Some History, Some Musings and My Take on the DAO

12 January 2016 Charles Hoskinson 8 mins read

Some History, Some Musings and My Take on the DAO - Input Output HongKong

Some History, Some Musings and My Take on the DAO

I recall the mid-summer Virginia afternoon back in 2013 being filled with copious conversations ranging from how to achieve value stability for a cryptocurrency to this strange idea Stan Larimer had called a DAC - a decentralized autonomous company. His drafts contained terms like Steely Eyed Geeks and a nice list of rules definitely inspired by Arthur C Clarke and Isaac Asimov, but with the boyish enthusiasm only Stan could muster. The article (Bitcoin and the Three Laws of Robotics) eventually found its way to Bitcoin Magazine and the Let's Talk Bitcoin's blog as well as Vitalik's September series (1). I'd like to believe that we were all after the same goal in those more innocent and lower stakes days. All cryptocurrencies, and protocols for that matter, suffer from a fundamental meta problem of governance. Eventually changes will need to be made to accommodate some unforeseen complication, the burning march of ever changing technology and social pressures, or even a black swan event. Furthermore, how do you pay the selfless (sometimes not so much) people who are maintaining the protocol? How do you balance the different interests of various stakeholders from regulators to service providers such as exchanges and miners.

The foundational premise of Bitcoin can be encapsulated succinctly as people suck so just trust a protocol. This line of thought has lead to numerous problems from a lack of recourse for theft (see MtGox and the dozen other exchanges) to dark market operators such as silk road using Bitcoin as their payment network. Furthermore, the rewards to miners are not connected to any external reality- just hard locked and unresponsive to the needs of the network. The protocol marches on like a silent, yet diligent sentinel uncaring in judgement, but utterly fair.

We were interested in DACs because the sentinel needs some method of getting an update and if one appointed a centralized body or even a federated one, then one has completely defeated the ultimate purpose of these systems. With more time given for clarity, when one abstracts the idea, one can notice that most businesses are a collection of systems that decompose into protocols. Thus, it stands to reason they too can be transformed into sentinels and if only we had a DAC, then they too could be fair, yet dynamic. Hence, DAOs were born.

Back in 2013, we didn't have Ethereum. Sergio Lerner had created a wonderful turing complete system intended for gaming called Qixcoin, but it wasn't well known or funded. Thus, DAOs didn't have the requisite technology nor a clear commercial path forward. Yet with the dawn of the crowdsale and Ethereum as a platform, this reality has changed.

Now up to this point, it is reasonable to assess what progress has been made. The existence of the crowdsale our space has been using for the last few years has created a funding mechanism for all kinds of interesting projects ranging from Maidsafe to Swarm. Whether these produce utility or are attractive places to store value is yet mostly unproven; however, it's truly amazing to see the amount of passion and enthusiasm. Of course, never forget that people suck so yes a lot of fraud seems to be seeping in (See Hoskinson Doctrine).

Ethereum has created a way of deploying distributed protocols with a host network that has known and probably strong security guarantees about the execution of the code. Whether this system can be made secure under some reasonable formal model and associated proofs and also made efficient is another story. Yet we should at least concede that it's a pretty fun sandbox to run experiments.

The DAO is one such experiment, which brings us to the ultimate point of this article. and their affiliates apparently wanted to create a large pool of capital that could be used to fund interesting projects (sound like any type of structure you could think of?), but make the pool a sentinel without a master. Just some helpful curators and the Ethereum network's guarantees behind it.

Ideally, a Surowiecki utopian wisdom would envelope the DAO making it the smartest way to allocate capital or something along those lines. To be honest, I mostly ignored the original proposal thinking that people wouldn't invest much time or money into it.

Common sense seems to yield a litany of concerns from the fidelity of the code controlling this concept to the creator's utter unwillingness to stand behind the DAO from a legal sense. If something goes wrong, then no one is responsible? Do we have sufficient faith in our ability to do things perfectly right the first time that we are willing to invest in a blameless system? Imagine if planes worked this way. Would you fly?

Furthermore, there was a reckless desire to maximize the size of the fundraiser without any concern to factors everyone should be wary of in some capacity. Why wasn't the DAO milestoned with the majority of the funds stored in a large multi-signature feeder contract that gradually released money into the main fund given progress and investment success? Who was responsible for maintaining, upgrading and auditing the code long term? What metrics should the DAO be held accountable for over the long term? Apparently, having a dream team means that we should abandon basic due diligence and the ability to imagine bad events happening. Does anyone recall a certain other company called Theranos?

So now we are faced with the predictable nightmare scenario only yielded from grand hubristic endeavors such as the unsinkable titanic. The DAO has been looted by a hacker who potentially has enough pithy gall to claim that the theft actually conforms to the DAO's terms and conditions. Lawyers, please bookmark everything you find on Tual and his friends. This class action lawsuit is writing itself.

