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Reporting back from the Blockchain Workshops at MIT and Harvard

Or, how I learned to stop worrying and love the cuddly crypto critters.

Last weekend at MIT and Harvard there were blockchain workshops. Both lawyers and coders are, I’m quite certain, nerds. Often however they belong to rival tribes of nerdom. Lawyers from the land of limited-liability, and coders from the land of automate-all-the-things, and both maxims can come with a collateral-consequences-be-damned mentality. And so it was with great pleasure and some surprise that we participants of these workshops found our diverse powers of nerding far from at odds and, instead, collectively we awkwardly groped towards a singular nerdy vision of the future: the DAO or Decentralized Autonomous Organization.

The what? Simply put a DAO is built from the collaborative efforts of its many participants whose decisions and incentives are mediated through an open but trustworthy network protocol built with mathematical concepts from cryptography. By this rubric, Bitcoin is the first DAO: Bitcoin is collaborative: It’s able to do things because of the contributions of many individuals acting in concert and under their own volition. People choose to run bitcoin software and their efforts combined with thousands of others make the network work. It’s P2P.

Bitcoin users make decisions: a miner can validate transactions, or refuse to validate them. Miners can time-stamp transactions by putting them in blocks. Wallet-users can ask to have funds transferred, and can send messages. Bitcoin users have incentives: miners are rewarded for completing blocks. Incentives and Decisions are mediated: incentives are offered (mining rewards) and decisions reached (addition of a new block to the chain) by a process of finding consensus across the network. Bitcoin uses cryptography: certain actions are forbidden (signing a transaction to send coins you were never given)  and consensus is reached (accepting new blocks) by adding costs to selfish or fraudulent action. Costs are generated by demanding solutions to difficult or impossible mathematical puzzles taken from cryptography. But I’ve put the crypto-cart before the crypto-horse. Fundamentally, any DAO (irrespective of how it works) is just a tool for accomplishing some work. Bitcoin, for example, accomplishes something specific: it allows participants to exchange verifiably scarce tokens online. Should people choose to value these tokens it allows participants to transfer wealth through the series of tubes. Hey presto, work accomplished. And it turns out Bitcoin may be just the beginning. By arranging these technologies, decisions, and incentives a bit differently (essentially just tweaking and interconnecting various software modules) DAO’s can be configured to create voting structures, tokenized identification tools, open trading platforms for equity in corporations, automated rewards for contributions to collaborative software projects, the list goes on. This diversity is promising, but it also presents those in contact with regulators and policymakers with a dilemma: How can we create government good-will towards technologies so diffuse, far ranging, and built upon simpler and perhaps less positively perceived foundations (for many Bitcoin is still viewed as a mere tool for buying drugs).

Conversations generally spilled into local Cambridge bars in the evenings. Focus generally shifted to skynet becoming self-aware, the virtues of mullets, and marmots or other ground squirrels.[/caption] Regulators are used to looking for a duck test: if it looks like x, walks like x, quacks like x, it is x and should be regulated with y. 

But blockchains and tokens and the DAOs they can build may facilitate all sorts of activities, and can be used to build all sorts of useful tools. We don’t have one duck, we’ve got a gaggle, or as the always eloquent Preston Byrne of Eris Industries says, a full menagerie of cuddly crypto critters.  So, to my mind, one of the most productive things we did last weekend was work through a matrix of in-development or recently released crypto-tokens (the fuel of future DAOs) and identified a series of important variables in order to classify risks and rewards for regulators:

  • Is the token extinguished once used or is it transferred?
  • Is the product that the token grants access to already developed or is the token a pre-sale for access to a future product?
  • How scarce are the tokens; how is scarcity created and maintained?
  • What sort of functional or technological control does possession of the token grant to its possessor, and are there equivalent legal rights that we could wrap around that control?

The point of all this classification is to develop a concrete vocabulary of what’s out there: this token is really just a coupon, this one is a reward for participation, this one an investment vehicle. Ideally, we can communicate the state of the industry effectively so that regulators can avoid stifling benign, simple, or beneficial innovations because they’ve mis-categorized them as identical to something risky, complicated, or perhaps fraudulent. We want a healthy ecosystem, not a game of whac-a-mole, whac-a-coin, or (for Preston) whac-a-cuddly-crypto-marmot. These workshops will continue, and as we find consensus, we’ll report our findings.

SWARM Working Paper, Distributed Networks and the Law by CoinDesk