Ethereum Folks Don’t Like DAOs Much

In the last month or so, there has been a lot of buzz about the Ethereum blockchain based Decentralized Autonomous Organization (DAO) calling itself “The DAO”.  It is designed to be a sort of venture capital investment group, with no central management.  Decisions are made through distributed voting by the stockholders, which set up and trigger transfers of cryptocurrency.

TheDAO is all the rage this month, having attracted $50M, no wait $100M, no wait–I can’t even keep up with how many millions of dollars worth of investments!

It’s only a month or two old, so it cannot possibly have a track record to justify this absurd capitalization, IMO.

But in its short life, TheDao has generated massive amounts of controversy, particularly surrounding the heart and soul of the DAO, the automated decision making processes. These processes are expressed in algorithms, which (a) operate without human bosses and (b) are supposed to be trustworthy because they are transparent and impossible to corrupt or game.

The thing is, there are many ways that you can write these rules, and many people are not satisfied with the current algorithms. Some of the issues are possible bugs in the algorithms. (Say it ain’t so! Software with bugs in it! Never!)

Other issues amount to philosophical differences about how such an organization should work, and what is “fair” decision making. Who should count as a stakeholder, and are all stakeholders equal? Should voting be one-dollar-one-vote? Or should voting be weighted, e.g., by the value of the contribution according some measure? How should conflict be resolved, and “consensus” achieved?

I note that one of the hottest proposals being voted this month is a move to suspend all investing until these issues are resolved! A democratic vote to suspend democracy until it can be fixed….

These discussions are quite fascinating, and I will return to them.

Another interesting pushback came from important honchos at Ethereum. These guys have built the system that TheDAO is built on, but they are extremely wary and critical of the entire notion of this kind of DAO.


Vlad Zamfir gave a rather alarming interview to IEEE Spectrum, explaining that he really worries about blockchain based technology, in general. As he puts it, faced with the failures of human governance, people are turning to the blockchain to be “a tool that we put outside of our jurisdiction in order to have it govern us.

Technology that is beyond governance, and, in principle, could persist forever? Is this a solution or a whole new arena for misbehavior?

One problem is that the ungovernable, “censorship proof” blockchain can host any information at all, with no way to correct or delete it. False information, stolen information, outdated information, contradictory information; all will be put on the blockchain with no way to remove it or correct it. For the most part, all information is equal on the blockchain.

I would add that the blockchain can be used by anyone, however irrational, incompetent, or illegitimate. The blockchain doesn’t care if you are selling pixie dust futures, and even bogus transactions will be recorded forever.

Zamfir is troubled by the fact that developers of this technology seem to have no thoughts at all about ethical responsibilities. One wonders how he justifies his own work.

In the same week, Coindesk interviewed Anthony Di Iorio, another Ethereum developer. He has his own company, but it is not a DAO. As he says, “I believe actually in leadership.” He also believes in working together in the same room with people.

Di Ioriao recognizes the shortcomings of the automated voting, as widely discussed in the case of TheDAO. He also sees regulatory and legal issues. Regardless of what advocates may imagine, DAOs will be sued, and will be subject to courts. The questions is, how will that happen, and how messy will the process be.

Di Ioriao’s company is apparently working on ideas for some kind of “hybrid” DAO with a human in control. I don’t really understand this concept, which he is calling Collaborative Leadership Intensive Organization (CLIO), “a “gradual” transition to distributed governance models where stakeholders have more control over decisions. At the same time, final decisions will still fall to a single chief executive.” This doesn’t make a lot of sense to me, so I guess I’ll have to wait to see what it really is.

What does it say about this technology, when the same people who created it have reservations about how it will be used?


Cryptocurrency Thursday

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