Executives representing the top-level leadership at a range of blockchain companies and projects have signed a letter calling for a new focus on perceived issues with blockchain governance.

Calling themselves the 'Muskoka Group', the 14 executives include leaders building a diverse set of open-source distributed ledgers, as well as the heads of notable for-profit startups.

The letter, published today, follows a two-day governance workshop held by authors Don and Alex Tapscott in Muskoka, Canada, one that the organizers said he found participants focusing on the "big picture" surrounding the technology.

Don Tapscott told CoinDesk:

"There was a strong sense that we need a rising tide to lift all boats."

Concrete steps attendees will seek to take include exploring how to fund a "Blockchain Hub" using the Global Solutions Network (GSN) program and whether to create a "network of networks to help coalesce the community".

Signatories of the letter included Brian Behlendorf, managing director of the Hyperledger Project; Perianne Boring, founder of Chamber of Digital Commerce; Joseph Lubin, founder of ConsenSys Systems; Matthew Roszak, founder of Bloq; Pindar Wong, chairman of VeriFi; and Jim Zemlin, executive director of the Linux Foundation.

As part of this effort, the group wants to develop a "roadmap and action plan" to help signatories better collaborate with "leaders at the municipal, state, federal and supranational level" to develop blockchain strategies.

To help spur that collaboration along, the group also proposed launching a "syndicated research program" to study how blockchain tech might impact industry, government and society.

"The world needs horizontal research investigating areas such as supply chains, asset tracking, marketing and management. We need vertical research into industries such as banking, insurance, healthcare, retail, manufacturing and government," the letter read.

Toward that end, Tapscott spoke out about how governance issues are harming perception of the technology more broadly and holding back wider adoption.

Tapscott concluded:

"'It’s clear that decentralization and self organization should not be confused with disorganization. We need better collaboration and coordination in this ecosystem."

The actions follow the notable struggles of the ethereum community following a recent technical change, and amid an ongoing debate in the bitcoin community of how best to increase the network's transaction capacity.

Image of the Muskoka Group via website

Blockchain RevolutionChamber of Digital CommerceHyperledgerLinux

Original author: Michael del Castillo

The central bank of Singapore has proposed a new regulatory framework for payments providers in the city-state, a move that would bring digital currency exchanges under its oversight.

The proposed framework would require applicable companies to obtain a license from the Monetary Authority of Singapore (MAS), and divides payment activities into several categories. Digital currency exchanges would be covered by a provision overseeing startups that provide "money transmissions and conversion services".

The MAS said:

"The scope of currency conversion activities is intended to encompass the business of exchanging of currencies at a rate of exchange. In addition, it is likely that under the [Proposed Payments Framework], virtual currency intermediaries which buy, sell, or facilitate the exchange of virtual currencies, such as bitcoin, will also be considered to undertake [money transmissions and conversion services]."

The institution outlined the need for a "flexible" regulatory framework for payments, one that reflects the changing face of finance amidst a period of technology upheaval.

That any exchange services within Singapore might be brought under the oversight of the MAS isn’t a foregone conclusion, however. A comment period for the proposal runs through 31st October, and as part of the comment period, the agency is seeking feedback on whether the move should be undertaken.

Bitcoin exchanges operating in the country, like CoinHako, Coinbase and Quoine would likely be impacted should the framework come into effect.

The MAS also proposed creating a "National Payments Council" that would steer policy and coordinate with industry stakeholders. Its membership, the institution said, would be drawn from both the public and private sectors in Singapore.

The proposal comes just over a year after the MAS announced that it had begun allocating funding to explore applications of the technology.

Last July, the institution announced that it was providing funds for a blockchain-based recordkeeping trial as part of a broader $225m package devoted to financial technology experimentation.

"The potential benefits of such a distributed ledger system include: faster and more efficient processing; lower cost of operation; and greater resilience against system failure,” managing director Ravi Menon said at the time.

The full proposal can be found below:

Proposed Activity Based Payments Framework and Establishment of a National Payments Council

Singapore skyline via Shutterstock

AsiaMonetary Authority of SingaporeRegulationSingapore

Original author: Stan Higgins

Josh Stark is head of operations and legal at Ledger Labs, a blockchain consulting firm and development group.

