The DAO Crashes, As Predicted

Last week I commented on TheDAO, which had garnered preposterous amounts of capital (in the form of Ether digital currency), and had yet to produce anything other than controversy. I predicted that it would crash soon.

I was right.

Even as my blog post was being released on Thursday (through the magic of wordpress, it was written on Tuesday and scheduled to appear on Thursday), TheDAO experienced a heist, making off with tens of millions of dollars worth of Ether. It is now frozen and probably will be unwound. Boom!

The heist itself exploited a bug in the language of the “smart contracts”, which I kind of predicted, too. This was especially telling because a number of serious bugs had already been publicly identified, along with a call to halt the thing before disaster hit. They didn’t, and it did.

The aftermath has been interesting. Headlines in Coindesk give a picture of the fantasy land world of DAOs.

The last one is particularly telling. Despite the fact that TheDAO is “bossless”, developers stepped in to freeze the stolen funds for a while. The founders also have said that the experiment is “over”, and want to close it down.

But, just as there was no way to deal with the bug reports, there is no actual way to shutdown TheDAO. One troubleshooter commented in Coindesk that “the workflow The DAO was designed to follow is so complicated that it will be “very difficult” for anyone to say what will happen next.

Perhaps they can propose a new contract that withdraws all the funds (into another DAO), or perhaps they can mount a “white hat” 51% attack on their own network to rewrite history. The latter would be an attack on everyone who every used Ethereum, and essentially negate the entire concept of the “immutable smart contract”, which is the Big Idea of DAOs.

What. A. Mess.


The story goes deeper and, in my view, darker.

“The DAO” implements a simple “stockholder democracy” voting model (I think), based on a “one dollar, one vote” theory of “fairness”. The “dark” part is that the crypto community is dissatisfied with this form of governance. Democracy is, of course, imperfect. It can be economically sub-optimal, and the goal of “consensus” can be elusive, leading to both poor decisions, slow decision making, and dissatisfaction.

So, the visibility of The DAO has attracted proposals for “better” governance methods, which are very interesting, and pretty scary.

One is Futarchy, which is said to be “a new form of governance that uses data from prediction markets to provide input”. It’s more than a little troubling, because the process of governance is described roughly as “Effectively, authority holders set the terms by which their success or failure would be determined, and market speculators use their money to indicate the outcomes they believe to be the most likely…

What could possibly go wrong?

The plot continues to thicken, with another entry to the “fix The DAO” sweepstakes, from Backfeed. This is a platform for governing / decision making in DAO’s, which they describe as, a “protocol [that] makes it possible for a community’s value system to emerge organically”.

This is described as “a New Social Operating System” (which it isn’t), which will move “From democracy to meritocracy” (and thereby “fix” The DAO.)

I get very worried when I read their description of how this “organic emergence”, AKA, “meritocracy”, actually works:

The Backfeed protocol provides that those who are in line with a community’s value system will see their influence within that community increase, at the expense of those who disagree. By doing so, the Backfeed protocol promotes the alignment of individual members towards a specific set of values, while encouraging other, less aligned individuals to fork into different communities with an alternative set of values.” From http://backfeed.cc/explore-in-depth

Separate but equal? Mechanical apartheid? Why does this make me worry? And they call this a mechanism for achieving “consensus”, which I find to be a tellingly Orwellian rhetorical device.

DAO’s are certainly bringing out the Orwell in people. The whole idea is to create an ungovernable robotic system, “operating solely with the steadfast iron will of unstoppable code.

Triumph of the Robotic Will.

 

 

Cryptocurrency Thursday

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