Human nature is a challenge for everything Blockchain

We’ve all been frustrated with dealing with “interactive voice response systems,” computerized answering services. Likewise, how many of us actually find software instructions useful or even understandable? I think the problem is exacerbated because the engineering profession is male dominated, but that is a different kind of challenge.

Human nature as displayed by individuals is intentional by definition. All of us have internal, conflicting values ​​that sometimes lead to unpredictable behavior. Blockchain is a particular technology that was invented to circumvent some of the inefficiencies and vulnerabilities of human, especially manual, systems for transactions between individuals, especially financial ones.

The cryptocurrency Bitcoin is by far the first and a logical application for the technology. The most basic concept is that transactions between two people can be carried out safely and securely via an automated process called “smart contracts” without being under centralized control, such as a bank, for identity and account verification.

By extension, the concept of a “decentralized autonomous organization (DAO)” is one where the members of the organization can interact and manage their behavior among themselves, without centralized control of the governing structure. In a DAO, policies and requirements are encoded in blockchain software and are adopted only after all members have had a chance to give their input. The instructions in the blockchain can be executed automatically, without the need for human interaction. A blockchain record is transparent, meaning all participants can see all the data, so everyone can in theory be held accountable. Since there is no centralized control, records are immutable, since multiple copies of the records are stored on a network of a very large number of nodes, each of which keeps the databases synchronized in real time. Errors can be corrected via new data entries, but a correction does not remove the original error from the record.

The DAO is designed to function as a democracy, so all members have a voice in how the organization will function, and actions are decided by a majority. How will this structure work in practice? The first issue: What is the relationship between the number of votes a member has and another calculation of their participation? For example, should each member only get one vote? Or should the number of votes reflect a certain level of “ownership”, for example, of tokens that represent activities or participation in the operation of the network? When a modification to the operating protocol is proposed, should the voice of a random user be given as much weight as the voice of a master node in the network? What is “fair” and how can it be enforced?

All of this feels like a variation on models of social organization based on the themes of “freedom” and “democracy”, doesn’t it?

In our existing political system in the United States, we are constantly exploring all sorts of inequalities and “injustices” that have already become entrenched in our culture and legal system. Regardless of which political party is in power, regardless of the level of government, leaders try to convince voters and the public that their vision of a policy is “correct” and should be supported. That is what is expected, and leaders, by virtue of their positions in a political organisation, get to make the rules. In a DAO there is no management hierarchy, members are issued tokens that act as votes to represent their votes in matters to be discussed. As in any group of people, there will be “natural leaders” whose influence is much greater. This would be true in a DAO, but these leaders can only exercise “soft power”, i.e. they cannot control how others behave.

How can conflicts in a DAO be resolved? Won’t some discussions continue indefinitely if certain members or groups of people decide to be very stubborn in maintaining an uncompromising position? Does this governance model assume that there is hope for logical, rational discussions to resolve differences? If you believe that people generally tend towards “good manners”, i.e. are respectful, considerate and kind, it might be possible. On the other hand, if your view of human nature is less charitable, you may see this kind of process as idealistic and impractical because decision-making can be extremely slow.

Currently, there are already thousands of DAOs operating, mostly in the decentralized finance space. This is a natural outgrowth of the interest in cryptocurrencies, i.e. Bitcoin and Ethereum, which is a basic blockchain technology for smart contracts written in the software. Smart contracts for financial transactions have been proven to work, and are being integrated into the operations of major international banks and financial institutions. In that context, these transactions are still under centralized control and management, of course. The rules for appropriate behavior in financial transactions are relatively simple and can clearly be reduced to lines of software code.

However, there is a fundamental problem with enforcement when transactions are breached. For example, suppose I borrow from you and put up some of my cryptocurrency (e.g. Ethereum) as collateral. It has now been three months and I have not paid interest on the loan. Let’s say the smart contract is written so that a predetermined amount of my cryptocurrency that I put in escrow as collateral, plus a penalty, is automatically withdrawn at my default. What if the value of my security has dropped significantly so you only get 50 percent of what you originally expected? What recourse would you have to achieve a sense of “justice?” The volatility of cryptocurrencies is a major challenge for any blockchain, at least for the foreseeable future.

We expect justice to be built into any basic rule of law and into a “legal infrastructure” that includes a hierarchy of principles and, importantly, a legal system that includes human judges and juries of our peers to whom we can appeal. The term rule of law means that we must accept their decisions as binding on all parties equally after all appeals have been exhausted. In America, and especially in this time of political discontent, the fundamental principles of our democracy are being tested and reexamined. The idea of ​​separation of powers between the executive, legislative and judicial branches, each with equal but separate power, is absolutely fundamental. How can this system of “checks and balances” be replicated in software? How can a DAO incorporate such “checks and balances” when power is literally decentralized so that there are no “defined entities” to balance?

Balance is a human idea that reflects human nature and societal values. Each individual’s concept of what constitutes “acceptable balance” is likely to differ from another’s. The DAO is an amazing experiment and blockchain, cryptocurrency, is a fascinating context and playground. At this point, it’s easy to be an “industry expert” and either preach the virtues or criticize the weaknesses of the idea. What is most fascinating is that a DAO is a new perspective for understanding human nature.