In this opinion piece, Stark discusses the nature of blockchain communities, indicating that he believes current "problems" in blockchain governance may need to be better observed before they can be understood.

Recent events have forced ethereum's community to the forefront.

On 17th June, a critical security vulnerability in an ethereum application called The DAO was used to drain millions of dollars worth of ether into accounts controlled by an anonymous attacker. After a period of deliberation, a majority of core developers, miners and other members of ethereum's community decided that the best path forward was to hard fork the network to "undo" the hack and return the stolen funds.

The community's power to revise ethereum's transaction history has surprised many outside observers who were told that blockchains are, as a rule, immutable.

To the broader market, the inner-workings of the deliberative process that led to this outcome are at best opaque. The decision proved controversial within the community as well, with a vocal minority taking the position that ethereum has betrayed its core principles and choosing instead to support the un-forked network, with the result being that there are now two blockchains that share ethereum as a common ancestor.

"The community" is often in the background of our conversations about ethereum. In any discussion of ethereum's ability to provide settlement finality, it's a necessary caveat: in two pieces from earlier this year, both Tim Swanson and Vitalik Buterin articulate that, ultimately, it is the community's economic consensus which determines which chain is legitimate. More broadly, any conversation about ethereum’s future potential relies on the implicit promise that there will continue to be a productive community of talented developers working to maintain and support the project.

But for the most part, the community is treated as a black box. We know it is important, we believe that it works, but we rarely look too deeply at what makes it so. When our community functions as we expect, we congratulate ourselves, as we did when we successfully hard forked into Homestead. When someone else's community struggles, as bitcoin has with the divisive block size debate, we point to it as a sign of inevitable moral failing.

There have already been suggestions for how the ethereum community could better manage future situations like the DAO hard fork. But too often these require creating formal rules or governance structures which are impractical in a decentralized community.

Rather, our solution should begin by looking at what works today, what doesn’t, and by finding practical ways to make incremental improvements.

This isn’t just an academic issue. The community wields tremendous power over its blockchain. Convincing the world to build its future on ethereum requires proving that our community will exercise that power in a responsible way. Even more, it requires proving that our community will continue to be effective and responsible as the platform scales into something far larger than it is today.

The community's role

The DAO hard fork is a useful practical illustration of how the community exercises power over its blockchain.

The ethereum community is the group of people, institutions, companies and other organizations that together support and maintain the ethereum blockchain. This includes the core developers who work on the ethereum protocol itself, the miners who own and operate the nodes that constitute the ethereum network, the larger ecosystem of developers and entrepreneurs who are building applications on the platform, researchers who make critical contributions to the development of the platform, ordinary token-holders or users of ethereum applications, and others.

In response to the DAO hack, core ethereum developers proposed a hard fork that would return the stolen funds. Essentially, the miners whose nodes constitute the ethereum network would all agree to adopt a new version of the ethereum software that would remove the offending transactions.

This change requires a "hard fork" because it breaks backwards compatibility – the entire network must agree on the state of the blockchain to continue.

However, a minority can reject the changes introduced by a hard fork and continue with their own chain – they have the power of "exit". This is what happened after the DAO hard fork – a minority of miners decided to continue on without accepting the changes, and became their own minority blockchain.

In a narrow sense, the ethereum blockchain's immutability has not been compromised by the hard fork. The "original" chain, without any of the edits introduced by the hard fork, still exists in the form of ethereum classic.

However, the minority has no guarantee that the broader community will devote resources or attention to their blockchain. This is significant because the community gives ethereum part of its value: the expectation that, over time, the protocol will be upgraded and a large ecosystem of applications will be developed, increasing the utility of the platform.

The ethereum community understands this intuitively, which is why a few days afterwards both sides of the fork were competing to tally up which companies, people or researchers were working on their preferred chain.

These nuances of blockchain immutability are not widely understood. Data you store on a blockchain – including tokens, or code – has a strong probability of remaining immutable. But preserving that immutability might require you to choose a minority chain, in which case you have no guarantee that your preferred chain will continue to attract the attention of the broader community.

And if the value of your tokens or the utility of your code depends on that community, the minority chain may not be much use to you.

