“Charity DAO”: Improving Trust By Eliminating Trust

The folks who brought you The DAO have a new cunning plan—“Charity DAO”. You remember The DAO—the decentralized autonomous investment fund that attracted over $100M in investments, negligently lost half of that to thieves, and shattered Ethereum as it collapsed.  Yes, those same guys are now going to “fix” charitable giving.

Their analysis of the problem is that we could increase the amount of money given to charities if we could improve “trust” in the charities. They identify widespread concerns about “accountability, management and fundraising” in public charities.

The solution, they say, is a decentralized organization that uses Ethereum “smart” contracts to track the funding. (My own view is that this is a case of a hammer maker seeking nails to drive.)

As in the first DAO disaster, the organization is basically a mechanism for channeling funding via the Ethereum blockchain. Proposals (requests for funding) are submitted, and when selected, the executable contracts automatically disburse the money according to specified targets. All records are on the public blockchain, and untouched by human hands.

Wow! So many logical holes! Do I have the energy to cover them all?

First of all, at the deepest level, the notion that the cure for a lack of trust is to take up a peer-to-peer model, where we know almost nothing about the other participants is, well, astonishing. Not only sending money off to the internet, but sending to…well a robot “contract”.

Wouldn’t it make more sense to organize locally, working with people face-to-face where you live?  This would not only improve trust, it would create a more connected and vibrant community.

Second, the elephant in the room simply has to be the crash of the first DAO, which was due to “trusting” the software, and eliminating human judgment. Obviously, this has to be changed, right?

Yes. This time, the “decentralized” robot system has human “Curators”, “a set of trusted curators”, who will check and approve proposals. Just like every other charity. Good idea. We trust that the curators know what they are doing and behave honestly.

The problem of trust is fixed!

Obviously not.

Who are the curators? Well, that’s a mystery. They are not identified.   Even more troubling, the description of the charity indicates that they will cooperate with a group call “Giveth”, who presumably help vet the proposals and give direction to the charity.

Who is Giveth? What are they up to? We have no idea.  I can feel the trust welling up in me already.

Most charities are mission driven organizations. They develop expertise solving certain problems, and request support to carry out the mission. This is critical—we don’t want to donate money to people with good intentions, we want to donate money to solve problems.

Charity DAO has no stated mission (other than demonstrating with the technology). Anyone in the world can request funding, for any purpose. That’s very democratic, but seems open to abuse. Presumably, we can trust “the Curators” and “Giveth” will filter out the questionable cases.

I’m also concerned about the notion that, once started, the robot contracts funnel the money to the “charity”, with little way to know what they are actually doing. Some contracts may have milestones or checkpoints that have to be met, but how is that to be confirmed? Some human(s) will have to be trusted to confirm performance. How will this work? How trustworthy will this be?

We have to assume and trust that the mysterious curators will make sure that everything is fine.

I might also point out that charities are highly regulated legal entities. I’m pretty sure that “Charity DAO” hasn’t registered everywhere, probably not anywhere. For one thing, these mysterious “curators” and the organization “Giveth” would need to disclose who the people are, and who is responsible.

Is it legal to even operate this organization? Possibly not. (They don’t eve  know themselves.)  Would it be legal for a legitimate charity to raise money through them? Maybe, though it would be a huge reputational risk for the charity. If I give through this system, can I claim the gift for taxes? Who knows? I’d bet not.

Speaking for myself, I’m not interested in funneling my own donations through an unaccountable, opaque, and technically iffy system.

The long and the short of it is that Charity DAO is tackling the problem of “trust” by creating a “trustless” system, the problem of “accountability” with an anonymous peer-to-peer system, and “transparency” with a strangely opaque system.

As I said of the original DAO, “this will end badly”.


Cryptocurrency Thursday

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