So why should Ethereum care? The point of the system is to be a sandbox for ideas to succeed or fail. It's a lab for experiments. That's why Ethereum is worth so much money as a system. Following this line of thought, Ethereum SHOULDN'T CARE.

You don't change the lab when someone performs a poorly formed experiment. You blame the chemist and move on. We can make a fair argument for better safety equipment (which has already been proposed), but you don't change the nature of a facility to accommodate someone who screwed up.

Yet Vitalik and others close to the Ethereum Foundation are advocating to do just that. They want to fork the protocol in order to prevent the theft. Bruce Fenton and others have already done a good job explaining why this proposal is an extremely bad idea. It's pointless to add another argument to the pile. Rather I'd like to take this opportunity to explain what has really failed in the Ethereum ecosystem. It has a governance problem.

Several of the Founders have scattered across the seven seas and created new commercial ventures ranging from Consensys to Ethcore. Each has its own blend of fiduciary obligations depending upon their investors and stakeholders, yet these are not directly aligned to the needs of the Ethereum ecosystem. The closest thing Ethereum should have to a neutral body ought to be the Foundation.

You know those bodies that don't pick winners and losers and try to just protect the protocol itself? Except for the time when its leaders join multiple ventures, plaster their name everywhere and seem to have a very comfortable relationship with companies like Deloitte and Microsoft for "Projects".

Yes helping the DAO investors get their money back is a noble knee jerk reaction. But what about Gatecoin and the theft that occurred there? What about the ether purchasers who experienced an event that prevented them from redeeming their ether they fairly purchased? What about all the ether lost to defective smart contracts? DAO gets precedence, yet the others don't? Is this because its failure would invite regulatory scrutiny to the Foundation members as they have too close a relationship to it?

Returning to the core thesis of bitcoin and its children - people suck; trust the protocol - applied to the bailout of the DAO, we have people who are trusted to be neutral who cannot be due to whatever obligations that have encumbered upon themselves. As we should expect given human nature. They now want to change the protocol to prevent in part personal harm to themselves given the damage the DAO has done.

The argument of wanting to help cannot be sensibly made given their lack of interest in the other thefts and bad events in the system. I honestly can't fault them for this behavior, but I have to point out how dangerous this act is for sentinel that is the Ethereum protocol.

Stan Larimer had the foresight to imagine events like this occurring, which is why he wrote his article. The ethereum community needs to embrace this tragedy and accept it as a failure we can learn from. We need a DAO, but not one to store money to make some investors rich. We need one to help us make these kinds of hard decisions in a responsible way.

Ethereum is the first platform in human history that can transcend this predictable cycle of betrayal of integrity for person preservation and emerge into something far better. It won't be nice. It won't be kind. But It will be fair. That ultimately is why I signed up for this wild space. To build something beyond our nature, yet always accepting- sometimes painfully so- it won't always work out for me.

Thoughts on Ross

29 May 2015 Charles Hoskinson 5 mins read

Thoughts on Ross - Input Output HongKong

Thoughts on Ross

From time to time, I enjoy investing an afternoon considering politics and the state of affairs here in the United States. Our country is the first hyperpower forcing all other nations to consider us in whatever policy happens to be the day's grock. This reality is divorced from ethical or moral metrics and the war on drugs is no different. For whatever reason (religious, practical, dystopian, etc), policymakers in the United States have continuously decided to label a behavior or substance as dangerous to the social fabric™ of our society. Prohibition is the standard example and its spectacular failure is somehow forgotten. We saw and acknowledge the rise of the modern mafia. We saw the decentralized nature of resistance through bootleggers (some say one who's kid become president) and the FBI form to stop the bootleggers empowering J. Edgar Hoover to terrorize two generations of Americans via illegal spying and blackmail (including Martin Luther King). Yet why have no lessons been learned?

The war of drugs is a leviathan that has imprisoned millions of Americans (vastly disportionate for minorities), formed massive bureaucracies such as the DEA and their state equivalents, and like Hoover's FBI slowly transformed society to both militarize the police and make their actions somehow ok. Where in this process have we asked what the goal exactly is? Why are we as a country destroying families, imprisoning millions and treating addicts as hardened criminals? Why have we created an industry that robs us of our constitutional rights and turns our police force into something resembling the Stasi?

I honestly don't have a good answer. There is perhaps an historical context that could be explored and used to synthetically explain why we are somehow comfortable as a nation using a plato like ideal social fabric™ to justify incarcerating millions for non-violent crimes. Yet this leaves a putrid taste in my mouth.

The United States drug policy is simply put immoral to the core. If drug use results in damage to one's relationships, then hold people accountable for their actions. But instead we say that Heroin somehow is more damaging than alcohol? Marijuana is a gateway to personal destruction (except for when our presidents smoke it 1)? I guess Colorado is doomed then :).