This extends beyond immutability. Hard forks are not typically changes to the history of transactions – more often, they are protocol upgrades or new features that change how the blockchain functions. For example, a change to increase the maximum block size in bitcoin. More generally then, we might say that you have a guarantee against any change that could be introduced through a hard fork only if you can accept being in the minority in some cases.

Forming a minority chain is not always possible. If I am the only person that wants to reject a hard fork, I could certainly operate the lone remaining node of the unchanged blockchain, but my chain would not be viable. In practice, a minority chain needs some minimum amount of support to attract a community of developers or convince an exchange to list its tokens. So, we need to add another caveat: you have a guarantee against changes introduced through hard forks only if you can form a sufficiently large minority to continue a viable chain.

(Lastly, it's worth noting that the parameters of hard forks might change significantly in the future, which would alter the dynamics I describe above).

Misconceptions

The community matters. Core developers have influence over which concrete proposals are brought to the community, and are trusted by miners to provide technical guidance. Miners have control over which hard forks are accepted by the majority of the network.

A larger community of developers, companies and others determine which post-fork chain attracts the most talent and resources. The ability of any individual to reject a change introduced through a hard fork depends on convincing a viable minority of the community to come along with them.

None of these decisions are made in a vacuum. They require the community as a whole to be able to identify novel problems, surface relevant expertise, propose effective solutions and thoroughly consider the benefits and costs of those solutions. Ideological beliefs and financial incentives shape the decisions of all community members to different degrees. Disputes and personal conflicts can, if not resolved, damage the decision-making process and inhibit cooperation.

We can't separate the technical components of the ethereum blockchain from the human community that supports it. This isn’t just some nice sentiment. This is mission-critical wetware on which ethereum’s future depends. A community can be better or worse, cooperative or siloed, productive or toxic. A blockchain whose community loses key expertise and is unable to debate solutions without devolving into personal conflict may be a perfectly adequate piece of technology, but it is a terrible blockchain. What guarantee do we have that this will never happen to us?

Defining the community

Within the community, we often delude ourselves into thinking that blockchains are beyond these concerns. There is a tendency to believe that because the community is decentralized, it is immune to the challenges of other human organizations. Part of this is due to the lack of easy analogs: blockchains are not companies, they’re not governments and they’re not quite like other open-source projects either.

It’s difficult to point to a model for what our community ought to be.

Blockchain communities are novel things with no easy analogs. But they are still made of people, and subject to the same flaws and strengths as any human organization. Even decentralized communities can consciously try and change or improve themselves. Members of the community are free to adopt shared norms, ethical standards, and processes that make the group as a whole more effective at achieving a shared goal.

The ethereum community’s capacity for critical self-analysis and improvement isn’t just a theoretical concern. So far, the community has functioned well enough. But will the same decision making processes used today be as effective when the community is 100 times as large? When the economic value at stake approaches the size of a small country? When the political and financial pressures on key community members are far greater?

Over the next few years, we will attempt to scale the platform. How will we scale the community to match if we don’t understand what makes it work today?

Inspiring confidence

Outside observers of blockchain communities often make a different mistake.

Those with backgrounds in finance or law often grok immediately that public blockchains depend on a community. But when they look at it, they see an opaque mass of pseudonymous techno-anarchists engaging in messy arguments on Reddit and twitter and dozens of chat rooms. They conclude that there is no way this community could serve as a foundation for a global value transfer platform.

This is where the issue of "the community" intersects with another common topic in the conversation around ethereum – whether, and how, public blockchains should be directly integrated into existing legal structures.

If you believe that the community alone can never provide sufficient confidence, then the obvious conclusion is to try and use legal or regulatory tools we already understand to accomplish the same end. For example, by treating core developers and miners as fiduciaries.

This is wrong, too – or at least premature. It is generally true that people tend to overestimate the stability of regulated centralized institutions and underestimate what can be achieved by decentralized systems.

It's probably too early to say that the decentralized community around ethereum could never convince the market that they are capable of maintaining the ethereum blockchain in the long-term.

For now, it’s an open question. But if advocates of public blockchains believe that the community shouldn’t be subject to onerous regulation, then the community needs to find other ways to provide assurances to the outside world.

