(Reflections on Ethereum Classic and modes of regulation)

East Coast code vs West Coast code

When Lawrence Lessig published Code and Other Laws of Cyberspace in 1999, it became an instant classic on technology policy. In a handful of chapters it chronicled how technology, or West Coast code, functions as a force for regulating behavior along side its more visible old-school counterpart: regulation by law, or East Coast code; economics (tax & raise the costs → discourage consumption); historic social-norms enforced by peer pressure. “Code is law” became the cliff-notes version of that pattern. Today that thesis is increasingly interpreted to mean that code ought to be law. Most recently Ethereum Classic has grabbed that banner in arguing against intervention in the DAO theft. This is a good time to revisit the original source. The subtlety of Code’s argument has been lost in the new incarnation: Lessig was no cheerleader for this transformation where code increasingly takes the place of laws in regulating behavior.

Renegade chains: Ethereum and Ethereum Classic

Ethereum Classic grew out of a major schism in the crypto-currency community around what “contracts” stand for. To recap: a German start-up attempted to put together a crowd-sourced venture capital firm as a smart-contract, called The DAO for “decentralized autonomous organization.” This was no ordinary contract spelled out in English, not even the obscure dialect legal professionals speak. Instead it was expressed in the precise, formal language of computer code. The contract would live on the Ethereum blockchain, its structure in public-view, every step of its execution transparent for all to observe. This was a bold vision, raising over $130 million based on the Ether/USD exchange rate of the time. Perhaps too bold, it turns out: there was a critical bug in the contract logic, which allowed an attacker to waltz away with $60 million of those funds.

Crypto-currency space has a decidedly libertarian ideology. In some of the more extreme positions, these can veer towards conspiratorial view of the Federal Reserve and debasement of currency through centralized intervention. So it was understandable that the decision by the Ethereum Foundation— closest analog to a governing body/standard forum/Politburo in this purportedly decentralized system— to bail out the DAO proved controversial. After all, there was no defect in the Ethereum protocol itself. As a decentralized platform for executing smart-contracts expressed in computer code, the system performed exactly as advertised. Instead there was a bug in one specific contract out of thousands written to execute on that platform. Rather inconveniently that one contract happened to carry close to 10% of all Ether, the currency of the realm, in existence at the time. It might as well have been a textbook behavioral economics experiment to demonstrate how bailouts, crony capitalism and “too-big-to-fail” can emerge naturally even in decentralized systems. The solution was a hard-fork to rewrite history on the blockchain, undoing the theft by reversing those transactions exploiting the vulnerability.

Between a fork and a hard-place

“When you come to a fork in the road, take it.” — Yogi Berra

A blockchain is the emergent consensus out of a distributed system containing thousands of individual nodes. If consensus breaks down and nodes disagree about the state of the world— which transactions are valid, the balance of funds in each account, who owns some debt etc.— there is no longer a single chain. Instead there are two or more chains, a “fork” that splits the system into incompatible fragments or parallel universes with different states: a payment has been accepted in one but never received in the other, or a debt has been paid in one chain only. Before Ethereum made forks into a regular pastime, they were dreaded and avoided at all costs. Blockchains are designed to quickly put them out of existence and “converge” back on a happy consensus. Very short-lived forks happen all the time: in a large distributed system it is expected that not every far-flung node will be in-sync with everyone else. It is not uncommon in Bitcoin for competing miners to discover new blocks almost simultaneously, with each group proceeding to build on their own resulting in diverging chains. But the protocol corrects such disagreements with rules designed to anoint a single chain as the “winner” to survive and all others to quickly vanish, with no new blocks mined to extend them. This works well in practice because most forks are not deliberate. They are an accidental side-effect of decentralization and limits on the propagation of information in a distributed system. Occasionally forks may even be introduced by bugs- Bitcoin experienced one in 2013 when nodes running an older version of the software started rejecting blocks deemed valid by the newer version.

Until recently it was unusual for a fork to be introduced deliberately. Bitcoin Core team in particular adopted a fork-averse philosophy, even if it means foregoing the opportunity to quickly evolve the protocol by forcing upgrades across the board with a threatened deadline. Such a game-of-chicken is exactly what the Ethereum Foundation proposed to undo the theft of funds from the DAO. Updated versions Ethereum software would disregard specific transactions implicated in the heist, in effect rewriting “history” on the blockchain to revert those funds back to their rightful owner. It’s as if Intel, the manufacturer that makes x86 processors that power most consumer PCs, decided to redesign their perfectly good hardware in order to work around a Windows bug because Windows was the most popular operating system running on x86. (Alternatively: some critics pointed to a conflict of interest in Ethereum Foundation members having personal stakes in the DAO. The analogy becomes Intel redesigning its chips in order to compensate for Windows bugs if Intel were an investor in Microsoft.)

Not everyone agreed this was a good idea. Ethereum Classic was the name adopted by the splinter faction refusing to go along with the fait accompli. Instead this group opted to run the previous version of the Ethereum software which continued to build a blockchain on existing, unaltered history. Ethereum Foundation initially did not pay much attention to the opposition. It was assumed that the situation would resolve itself just like naturally occurring forks: one chain emerging 100% victorious and the other one dying out completely, with all miners working on the winning chain. That’s not quite how reality played out, and in hindsight this should have been expected, given the material difference in intent between accidental forks arising intrinsically from decentralization vs deliberate forks introduced by fiat. Ethereum Classic (“ETC”) retained close to 10% the hash-rate of mainline Ethereum. It also achieved a valuation around 10% and became a liquid currency in its own right once the exchange Poloniex listed ETC for trading.

