How Zamfir-Szabo is the Hamilton-Jefferson Debate of Blockchain

tl;dr: The degree of autonomy that decentralized software will have may prove to be the most critical factor in the growth, adoption, and success (or failure) of blockchain technology. Blockchain governance matters.

I am starting to wonder if the things I tend to avoid as it relates to crypto are just a mirror of the things I tend to avoid in life.

It’s kind of like how the things we see in others that we don’t like are just a reflection of the things we see about ourselves, right?

The other day, I copped to my willful avoidance of the regulation issue as a long-term resident of Washington, DC.

Colorado is emerging as a leader in pro-crypto regulations – Data Driven Investor

It’s Not Sexy, But Governance is Really Important

When looking at the evolution and long-term value of crypto networks, however, it is essential to look at network governance, which includes the “law” of the network.

The process for how decisions are made in a decentralized network is, ultimately, make or break, even if we don’t see the results until years later.

It’s not that I have never covered this before, (see the T3CG model for assessing networks). It’s just that it’s not as sexy as things like token economics and the underlying technology.

The reality is that they are all of equal importance. Some would argue that Governance is the most important of all.

A Super Quick History of Blockchain Governance Challenges

The two most contentious and famous blockchain governance examples thus far are, I believe, the DAO hard fork and the Bitcoin block size debate.

Each of these showed the intensity of feelings about the future of the networks and each of them resulted in a split of the network. One led to the creation of Ethereum Classic. The other led to Bitcoin Cash.

That doesn’t happen in the offline world as easily or often, see American Civil War. Countries and cities can’t just “fork” though I am sure there are parts of America that would love to “fork” from Trump’s leadership.

Meet the Blockchain Governance All-Stars

I am on this topic now because I read Vlad Zamfir’s post entitled Against Szabo’s Law, For A New Crypto Legal System. It reaffirmed for me that this is an area that deserves attention.

Vlad is one of the key figures in Ethereum, right up there in the pantheon with Vitalik. I had the opportunity to meet him about a year and a half ago and we talked (it was a small group) for about an hour.

I remember coming away from the conversation thinking, “holy crap, this guy thinks about governance, unlike anyone I’ve ever met.” And it was a good thing. He REALLY cared about it.

I also remember thinking that he came off as arrogant…but that could be a reflection of the things I don’t like about myself, but we’ll save that for another therapy session.

The target for Vlad’s post is Nick Szabo.

Szabo is a legend and much of the evolution of crypto is inspired by his work. His blog posts are epic and require tremendous brain space. One of the all-time best, imho, is Money, blockchains, and social scalability.

So, for Vlad to take on Nick…well, it’s kind of Anthony Davis taking on Michael Jordan. One is an all-star today with tremendous upside. The other is all-star for all-time.

Blockchain Governance Philosophies

Hopefully, my non-US readers will forgive me for this analogy. I’ll further admit that it’s not perfect. However, the crux of the argument that Vlad is making, as I understand it, is a philosophy of blockchain law that is as philosophically opposite to Szabo as Hamilton was to Jefferson in their view of federal vs. state.

To start with, Vlad summarizes blockchain law as having 3 big pillars.

The first is “keep the technology working.” Basically, anyone has a right to stop someone else if their code is going to prevent the protocol from working. Bottom line…the show must go on.

The second is “it has to co-exist with ‘real world’ legal systems.” It’s not fruitful to believe or pretend that there are no consequences to actions that take place in a blockchain world. Tax evasion, I suppose, falls in this category.

The third one is what he calls “Szabo’s Law,” which is a minimalist attitude that no changes to the protocol should ever occur unless it is for the purpose of technical maintenance.

So, the hard fork which basically returned the money of all of the investors who would otherwise have lost their funds was a violation of this law…and it’s why Szabo abandoned Ethereum.

I would call Szabo’s Law then the “minimalist” approach. As in, if you lose money in a blockchain world because of your own stupidity, a bad smart contract, or you didn’t really understand the rules…well then, you are simply SOL.

Szabo’s approach, if Vlad is representing it accurately, is truly “code is law” because we want to keep fallible humans out of the equation.

Vlad, on the other hand, says that he is prepared to “die on this hill” and thinks that Szabo’s minimalist approach is a catastrophe in waiting.

The “blockchain exists in an alternative universe” approach will have long-term negative consequences. It will lead to a world where innovation is stifled as existing authorities crack down on programmers living within their jurisdictions.

The problem as Vlad sees it is that, since “legal systems are protocols for the management of disputes,” problems are going to invariably arise when disputes occur in a blockchain network for which the protocol cannot provide a satisfactory resolution.

If we both agree to go to court and I lose, I may not be happy with the outcome, but I know there’s a resolution. If there’s no way to “be heard” around a dispute and you are simply ‘on your own,” people are going to be unhappy. That will hinder the growth of the protocol.

As Vlad writes:

We cannot foresee the nature of all of the blockchain governance disputes that will arise in the future, and need to retain the ability to remain flexible enough to adapt to changing circumstances, we cannot afford to blindly pledge our fates to a future with autonomous software

I remember feeling very conflicted during the DAO hard fork (even though I had funds at stake) about the question of “let’s fix this obvious wrong” vs. “blockchain is supposed to be immutable.”

Honestly, I am not sure what the right answer is.

The Good News About Blockchain Governance

Unlike the Hamilton-Jefferson debate, when it comes to blockchains, you can have your cake and eat it, too.

Each crypto-network can determine what method of governance it wants to follow. If you prefer a more Szabo-esque approach, you can go there. A more Vlad-esque approach, go there.

And, you can always fork away. If enough people agree with you, you’ve got something.

Blockchain Governance Experiments Are Everywhere

There are some really interesting and fascinating experiments going on in blockchain right now. Every chain is its own experiment, in fact, so we get a ton of opportunities for qualitative and quantitative data relatively early in the crypto lifecycle.

One of the most intriguing is Decred’s community voting system called Politeia. I touched on Decred in the staking as a service and if you really want to understand it, read Joel Monegro’s Decred Investment Thesis .

You can see how passionate and convicted Joel feels about blockchain governance there and also by reading his Maker Investment Thesis

Another one is the dxDAO partnership between Gnosis and DAOstack (disclosure: advisor). I think that DAOstack has one of the best thoughts on how to handle governance@scale around.

It’s the kind of thing that won’t be really valued until things get big, so we may have to wait a while. The downside, of course, is we won’t know if it really works until it gets to scale. Its own kind of chicken-egg problem.

Governance is Difficult…Everywhere

You don’t have to look too far these days to see how challenging it is for people to design, implement, and execute good governance. Blockchains are no exception.

I think Vlad has done us all a great service by pushing this topic to the forefront.

One day, Lin-Manuel Miranda will make a musical about the early days of blockchain governance.

It’s just a question of whether it will be called “Zamfir” or “Szabo.”

Originally Published:

How Zamfir-Szabo is the Hamilton-Jefferson Debate of Blockchain was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.