Improving, decentralized

The ethereum community needs ways to improve itself over time, to adapt to new challenges and provide greater confidence in its decision-making processes as the platform grows.

Some people want to use very heavy tools to accomplish this. Either by trying to fit the ethereum community into existing legal and regulatory structures, as mentioned above, or by having the community adopt rigid governance systems of some kind that will constrain future decision making.

Ethereum's decentralized nature makes these solutions impractical.

Using existing legal tools in individual jurisdictions are more likely to cause entrepreneurs to flee that jurisdiction than they are to strengthen confidence in the community. Trying to convince the community to adopt some type of hierarchical, formal governance structure is likewise difficult: it’s seen to compromise the decentralization of the platform, a key ideological value shared by large segments of the community.

Maybe some version of these “hard” tools could work someday, but for now they're non-starters.

If decentralized communities like ethereum are environments where formal processes are weak, maybe we shouldn’t start there. Maybe the right way to approach decentralized community governance is to try and develop very strong shared social norms and standards of behaviour, enforced not through some central mechanism, but through rough social consensus.

Formal processes are not the only way to improve a community's governance. Communities can also differ by the norms of behavior they freely choose to adopt. A norm is simply an informal rule shared by a community of people. While not strictly enforced, norms play an important role in shaping how any community behaves. This is commonly understood in other contexts. For instance, every successful startup knows that their culture – their shared norms – is critically important.

We can already observe norms developing within the ethereum community. For instance, it’s become common for anyone writing about specific blockchain projects to disclose whether they are invested in it, either to remove the appearance of a conflict of interest or to signal their commitment to the project (I own less than $2,000 worth of ETH). Our community has a strong norm in support of identifying and widely criticising anything that even smells like a scam.

The advantage of relying on informal rules like norms is that it lets us take the processes used today and make incremental improvements. Even though it may be messy to outside observers, the community does “work” and has proven itself capable of responding to threats to some extent.

We aren't going to redesign the community into a system of committees governed by a constitution (at least not anytime soon). But we can take the community we have and try and articulate basic improvements where they are needed, argue about them, and build social consensus around them.

A thorough analysis of the ethereum community is beyond the scope of this essay. But drawing on the events of the last few months, here are three general areas that might be worth considering in more detail:

1. Reducing information asymmetry through transparency and pro-active disclosure

Some members of the ethereum community have access to more information than others. Core ethereum developers who are well-connected in the community and involved in critical projects, for instance, have more knowledge, insight and access than the average token holder.

This is an example of information asymmetry, a type of problem that motivates disclosure and transparency efforts in many other contexts. In public markets, for example, companies are required by law to provide necessary financial and other information to their shareholders.

We might ask a similar question: What level of transparency should the community expect from its key members? We can already observe a strong pro-transparency norm. Shortly after the DAO hack, for example, a transcript of a conversation between core community members was released that allowed the broader community an unfiltered view into the early moments of the decision making process that shaped the initial response.

But our approach to transparency and disclosure is inconsistent at best.

Many industry observers need to understand the deliberative process that led to the DAO hard fork in order to predict how the community might act in similar future situations. The public resources available to them – mostly news articles and blog posts – are insufficient and incomplete.

Many larger institutions rely on personal contacts from within the community to explain what happened, and why. If we want the broader market to trust the community, there should be better public channels for communicating decisions and the processes that led to them.

Information asymmetry is related to another problem: real or perceived conflicts of interest.

Those who have access to information by virtue of their position in the community could profit from that information through speculation. Relatedly, those with particular influence in the community could use that influence to support outcomes that benefit them financially.

During the DAO hard fork debate, there was a recurring allegation that Slock.it’s social ties to core ethereum developers motivated those developers to support the fork. Though this has been adamantly denied, the fact that it was a credible allegation at all damaged the legitimacy of the process.

Are there circumstances in which prominent community members should declare a conflict of interest and recuse themselves from the discussion? If so, what are they?

2. Community engagement

When important decisions are being made in the ethereum community, do we have an obligation to ensure that the furthest reaches of the community – say, passive token holders – are aware of what is going on and how it might affect them? Today, this might seem unnecessary – anyone who owns ETH probably does so because they are invested in this project and are already following the discussion to some extent.