Now enter Ross Ulbricht the dread pirate roberts. He isn't a very nice person. No one running a drug cartel really is a nice person. But he isn't a Zetas Cartel kingpin proudly displaying the heads of his enemies. He is a programmer who saw an opportunity to use emerging technology to enrich himself without regard to the current egregious law. He believed that he could stay hidden thanks to the nature of Tor and Bitcoin. He also believed that a decentralized marketplace could reduce the violence associated with the drug trade (which is fair considering that violence comes from the prohibition not the other way around).

And the fruits of his labors were a modest marketplace that was the safest and lowest violence drug exchange in the world. It also allowed suppliers to directly sell to consumers cutting out the middleman who usually end up being pretty evil. Compared to the Golden Triangle, a relatively small amount of funds changed hands and consumers got their substances. The vast majority didn't go crazy and grab chainsaws for some Tony Montana action. The vast majority didn't destroy their families and social networks. The vast majority are still living their lives amongst us going to work, church or vacations. Somehow the social fabric™ the government must protect hasn't been torn.

Yet Ross now gets to spend the rest of his life in prison as a living symbol of the war on drugs. He has effectively become its Nelson Mandela. The Silk Road won't go away. Those who are knowledgeable about cryptography and the nature of the internet will cite technology like Openbazaar and other such systems as the bittorrent moment of online drug trade. Ross's imprisonment will send no message contrary to what the prosecutor suggests, it just increases the stakes for anonymity and the amount of potential profit from the trade.

The countermeasures will inevitably be a war on cryptography (I should trademark that one) and internet anonymity. To protect the social fabric™, the United States must rob us of our privacy and autonomy. We must accept that all packets need to be inspected. Secrets are illegal. And no doubt massive government budgets must be increased. Think of your children!

I'm really done with this madness. We supposedly have a republic and have the right to change things. At this moment, I'd like to divide the bitcoin space into two groups. Those that complain about the injustice of Ross's sentence and those that do something about it. I'm going to do something about it. My company is going to build some great tools to preserve personal privacy (that thing we have a constitutional right to) and make sure they are open source and well distributed.

I'm also going to ask everyone in this space to be in the second bucket. Do something about this injustice. Think about the software you could write. Organize meetups and spread the word. We didn't like our money or the banks so we made new money. Is in inconceivable that we can make a new society with a social fabric that's actually worth protecting?

On the Hoskinson Doctrine. Lessons Learned

18 November 2014 Charles Hoskinson 3 mins read

On the Hoskinson Doctrine

On the Hoskinson Doctrine. Lessons Learned

It's been a little over a week since I started soliciting feedback on my poorly named regulatory whitepaper. My hope was to start a conversation regarding the nature, need, and methods for regulation of ICOs and the broader structure encapsulating them- DCCMs. The intent of my whitepaper at this stage was to introduce a transaction view of commerce, define a special type of market, explore if a regulatory event would occur, and finally propose a middle ground we as a community could prosper from. So far, the comments, emails, calls, and reviews have been a mixed bag.

It's clear the paper is far too wordy and grammatically substandard. Nothing is clean or clearly presented. And core ideas seem lost in a sea of either too much detail or not enough propositional framework to be believeable. In short, the paper is clearly a mess.

So how does one move forward from here? I need to invest some time in exploring the transactional framework outlined in the first section. It's far from functional, but yields some promise from a complex adaptive systems standpoint. Commerce is a living breathing social graph connecting everyone. It's beautiful from a mathematical perspective.

The notion of DCCMs isn't as clear as it needs to be. Rather there seem to be just thoughts floating in a miasma of obfuscated rhetoric. Certainly not the pristine DAO concept. I suspect a stronger framework surrounding transactional commerce will yield a more productive definition of DCCMs.

In terms of regulation, perhaps it's unnecessary to define and speculate? I'm coming to believe that this section's place in the paper is becoming increasingly irrelevant. We cannot predict the actions of regulators. We must simply accommodate for them. Although, I really do love the thought of an infographic comically describing the seven deadly regulatory sins akin to a Moore graphic novel.

As for the doctrine itself, yes it will be renamed. And yes I do believe the six core ideas are reasonable and sound. They badly need more elaboration. Voluntary standards are boring. Algorithmic smart standards connected to a social contract are not.

We are surrounded by swarms of people with brilliant ideas and talents. Why not leverage them? Why must everything be done by a special chosen few? Our space needs to leverage the swarm intelligence. Furthermore, we need to find productive ways for solicitors to task the swarm.

Private law is a no brainer. Too many countries to consider and too many good transnational legal systems not to use. Johann from Monetas has this wonderful Unidroit fair cake thing you'll love.

In summary, thanks for reading and I'll keep posting here about my thoughts on the paper. Eventually a complete rewrite will occur based upon the feedback I continue to receive. You're honestly a great community and thank you for the help.