The dust may have settled after the hard-fork but the wisdom of bailing-out the DAO remains a highly divisive topic in the cryptocurrency space. Recently ETC proponents have rallied around an old idea: Code Is Law. According to this line of argument, the DAO contract was faithfully executed on the blockchain exactly as written. Everything that transpired, from the initial fund-raising to the eventual theft and desperate “Robin Hood” recovery attempts, proceeded according to terms specified out in the original contract. If the Ethereum system performed as advertised in enforcing terms of the contract,what justification can there be for resorting to this deus ex machina to override those terms? If Code is Law as Lessig decreed, DAO hard-fork constitutes an “unlawful” intervention in a financial system built around contracts by virtue of violating contractual terms expressed in code:

Code is law on the blockchain. In the sense, all executions and transactions are final and immutable. So, from our (Ethereum Classic supporters) standpoint by pushing the DAO hard fork EF broke the “law” in the sense that they imposed an invalid transaction state on the blockchain.

Code: benevolent and malicious

This is where revisiting “Code” is helpful. Lessig was by no means indifferent to the ways code, or architecture of physical space before there were computers, had been leveraged in the past to achieve political ends. One examples cited in the book are the bridges leading to Long Island: they were built too low for buses to pass, deterring minorities dependent on public transportation. Even in that unenlightened time, there were no overtly discriminatory laws on the books saying outright that African-Americans could not visit Long Island. Instead it was left up to the “code” road infrastructure to implement that disgraceful policy. Code may have supplanted law in this example but it was clearly not the right outcome.

In fact much of “Code” is a check on the unbridled optimism of the late 1990s when it was fashionable to portray the Internet as an unambiguous force for good: more avenues for self-expression, greater freedom of speech, improved privacy for communication through strong cryptography, an environment inhospitable to surveillance. In short, more of the good stuff everyone wants. More importantly the prevailing opinion held that this was the “manifest destiny” of the Internet. The Internet could not help but propel us closer towards to this happy outcome because it was somehow “designed” to increase personal freedom, defend privacy and combat censorship.

That view sounds downright naive this day and age of the Great Firewall of China, locked-down appliances chronicled in The Future of the Internet, state-sponsored disinformation campaigns and NSA mass-surveillance. But Lessig was prescient in sounding the alarm at the height of dot-com euphoria: “Code” spoke of architectures of control as well as architectures of freedom as being equal possibilities for the future. When the process of public legislation, however dysfunctional and messy it may be, is supplanted by private agendas baked into software, there is no guarantee that the outcome will align with the values associated with the Internet in its early years. There is no assurance that a future update to code running the infrastructure will not nudge the Internet towards becoming a platform for mass consumer surveillance, walled-gardens, echo-chambers, invisible censorship and subtle manipulation.

Hard-forks as deus ex machina

There is much to be said about not making random edits to blockchains when the intervention can not be justified on technical merits. It’s one thing to change the rules of the game to implement some critical security improvement, as Ethereum recently did to improve resilience against DDoS attacks. This time there were no splinter-cells taking up the banner of the abandoned chain. By contrast, Ethereum Foundation actively cheerleading the controversial DAO hard-fork opens Pandora’s box: here is proof that blockchain interventions can be orchestrated on demand by a centralized group, even in a purportedly decentralized system that was supposed to be at the whim of its own users. What prevents repressive regimes from asking the Foundation to block funds sent to political dissidents in a future update? Could a litigious enterprise with creative lawyers take the Foundation to court over some transaction they would like to see reversed?

These questions are only scratching the surface. Many valid arguments can be advanced in favor of or in opposition to the DAO hard-fork. It is not the intent of this blog post to spill more electrons on that debate. The meta-point is that such complexity can not be dismissed with a simplistic appeal to “code-is-law,” however appealing such slogans may be. Lessig’s original observation was descriptive— an observation about how the architecture of the Internet is being used to supplant or subvert existing regulation. Ethereum Classic misappropriates that into a normative statement: code should be law and this an unadulterated good.

Comparing this notion of “law” to physical laws such as gravity is misleading. One does not have any choice in following the laws of nature; Mother Nature neither requires no policing to enforce her rules nor has need to mete out punishment for transgressions. By contrast, laws in a free society represent a voluntary bargain members of that society have collectively agreed to. They are effective only to the extent that such agreements are honored nearly universally and vigorously enforced against the few who run afoul of them. The consensus in that agreement can change over time. Unjust laws can be challenged through democratic channels. With sufficient support they can be changed. At one point several states in the US had anti-miscegenation laws on the books. Today such discrimination would be considered unthinkable. “Code is law” in the Ethereum Classic sense represents not an inescapable fact of life as a deliberate choice to cede control over enforcement of contracts to pieces of code executed on a blockchain. That choice is not a death pact. Code itself may have no room for ambiguity in its logic, but what lends power to that code is the voluntary decision by blockchain participants to prop up the platform it executes on. The validity of that platform can be challenged and its rules modified by consensus. In fact every hard-fork is in effect changing the rules of the game on a blockchain: some contract that used to be valid under the previous design is invalidated.

Not all instances of West Coast code supplanting East Coast code are beneficial or desirable from a social standpoint. Blind adherence to the primacy of West Coast code is unlikely to yield an acceptable alternative to contract law.

CP

(Edited 11/06: fixed incomplete sentence in the first paragraph, added clarification about ideological positions)