But it's not clear how engaged the wider community is in such issues – prior to the DAO hard fork, a coin-vote held to gauge support had a turnout of only 5%.

In the near future, this problem will grow. Eventually, we should hope that many people that own ETH or rely on the platform will not have to care about the internal politics at the centre of the community. But these people would still be materially affected by the community’s decisions. It would probably be easier for them to trust the platform as a whole if they had confidence that, if a big decision is at hand, they will be notified.

This isn’t a unique problem for blockchains.

A similar situation exists for public companies, whose shareholders need to be notified of important decisions or votes that require their attention. In most jurisdictions, there are regulations that require corporations to notify their shareholders (and the public markets in general) of important votes, and an entire industry built on helping shareholders make decisions on how to vote.

We can imagine that an analogous system of notification and voting could be accessed through the wallets and exchanges that token-holder use to manage their blockchain assets. In the case of a situation like the DAO hard fork, this could give the community as a whole far better information about the preferences of token-holders.

3. Resolving conflict

Occasionally, disagreements will turn into disputes.

These can become toxic and damaging to the community as a whole. We've already seen in the bitcoin block size debate how a bitter conflict between individual people can spill out into public and have a negative impact on the platform as a whole. During the DAO hack and its aftermath, personal attacks and other drama distracted and demoralized the community.

Ethereum developer Vlad Zamfir wrote on Twitter recently that the most important thing he learned from the DAO hard fork was the importance of good manners. This isn’t just some nice idea – this is an essential norm for a community that wants to retain and attract talent.

This is something that other open-source communities have learned the hard way. In 2014, Linus Torvalds said that the thing he most wishes he had done differently over the previous 23 years was treat people better:

"From a technical standpoint, no single decision has ever been that important... The problems tend to be around alienating users or developers and I'm pretty good at that. I use strong language. But again there's not a single instance I'd like to fix. There's a metric shitload of those."

Ethereum’s community prides itself on being collaborative and polite, a widely shared norm that is due in no small part to Vitalik's example. How do we ensure that it stays this way?

Conclusion

Talking about the community in these terms seems odd. Sometimes it feels like an overly serious argument between moderators of a niche online forum, and other times like a disconcertingly vague conversation about securities laws.

But this makes a kind of sense. On the one hand, this is an odd internet subculture made up of people with a shared geeky passion. On the other hand, it is a community that supports and ultimately controls what could become a tremendously important piece of global infrastructure.

If that happens, understanding the dynamics of our quirky community might someday be as important to global commerce as understanding the internal politics of the Federal Reserve.

If ethereum succeeds, the community will have to grow and adapt over time. But because the community sits in this uneasy middle-ground, it’s hard to articulate how it could grow or adapt. Doing nothing and hoping for the best is a mistake. Doing too much – by suggesting formal, hierarchical governance – is a poor fit in a decentralized community.

An easier place to start is to realize that there’s a middle way: formal structures aren’t the only mechanism for improvement. We have to take the community as it is – the one that works now – and build on it, by adopting norms and behaviours where needed. It’s something we do already – but it’s time to start being more intentional about building a scalable community.

Follow Josh on twitter at @jjmstark

Metal construction image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

EthereumEthereum Classic

Original author: Josh Stark

Another bitcoin-based content monetization startup has announced it will shut down.

Social network Zapchain, launched in 2014 as part of accelerator Boost VC's fourth batch of startups, has told users that it will cease services effective 31st August. The announcement comes less than a year after the startup raised $350,000 in seed funding.

The decision, made public on the company's website, marks the end of a project that was once one of bitcoin’s fastest-growing projects, and comes amid a decline in the number of consumer-facing startups seeking to launch services on the bitcoin network.

Bitcoin tipping platform ChangeTip, for example, announced it had sold its staff to Airbnb in April, and that it was searching for a buyer of its intellectual property. No details have yet been provided on whether Zapchain will seek similar sales.

Despite these challenges, however, the concept that blockchains could come to serve a vital part of content monetization lives on, most recently with the controversial success of social media platform Steemit, though it uses an alternative to the bitcoin blockchain.

Representatives from Zapchain could not be reached at press time.

