regulate, but eventually the technology will prevail. However, the problems with decentralisation run much deeper than this - something that de Tocqueville predicted in the mid 1800s.


Alexis de Tocqueville - The first crypto philosopher?

Decentralisation creates a moral vacuum

The reason political systems have evolved to have elements of both centralised & decentralised systems is because decentralisation on its own creates a world that is just as tyrannical, cold and morally ambiguous as the most despotic dictator. In Ethereum’s short life we’ve already seen examples of this. For example, The DAO - a digital decentralised autonomous organisation - was created in May 2016. It raised more than $150 million, with the aim of distributing funds to ventures that people could vote on.

In June 2016 a hacker stole around $50 million of the DAO’s funds. Though there is still dispute as to who was behind the attack - a note supposedly from the hacker read:

I am disappointed by those who are characterizing the use of this intentional feature as "theft". I am making use of this explicitly coded feature as per the smart contract terms and my law firm has advised me that my action is fully compliant with United States criminal and tort law. For reference please review the terms of the DAO
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In one sense they were right - in a decentralised network the only truth is what is in the smart contract. One of the critical elements of a judicial system - discretion - is removed, and every decision is subject to the cold and calculated world of computer as judge and jury.

Whilst the attacker of the DAO undoubtedly abided by the rule of the law (i.e they didn’t attempt to change the DAO to remove the funds, they simply exploited a well known vulnerability) they did not abide by the spirit of the law which can be characterised as: don’t take things that aren’t yours. The Ethereum community agreed that a “hard fork” should take place - reversing the transaction that allowed the attacker to steal the cash and reversing the currency. This fork created two currencies: “Ethereum classic,” the original currency with the theft in place and “Ethereum” which returned the tokens to their rightful owners. Vitalik Buterin, the creator of Ethereum wrote in July 2016 that:

We would like to congratulate the Ethereum community on a successfully completed hard fork. Block 1920000 contained the execution of an irregular state change which transferred ~12 million ETH from the “Dark DAO” and “Whitehat DAO” contracts into the WithdrawDAO recovery contract.
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As Alexis de Tocqueville noted, the best systems of governance has elements of both centralised & decentralised systems, perfectly executed in the DAO example. Though many would argue systems like Ethereum are completely decentralised, in order to avoid morally dangerous outcomes there needs to be regulation and decision making that comes from trusted gatekeepers. A world of complete decentralisation leads to anarchy.

The future of decentralisation

Decentralised technologies are here to stay, but in their current form simply aren’t compatible with the ethical requirements of a civilised society. Regulation isn’t bad - bad regulation is bad - and turning a blind eye to systems trying to revolutionise the way that we do the most fundamental things in our lives isn’t the answer. There must be an interplay between governments and decentralised systems - to ignore either isn’t utopian: it’s dangerous.