Content sharing image via Zapchain

ChangeTipZapChain

Original author: Pete Rizzo

Alexander Hitchcock is a researcher at Reform, a UK-based think tank where he has authored reports on healthcare, welfare and public procurement.

In this opinion piece, Hitchcock discusses how blockchain technology could be used to fight bureaucracy by enabling governments to make strategic cuts in their workforces.

Bureaucracy, Ludwig von Mises explained in 1944, is "always applied with an opprobrious connotation", and such connotations – that it is time-consuming, frustrating and costly – have stood the test of time.

If you wanted to ask a question about a self-assessment tax return in October, you'd have been waiting 47 minutes to do it. In 2014-15, the public-sector wage bill was £150bn.

New thinking can change this, however.

Blockchain – a distributed public ledger capable of recording transactions securely (explained here) – is a key means. Businesses are proselytizing the technology as able to remove back-office functions that eat into profit margins. Banks believe they can cut $20bn from running costs. Government must likewise see it as a way to dramatically improve efficiency.

The UK Government has been making positive noises this year. In January, the Government's chief scientific adviser published 'Distributed Ledger Technology: Beyond Blockchain', setting out a number of possible applications of the software concept.

In April, Cabinet Office Minister Matthew Hancock, explained that blockchain is being explored as a way to streamline the distribution of government grants and track aid spending to ensure it is spent correctly. The last Government wanted "blockchain brainstorming" to explore further options.

One overlooked application is in replacing administrative work in the civil service. This alone accounted for 170,000 staff at a cost of £3.25bn in 2014-15 (see graph).

Blockchain can replace some of these functions by recording transactions.

Governments across the globe have begun experimenting with using the software to record property ownership. This is administratively light as it is automatically documented by the blockchain and it skips the current need for people to use central registers to access information.

The Government could use this approach to more efficiently spend Land Registry's £13m annual staffing bill. Sweden believes this can be done while cutting the time it takes to complete real estate deals.

The real win, however, comes from streamlining the running of the biggest departments, which are most heavily weighted toward administration.

This can be done through the use of 'smart contracts' on blockchain.

These contracts automatically carry out certain functions if pre-defined conditions have been met. Businesses could, for example, set-up real-time tax payments when they receive income – and automatically receive rebates where appropriate. Similarly individuals could set up automatic self-assessment returns, skipping the need to interact with HMRC officials.

Elsewhere, the Department for Work and Pensions could automatically pay and update social security in reaction to working status – a clear compliment to Universal Credit, which pays benefits dynamically, based, in part, on working hours.

Moving responsibility for paying taxes and distributing benefits onto the blockchain can allow these departments to reduce human administration. HMRC has an aim to become "diamond-shaped", which entails the cutting of over 14,000 jobs, assuming numbers of staff at other levels remain constant. This alone would reduce staff costs by £275m.

In 2015, DWP officials mooted reducing employee numbers by 30,000 – or 36%. Replacing 36% of officials would save £290m in staff costs – although in all likelihood the axe would fall more heavily on administrative jobs because of their potential automation.

These are ambitious aims. The history of labour-force change in the private sector reveals that for every lower-skilled job that is automated, as many as four are created.

Today’s frugal public sector may stop such expansion.

But to understand blockchain's effects, government should follow the advice of its chief scientific adviser in distributed ledger technology and begin piloting its use. Only then might bureaucracy finally be consigned to the scrapheap of history.

This article originally appeared on Reform's website and has been republished here with the author's permission.

Bureaucracy image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

GovernmentPoliticsSmart Contracts

Original author: Alexander Hitchcock

#sorrynotsorry

For years, tech startups sprung up on a daily basis, "revolutionizing" messaging, photo sharing, taxis, damn near everything. Dominant providers were swapped out for new intermediaries who took a cut, new underdogs turned into the new winners.

Even bitcoin, a payment service meant to remove third parties from online transactions, fell into the trap whereby too many startups emerged all focusing on the same thing. In their hurry to build a buzzword-based product investors could throw money at, they missed that they were becoming the new intermediaries they meant to erase.

Coinbase hinged on the same business model traditional foreign exchange platforms are contingent on, taking a cut when people cannot trade peer-to-peer. BitPay worked as any traditional merchant services business, like First Data and WorldPay, charging to process payments. And a handful of startups affixed slick UIs and emojis to wallet apps, many times shielding consumers from the fact they’re using bitcoin.

Now, we're seeing the same trend in blockchain.

Bitcoin's open-source code has made springing up a new blockchain network, a new platform for financial services offerings, easier than ever. To many, this democratization of financial access is a good thing. But maybe it's not.

Certainly, recent developments should give us pause about democratized financial platforms. As we've seen with other technology, lowering barriers to entry means sometimes mean we're just setting the bar low.

The DAO

Sure, it’s true that the traditional financial industry hasn't been open to open source (you can't launch an app on Bank of America's platform).

But, whereas blockchain innovators see this as inherently negative, there might be good reasons for it. Should ethereum developers use the platform to build a DAO for crowdfunding? Well, they can. But what a shitshow that became.

The problem isn't that the protocol makes it easier to build. The problem is that it makes it easier for anyone – any Joe Schmoe that doesn't employ adequate quality assurance testing – to build, take retail investor money and walk away unscathed.

During The DAO debacle, many users and outside observers even came out against changes to the network to get investor money back, excusing the mishap under the pretense that the coded legal contract rules.

But as Matt Levine at Bloomberg attested to in one of the better take-downs of the tech-utopians victim blaming, "to the humans who read the English descriptions of the DAO and invested their money based on their reasonable expectations, their losses probably do seem like a problem".

He continued:

"You can't really base the financial system of the future on computers rather than humans, on trusting to immutable code no matter what happens. Financial systems are supposed to work for humans. If the code rips off the humans, something has gone wrong."

The recent Bitfinex hack is another example.

Maybe a company should be able to get hacked, issue blockchain tokens to its users, say they're worth equity in the company, and use that as an excuse to socialize losses across the exchange caused by issues with its own security.

Investors may not have to wait years to be reimbursed, like Mt Gox customers still are. But, who should make that decision? And what should give any company the right to make those decisions without any clear consumer consent? Especially when it clearly has something to gain from the decision?

Common good

Regulation seems to be what most of these new tech players, especially blockchain innovators, want to remove from the equation. If only regulators would get out of the way and let the techies build!

But what this mentality fails to grasp is that regulation is not a construct of technological inefficiencies, but instead one of social discrepancies.

To use a silly example, coffee cups must contain the warning "Contents are hot" not because technologically we don’t have the ability to cool down coffee, but because everyone has a different idea of what "hot" is.

These same problems with permissionless innovation have been observed in other tech sectors. For instance, while Uber has changed the taxi industry, labeling it a nice happy word – 'ridesharing' – there have been extremely troublesome issues with the service.

More people can now make money driving others, but the list of alleged rape and sexual assaults by Uber (and Lyft) drivers is outrageously long. Even more so when you take into account that Uber CEO Travis Kalanick suggests that the media was at fault for contending the company is "somehow liable for these incidents that aren't even real in the first place".

Many people have blamed Uber's weaker onboarding process, which fails to fingerprint drivers for more thorough background checks. That's a safety procedure the traditional taxi industry is regulated to employ because in the unregulated taxi industry's infancy, it had already dealt with these situations.

Airbnb is another example. Sure, there aren’t many cases of guests dying because of ill-equipped homes, but there are some so gruesome it would turn anyone’s stomach.

Zak Stone’s story last year about the death of his father at an Airbnb went viral, sparking debate over what responsibility Airbnb has over the safety of the properties it hosts on the site, namely because the hotel industry is standardized for safety and frequently monitored by staff.

In the piece, Stone said, "Startups that redefine social and economic relations pop up in an instant. Lawsuits and regulations lag behind."

And that’s what cryptocurrency projects and bitcoin/blockchain startups need to keep in mind, that regulation isn't all negative. Welcoming regulation means you’re interested in promoting the welfare of your users, and they provide the main reason you’re in business – making money.

Sure, not all regulations work stupendously. Many have unintended consequences. That's the challenge of creating laws over a diverse group of citizens under nuanced financial and behavioral economics.

But to keep one woman from getting raped, to keep one man from seeing his father die on vacation, from keeping one person from losing their savings, I think we've learned it's worth it.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase and BitPay.

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RegulationThe DAO

Original author: Bailey Reutzel